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OECD-FAO Joint Report
July 6, 2007

Agricultural Prices to Remain High for the Next Decade
Agricultural prices are expected to remain above historic equilibrium levels over the next decade, owing to a combination of short-term and long-term factors. In the short-term, low stocks and drought are keeping prices up; in the long-term, increasing use of biodiesel fuels is stimulating growth and sale of relevant commodities. This is the conclusion of a new report jointly issued by the Organisation for Economic Co-operation and Development (OECD) and the Food and Agriculture Organisation (FAO) of the United Nations.

Reduced crop surpluses and a decline in export subsidies are also contributing to these long-term changes in markets. But more important is the growing use of cereals, sugar, oilseed and vegetable oils to produce fossil fuel substitutes, ethanol and bio-diesel. This is underpinning crop prices and, indirectly through higher animal feed costs, also the prices for livestock products.

The report points out that higher commodity prices are a particular concern for net food importing countries as well as the urban poor. And while higher feedstock prices caused by increased bio-fuel production benefits feedstock producers, it means extra costs and lower incomes for farmers who need the feedstock to provide animal feed.

The Outlook also says trade patterns are changing. Production and consumption of agricultural products in general will grow faster in the developing countries than in the developed economies - especially for beef, pork, butter, skimmed milk powder and sugar. OECD countries are expected to lose export shares for nearly all the main farm commodities. Nevertheless, they continue to dominate exports for wheat, coarse grains and dairy products.

World agricultural trade, measured by global imports, is expected to grow for all the main commodities covered in the report, but likely by less than for non-agricultural trade, as import protection is assumed to continue to limit the growth in trade. Nevertheless, trade in beef, pork and whole milk powder is expected to grow by more than 50% over the next 10 years, coarse grains trade by 13% and wheat by 17%. Trade in vegetable oils is projected to increase by nearly 70%. Thailand and Vietnam are projected to become stronger exporters of rice; Thailand and Indonesia are projected to become stronger exporters of vegetable oil, while Thailand and Malaysia will also become bigger figures in the export of poultry. Imports 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 are increasingly satisfied through larger exports from other developing countries. Agricultural world markets are thus characterised by growing south-south trade, raising the competition for exporting countries within the OECD. ASEAN states will be playing an increasingly leading role within this south-south trade, although their individual efforts may pale besides the possible powerhouses of China, Brazil and even India, where development of an agricultural exporting industry is rapidly progressing.

The full text of the report may be accessed at:

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