The Hindu Business Line : ‘Farm goods prices likely to rule strong in the next 10 years’

Washington DC, July 4 Global agricultural commodity prices are likely to rule above historic equilibrium levels during the next 10 years as a result of structural changes such as increased feedstock demand for biofuel production, and the reduction of surpluses due to past policy reforms, according to OECD-FAO Agricultural Outlook 2007-2016 released in Paris on Wednesday.

The report highlighted that even while continuing to remain a matter of concern for net food-importing developing countries as well as the urban-poor, higher commodity prices can aggravate the ongoing debate on food versus fuel.

On the one hand, higher biofuel feedstock prices support incomes of producers of these products; and on the other, however, higher feedstock prices imply higher costs and lower incomes for producers that use the same feedstock in the form of animal feed.

It is likely that the expectation that world market prices have attained a higher plateau may facilitate further policy reform away from price support, the report argues, adding that this would reduce the need for border protection and provide flexibility for tariff reductions.

Fuel needs

Over the next 10 years, the recurring theme would be the growing use of cereals and sugar for bioethanol, and vegetable oils for biodiesel to satisfy the needs of the biofuels industry. Specifically, large quantities of corn (maize) in the US and sugar in Brazil would be used for bioethanol. In Europe, usage of wheat for ethanol and rapeseed for biodiesel would be dominant.

The demand would not only underpin crop prices, but also impact the prices of animal feeds and thereby prices of livestock products as well, the report observed. Importantly, the OECD-FAO Outlook predicts that imports would grow more strongly in developing countries than in OECD countries for all products except vegetable oils; and for all products except wheat and coarse grains, these growing markets would be increasingly satisfied through larger exports from other developing countries.

In other words, agricultural world markets are going to be characterised by growing south-south trade, raising competition for exporting countries within the OECD.

Export drivers

Both Brazil and Argentina would be large exporters of a variety of farm commodities. For Brazil, growth will come from sugar, oilseeds and meat and for Argentina from cereals and dairy products. Russia and Ukraine for coarse grains, Vietnam and Thailand for rice, Indonesia and Malaysia for vegetable oils, and Thailand, Malaysia, India and China for poultry would be other growing exporting countries.

While import growth over the next ten years would be more widely spread, China’s dominance of oilseeds and products trade would be striking. By 2016, China will have become the world’s largest importer of oilseed meals and it will have further consolidated its leading position in imports, and in case of oilseeds would account for almost 50 per cent of global trade, the report pointed out.

Lesson for India

The OECD-FAO report on Agricultural Outlook 2007-2016 has important messages and lessons for India. The country’s agricultural growth rate has stagnated at an annual average of 2.2 per cent in the last 10 years. There is nothing to suggest that this sluggishness would be decisively broken anytime soon.

With demand growth far outstripping production growth in recent years, food prices have become unaffordable for large sections of the populations that have remained excluded from the current growth process. High food prices are a major reason for the current high rate of inflation.

The Government’s ability and manoeuvrability to contain food prices would be rather limited, especially when global markets remain strong for an extended period of ten years. Policymakers in New Delhi would do well to take immediate cognizance of the emerging global agricultural price situation.

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