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June 17, 2009

Study finds global prices for crops ease

by Matthew Saltmarsh

Agricultural prices appear to have eased in the past year, even though the cost of many food products is still expected to drift higher over the next decade, the Organization for Economic Cooperation and Development and the United Nations Food and Agriculture Organization said Wednesday.

In a joint report, “Agricultural Outlook: 2009-2018,” the two organizations said that the global downturn would continue to weigh down the prices of agricultural commodities over the next few years.

Then, as a recovery takes hold, the prices for many, but not all, agricultural commodities will rise, it said.

“There is lessening evidence to suspect that the world has undergone any structural upward shift in real agricultural commodity prices,” said the report, which covered biofuels, cereals, oilseeds, sugar, meats and dairy products.

Before the global economic downturn began in 2008, there was widespread concern that consumers might have to adjust permanently to higher food prices because of factors including droughts in countries like Australia, increased demand by consumers in emerging markets and increased competition for crops by biofuel plants.

The surge in prices led to riots in some countries and caused some governments to try to control the prices of food staples. In Argentina, for example, the government increased export taxes last year on some crops in an effort to encourage farmers to sell more at home. Higher prices also pushed the issue of food security up the political agenda, bringing the first-ever summit meeting by Group of 8 countries’ agriculture ministers.

But so far this year, the report noted, agricultural prices have been falling — along with those of other commodities — as the economic downturn has moderated demand and as more land has been put into crop production. World cereal inventories, which reached lows in recent years, have started to rebuild.

“The decline in real income should dampen demand for agricultural commodities and, all else being equal, decrease agricultural product prices,” the report said of the period while the economy remains weak.

The report forecast that prices for food commodities would rise 10 to 20 percent in the next decade, compared with the 1997-to-2006 period, while prices for vegetable oils would be more than 30 percent higher.

Average dairy prices are expected to rise slightly in the next 10 years, driven up by higher costs of energy and vegetable oil, with a notable 12 percent increase in average butter prices. Dairy demand over the medium term is expected to expand particularly in developing countries, where increased consumption is governed not only by income and population growth but also by factors like changing preferences, changing diets and dietary diversification.

But meat prices, it said, are unlikely to surpass the 1997-to-2006 average; they did not surge with other prices in the period before 2008.

The years 2007 and 2008 are not included in the historical data period because of the unusual price spike during those years, which made a price comparison less reliable, the O.E.C.D. said.

The report also highlighted the link between agricultural prices and energy costs, which can make up a substantial portion of a farmer’s overall expenses. The report’s forecast assumed crude prices of about $70 a barrel by the end of 2018; crude oil is trading around that price currently.

If oil prices were to increase to $90 to $100 or more a barrel, “agricultural prices would be significantly higher,” the report said, “with the largest impact on crops, driven mainly by reduced crop production with higher input costs, but also increased feedstock demand for biofuels.”

For biofuel markets, the report said, “prospects remain uncertain” because of factors like crude oil prices, changes in policy interventions and technological developments.

Over all, the report paints a picture of a food sector that is relatively resilient, with commodity prices remaining above historical averages, while production, consumption and trade increase in developing countries.

But behind this relatively rosy scenario “lies a more disturbing story,” the report cautioned.

“High food costs, combined with the global credit crunch, falling international trade and investment flows, lower remittances and budgetary pressures on development aid, are reversing the progress made in combating global poverty,” it said.

New York Times

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