Agro buzz - Agricultural Outlook 2024

OECD-FAO AGRICULTURAL
OUTLOOK 2015-2024
July 2015AGRO-BUZZ
A Summary

Agricultural Outlook 2015-2024
INTRODUCTION
In agriculture, the global economy witnessed diverse trends in the last decade.
While there have been years of tight supply & spiraling commodity prices, there
have also been years with a strong harvest coupled with a steep decline in output
prices.
This report summarizes the trends in agri-commodity market, in context of
developed & emerging markets and their outlook for the next decade.
ASSUMPTIONS
a. Global economy growth rate is assumed at 3%.
b. World population growth rate at 1% p.a. in the next decade. Slower growth
expected in all regions, including India, where, despite the assumption,
population is expected to grow by 139 mn people.
c. Inflation rate differs across countries.
d. US dollar expected to remain strong.
e. Nominal oil price to increase at an annual average growth rate of 3.7%
f. Policy implementations do not have a direct impact on production decisions
in many countries.

I. CONSUMPTION OUTLOOK: Growth remains strongest in developing regions
THE PRESENT
While demand for agri-commodities is rapidly rising through the past decade in
the developing & emerging countries, the demand in developed economies is
slowing down on account of saturated per capita consumption growth and a
limited population growth.
The developing world, characterized by rapid urbanization, high per capita
incomes & a steady population growth have caused this shift in demand.
THE FUTURE
This trend is likely to continue, but uneven global economic recovery will
slowdown the demand growth rate.
Differentiated rates of income & population will result in significant regional
differences in consumption.
265
580
19
284
646
20
0
200
400
600
800
1000
Wheat Coarse Cereals Rice
Cereal consumption/use in Developed nations (Mn MT)
2015 2024
429
635
470500
794
542
0
200
400
600
800
1000
Wheat Coarse Cereals Rice
Cereal consumption/use in Emerging nations (Mn MT)
2015 2024
CAGR
1%
CAGR
2%

WHAT CHANGES
i. Feed is set to grow big, while bio-fuel demand stagnates
 With limited scope in demand growth for bio-fuels, the demand for cereals
will shift from bio-fuels to animal feed.
 Currently, feed accounts for 36% of the growth in coarse grain consumption.
This number, in the medium term will jump to 70%.
 Over the outlook period, significantly low oil prices will eventually result in
policies that restrict the use of bio-fuels.
ii. Caloric intake in emerging nations, set to rise
 Increasing by 6%, over the 10 year period, total caloric intake of developing
countries rises to almost 2800 kcal per person per day, by 2024.
 This is only marginally lower than the caloric intake projected for developed
nations
238
354
457
360
341
394
0
100
200
300
400
500
2004 2014 2024
Coarse cereals consumption as animal feed (Mn MT)
Developing Developed
500
700
900
1100
1300
1500
2004 2014 2024
Kcal/day/person
Cereals
2000
2500
3000
2004 2014 2024
Kcal/day/person
Total
0
200
400
2004 2014 2024
Kcal/day/person
Meat

II. PRODUCTION OUTLOOK: Growth concentrated in regions where resources
are less constraining
THE PRESENT
In the past decade, demand was moderately growing, hence production was in
effect, gradually rising.
Production trend has been dependent on use of land. Since land prices have been
high in the last decade, therefore it has been used for purposes other than
agriculture.
THE FUTURE
In the coming decade, production will depend on dietary preferences more than
use of land. This primarily implies that production of oilseeds is likely to go up,
while cereals production will also rise – on account of higher coarse cereals
production.
[320 Mn tonnes of additional cereals will be produced by 2024, of which 180 Mn
tonnes is coarse cereals alone]
WHAT CHANGES
i. Improved profitability in the livestock sector
Even though supply got restricted due to a number of disease outbreaks, high
meat prices, and a sharp decline in feed prices [in USA, EU, Canada & China
markets], allowed the livestock industry to remain profitable.
This trend [of meat to feed price ratio] is likely to continue over the next decade
and therefore support production, which is projected to expand by 24% over
the outlook period. Consequently this pushes up production of feed, and
hence oilseeds.
~ 26 Mn tonnes of additional poultry meat will be produced globally.
-5
5
15
25
35
Skim milk
powder
Whole milk
powder
Butter Sheep Cheese Beef Pork Poultry Fish
Increase in volume (%) 2024 over 2012-14
Developed countries Developing countries Least Developed Countries

III. PRICE OUTLOOK: Real prices of agri-commodities follow the long-term
declining trend
THE PRESENT
Over the last decade, commodity prices have been fluctuating, but remained on the
higher side.
This trend has changed with prices starting to moderate since 2013.
THE FUTURE
A moderate price trend is likely to continue, until eventually, real prices start to
decline over the next decade.
WHAT CHANGES
i. Nominal prices of crop & dairy marginally increase; meat prices follow suit
with a lag of two years.
Record harvests in grains & oilseeds, has given way for prices to decline further, in
the short run, till they moderately rise by the end of next decade.
Policy setting, crop yields, macroeconomic assumptions & oil prices are all the
factors considered to forecast this. Following is the nominal price trend that
commodities are likely to follow in the short run:
ii. Price variability is a function of macroeconomic & yield uncertainty
Since this forecast is based on a certain set of assumptions, the actual price trend
may deviate slightly on account of uncertainty in yield & the prospective
macroeconomic conditions.
WHAT GOES DOWN
•Cereals
•Oilseeds
•Meat
•Cotton
•Fish
•Oil
WHAT GOES UP
•Sugar
•Milk & products

COMMODITY SNAPSHOTS
A. CEREALS
BRIEF: Increased total production & decline in prices on account of high
coarse grain production
WHEAT UNIT 2012-14 (Avg) 2024 (F) GROWTH RATE
Production MnMT 700 787 12%
Consumption MnMT 694 784 13%
Price $/MT 302 272 -10%
RICE UNIT 2012-14 (Avg) 2024 (F) GROWTH RATE
Price $/MT 519 449 -13%
COARSE GRAINS UNIT 2012-14 (Avg) 2024 (F) GROWTH RATE
Price $/MT 227 194 -15%
OBSERVATIONS
Cereal production is forecasted to increase by 14% over the next decade primarily
due to yield improvement as area under sowing is expected to be more or less
stagnant.
Among these, coarse cereals has the highest production levels on account of
demand and final use as animal feed.
Of the 225 Mn MT of increase in consumption of coarse cereals, about 2/3rd is on
account of feed use [156 Mn MT]
Most of the additional feed is going to be consumed in developing countries (1030
MT) to feed an expanding livestock sector.

B. OILSEEDS
BRIEF: Record oilseed production to continue but edible oil production to
marginally rise on account of slower expansion of palm oil – price to
increase at a slow pace in the long term
425
169
58
20
516
211
77
28
0
200
400
600
Oilseeds Vegetable Oil Palm Oil Bio-Fuel
World Oil & oilseed Production (Mn MT)
2012-14(Avg.) 2024
OBSERVATIONS
Despite a significant rise in oil seed production, the same is not reflected in
vegetable oil production, as palm oil production rises only marginally
Demand for protein meal rises as the livestock sector expands. Increased
production initially pushes the price down, however, demand catches up with
supply in the long term putting protein meal prices on an upward trajectory.
Growth in vegetable oil production slows considerably in countries that
traditionally produce high oil yielding crops such as sunflower and rapeseed, partly
due to limited growth in biodiesel production, for which vegetable oil represents
the main feedstock.
This reduced growth in bio-fuel production will cause recovery of vegetable oil
prices to be slower than that of protein meal prices.
0
500
1,000
Price recovery comparison of vegetable oil vs. protein meal
[$/MT] [World avg.]
Vegetable oil Protein meal

C. MEAT
BRIEF: Meat industry expands at a slower rate yet, positive outlook on
account of low feed grain prices
0
50 000
100 000 World Poultry Meat consumption forecast (‘000 MT)
Developing countries Developed countries
The widening
gap
OBSERVATIONS
Consumption growth rate in developed countries over the projection period
stagnates, while total consumption in developing countries grows robustly. [See
graph above]
Yet, consumption per capita of meat in developed countries is expected to remain
more than double than in the developing countries (68 kg per person per year as
compared to 28 kg per person per year)
Rapid population growth and urbanization within many developing regions
remains a core driver of total consumption growth.
In the long term real prices will fall even though nominal prices start to rise.
Poultry meat will capture more than half of the additional meat produced globally
by 2024, compared to 2012-14. In general, production will also benefit from both
improved meat-to-feed price margins as well as better feed conversion ratios in the
next decade.
1000
1500
2000
2500
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Real vs. nominal price trend [world avg.] of poultry meat
( $/MT)
Nominal Price Real Price

E. FISH
BRIEF: Aquaculture, one of the fastest growing food sectors in the coming
decade
D. DAIRY
BRIEF: Declining prices to continue in the short run, although they firm up in
the medium term
OBSERVATIONS
World milk production is projected to increase by 175 Mt (23%) by 2024 when
compared to the base years (2012-14), the majority of which (75%) is anticipated
to come from developing countries, especially from Asia.
Consumption growth rate higher in developing countries, vs. the developed, on
account of saturated consumption per capita in the developed world.
2 500
3 000
3 500
4 000
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
World Milk production(‘000 MT) & Milk Price ($/MT)
Milk (powder) production Milk (Powder) Prices
OBSERVATIONS
Global fish production to rise by 19%
between 2014 and 2024 – the key
driver being aquaculture production.
For the first time, aquaculture
overtakes capture fisheries as the
main source of fish for human
consumption.
High income & population growth
and high meat prices in the short term
coupled with high feed prices, all
contribute to high fish prices in the
short term. In the medium term prices
are expected to stabilize slightly lower
than the historical average.
50
60
70
80
90
100
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
World Aquaculture & capture production
(Mn MT)
Aquaculture
Capture
Capture for human consumption

CONCLUSION
 The last decade has set a trend of steadily rising prices of agri-commodities. In
the coming decade, this trend is set to change.
Production will now be determined by taste, preferences & choices, instead of
land use & availability.
Higher production will be a result of higher yields in most developing nations.
Higher production and improved yields will also be the prime factor determining
the downward trend in long term real commodity prices.
Important trend changes include shift of demand for coarse cereals, from use in
bio-fuels to use in animal feed.
This proves beneficiary for the livestock sector in more than one ways – It meets
the feed requirements of the expanding livestock industry, and also improves
meat-to-feed price ratios making the livestock (esp. poultry) industry that was
subject to much volatility in the last decade, steady and profitable once again.
On the whole, the agri-commodities market is largely going to be uniform in terms
of production & price correction, when compared with the last decade. Strong
income, population growth, will be the prime reason for shift in demand &
preferences.

LIST OF SOURCES:
OECD/Food and Agriculture Organization of the United
Nations (2015), OECD-FAO Agricultural Outlook 2015,
OECD Publishing, Paris.
http://dx.doi.org/10.1787/agr_outlook-2015-en
OECD/FAO (2015), “OECD-FAO Agricultural Outlook”, OECD
Agriculture Statistics (database),
http://dx.doi.org/10.1787/agr-outl-data-en.
OECD/FAO (2015), “OECD-FAO Agricultural Outlook”, OECD
Agriculture Statistics (database),
http://dx.doi.org/10.1787/888933228776
Image credit: dreamstime.com; canstockphoto; shutterstock
Created & compiled by
Business Development & Strategy Team, Godrej Agrovet
For any further queries or comments, please feel free to contact at:
aparna.tiwari@godrejagrovet.com
Aparna Tiwari
Economist – Business development & strategy

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