Presentation by Jonathan Brooks at the GIZ event on Global Agriculture and Production Trends in December 2015. The head of OECD’s Agri-Food Trade and Markets Division, and contributor to recent OECD flagship reports, including the OECD-FAO Agricultural Outlook 2015-2024 focuses on important global agricultural market and price trends for major commodities and respective implications for agricultural and rural development in sub-Sahara Africa.
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Markets and Outlook: Global Agriculture
1. Markets and Outlook:
Global Agriculture
Agricultural Production and Consumption:
Global Trends ― Implications for Development Cooperation
GIZ, Bonn, 10 December 2015
Jonathan Brooks
Head, Agri-Food Trade and Markets Division
Trade and Agriculture Directorate, OECD
2. 2
2OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 2
• Calmer food markets, with strong harvests and
abundant stocks for cereals and oilseeds
• Prices for meat and dairy products have come down
from record highs
• Low oil prices
• Biofuel production generally not profitable
• Weak economic growth globally
Context
3. 3
3OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 3
• Real food prices expected to decline slightly, but remain
above levels before 2007-08 food price crisis.
• Changing relative prices:
› Consumption of staples reaching saturation in many countries
› Meat and dairy prices increase relative to crops – higher incomes
and protein demand
› Coarse grain and oilseed prices increase relative to food staples
– feed demand
• Calmer markets but a risk of resurgent volatility
• Spread of imports across a large number of countries;
concentration of exports among a few key suppliers
Highlights of the OECD-FAO Outlook
4. 4
4OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 4
Real prices to remain higher than in the years
preceding the 2007-08 price spike
40
50
60
70
80
90
100
110
120
130
Index (2012-14=100)
Cereals
Dairy
Meat
Oilseeds
5. 5
5OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 5
Projected prices continue a trend of long-term
decline
0
200
400
600
800
1 000
1 200
USD/t
Real Maize Price Long Term Trend
6. 6
6OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 6
For most products price volatility has come down
0
0.1
0.2
0.3
0.4
0.5
Beef Rice Maize Wheat Soybeans … Food
1970-79 1980-89 1990-99 2000-09 2010-14
Source: IMF, World Bank
Monthly
CV
7. 7
7OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 7
But there is a substantial risk of a further price
shock
10th
90th
0
50
100
150
200
250
300
350
400
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
USD/t Nominal maize price
Probability of price outside the 10-90th percentile = 1 – 0.8**10 or
approximately 90%
8. 8
8OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 8
Producer food prices are inherently volatile
-20
-10
0
10
20
30
40
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% change European Union
Japan
Brazil
United States
9. 9
9OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 9
…consumer prices much less so
-20
-10
0
10
20
30
40
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% change
European Union
Japan
Brazil
United States
10. 10
10OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 10
Per capita food consumption growing modestly
Annual compound
per capita growth
rate between
2015-2024 (%)
11. 11
11OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 11
Centres of per capita production growth differ
Annual compound
per capita growth
rate between
2015-2024 (%)
12. 12
12OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 12
Increasing meat demand
Annual compound
per capita growth
rate between
2015-2024 (%)
13. 13
13OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 13
On current trends, undernourishment will
decrease, but not in SSA, and SDG2 will not be
met
0
200
400
600
800
1000
1200
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Million
Other Latin America and Caribbean
India China
Asia and Pacific (excluding China and India) Sub-saharan Africa
North Africa
14. 14
14OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 14
Trend growth will induce over 200 million workers
to transition from agriculture
201
million
0
500
1000
1500
2000
2500
3000
3500
4000
2005 2015 2024
Million
Non-Agricultural Employment Transition from Agriculture to Non-Agriculture Agricultural Employment
15. 15
15OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 15
• Global food and energy prices
• Scramble for land in Africa
• Land degradation
• Youth bulge and employment challenges
• Income growth and distribution
• Greater climate variability
• Information communication technology
Forthcoming African outlook will focus on mega-trends
16. 16
16OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 16
Levels of support to producers (PSE) in OECD
and emerging economies are converging
Source: OECD (2015), "Producer and Consumer Support Estimates", OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.
Percentage of gross farm receipts
17. 17
17OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 17
Emerging economies also tend to use trade
distorting instruments
Source: OECD
-100000
0
100000
200000
300000
400000
500000
600000
700000
800000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Emerging 8
OECD
OECD least
distortionary
Emerging 8 least
distortionary
PSE Nominal USD, millions
18. 18
18OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 18
• Need transparent and open agricultural markets
• Measures to improve productivity sustainably benefit consumers
and (innovating) farmers
• Other actions can increase food availability – reduced post-
harvest losses, reduced waste, less over-consumption…but will
not by themselves ensure food security
• Phasing out 1st generation biofuel support would eliminate a factor
that can turn a shock into a crisis
• Need to price scarce resources for sustainable use
• Risk management tools needed to manage price volatility, not
border measures
OECD’s main policy conclusions:
20. 20
20OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 20
We invite you to visit our website
www.agri-outlook.org
Jonathan Brooks, Head of Division
Hubertus Gay, Outlook Coordinator at OECD
tad.contact@oecd.org
Trade and Agriculture Directorate
(OECD)
Editor's Notes
Joint OECD-FAO report published annually in July
10 year horizon
Model based projection validated through global expert consensus
Major temperate commodities
Global coverage
Special theme chapter
World agricultural markets are now much calmer, with international prices of crop and livestock products having fallen back from exceptionally high levels. The timing of price declines has varied, with crop prices starting to fall in the second half of 2012 and the prices of livestock products, which had been firmer, coming down sharply in 2015.
The latest OECD-FAO Agricultural Outlook suggests that current market conditions are broadly consistent with market fundamentals. Demand remains subdued by the underperformance of the world economy and the fact that consumption of many products – in particular food staples – is close to saturation point in many parts of the world. Lower oil prices have also helped bring down costs, and they have almost eliminated the market incentive to grow crops for biofuel production.
Disease affected the pork sectors in the United States and the European Union. Improved margins have led the US to start rebuilding its beef herd.
Dairy: high stocks in China and a recovery of domestic production; Russian import ban.
The latest OECD-FAO Agricultural Outlook suggests that current market conditions are broadly consistent with market fundamentals. Demand remains subdued by the underperformance of the world economy and the fact that consumption of many products – in particular food staples – is close to saturation point in many parts of the world. Lower oil prices have also helped bring down costs, and they have almost eliminated the market incentive to grow crops for biofuel production.
Over the next ten years, the biggest changes will occur in developing countries. On the demand side, continued but slowing population growth, rising per capita incomes and urbanisation will increase the demand for food. Rising incomes will prompt consumers to diversify their diets by increasing their consumption of animal protein relative to starches. For this reason, the prices of meat and dairy products are expected to be high relative to the prices of crops . Among crops, the prices of coarse grains and oilseeds, used for animal feed, should rise relative to the prices of food staples. On the supply side, increases in crop production will come mostly from yield improvements. In Asia, Europe and North America there is little scope to increase agricultural area sustainably. However in South America and part of Africa there is some scope to complement yield gains with increases in cultivated cropland.
Are we looking at a “new normal”? It depends on your historical reference. We are looking at real prices that are higher than in in previous decades…but they are also consistent with a very long term trend for declining real commodity prices.
We may face periods of high and volatile prices but there is no long term evidence that demand will consistently outstrip supply and reverse this pattern.
The overall expectation is that real prices for all agricultural products will decline modestly over the next ten years, as on-trend productivity growth, helped by lower input prices, outpaces demand that is increasing slowly. While this is consistent with the tendency for long-term secular decline, prices are projected to remain at a higher level than in the years preceding the 2007-08 price spike. In short, we do not see evidence of global food supplies failing to keep pace with population and income growth.
For most products, maize being a notable exception, monthly price volatility is low.
The broadly benign market outlook is no reason for complacency. The OECD-FAO Outlook notes that if historical variations in yields, macroeconomic projections and oil prices are projected forwards, then there is a high probability of a major price swing within the next ten years. Climate change is likely to add further to market uncertainties. However, a significant price shock should not itself constitute a crisis. A crisis is more likely to erupt when there are aggravating policy factors, as in 2007-08 when price increases were accentuated by the use of export restrictions, as well as the use of mandates and support for biofuel production.
PPI and CPI measures provide an aggregate vision of price movements across the various stages of production in the food supply chain. Figure 2 shows the recent historical evolution of variations in PPI and CPI for a selection of countries. This figure highlights disparities in the movement of producer and consumer prices. Over the 2004-2014 period, CPI were typically far less volatile than PPI. The main explanations behind this lower volatility are related to the fact that agricultural products only represent a small share of the value of food products and to the structure of the food supply chain with strong concentrated retailers at the end of the chain competing on prices at the retail level. Figure 2 also illustrates the issue of asymmetric price transmission along the food supply chain with downward price changes at the producer level only partially transmitted to final consumers.
Menu costs prevent retailers from constantly adjusting their prices. also illustrates the issue of asymmetric price transmission along the food supply chain with downward price changes at the producer level only partially transmitted to final consumers.
Commodities CPI measures are already available in the OECD-FAO Agricultural database for the different food product groups covered. They were combined into higher-level aggregates. The country level consumer food price index corresponds to the sum of the product level CPI weighted by the share of the value of use for this product compared to the total value of food use on an annual basis. Similarly it was possible to derive for every country in the database a Producer Price Index that corresponds to the same food product grouping but at the agricultural stage. The PPI measures the annual percent change in the prices paid to farmers for their production. The aggregate PPI weight is the share of the value of production for a given commodity on total value of production.
Agricultural Employment in 2005: 1061m
Agricultural Employment in 2015: 1000m
Agricultural Employment in 2024: 917m (Falling 83m)
Non-Agricultural Employment in 2005: 1963m
Non-Agricultural Employment in 2015: 2337m
Non-Agricultural Employment in 2024: 2611m
Assuming agriculture’s share of employment changes to reflect the sector’s declining share of GDP, the implicit transition
is 201m.
Formula: La,t / Lna,t = k * (GDPa,t / GPNna,t)
La,t+1 solves La,t+1 / Lna,t+1 = k * (GDPa,t+1 / GPNna,t+1)
Ensuring transparent and open markets allows food to be produced where it is both economically efficient and environmentally sustainable, and transported efficiently to where it is consumed. Regional trade agreements are a potential stepping stone to freer international trade.
Innovation and sustainable improvements in agricultural productivity increase food availability and benefit consumers to the extent that domestic prices are lower than they would otherwise be. They also strengthen the incomes of those farmers whose productivity gains drive lower prices.
A wide range of actions can further improve global food security through their effects on international markets. These include investments to lower post-harvest losses in developing countries, and support for behavioural changes, such as reductions in consumer waste and over-consumption.
A phasing out of support and mandates for first generation biofuels would also lower food prices and eliminate a causal factor that can potentially turn a price shock into a price crisis.
At the same time, there is a need to price scarce natural resources, in particular water, in order to ensure their sustainable use. Insofar as this may put upward pressure on prices, it reinforces the need for sustainable productivity growth more widely.
Agricultural price volatility is a fact of life. Targeted risk management strategies can protect both producers and consumers. In contrast, price policies and associated trade barriers cannot help one group without harming the other, and impede the functioning of international markets.