Markets and Outlook: Global Agriculture
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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:
- 19. 19 19OECD-FAO Agricultural Outlook 2015-2024 | www.agri-outlook.org | #AgOutlook 19 The future’s so bright, we gotta wear shades!
- 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.