OECD, FAO: No End for High Food Prices in Upcoming Decade

22 June 2011

High global food prices and volatile commodity markets are expected to persist over the next decade, according to a joint report from the Organisation for Economic Co-operation and Development (OECD) and the United Nations Food and Agriculture Organization (FAO). These issues are likely to be salient points of discussion at this week's meeting of agriculture ministers from the Group of 20 (G-20) leading economies.

The Agricultural Outlook 2011-2020, released on 17 June, focuses on the global state of agriculture for the next ten years. The report indicates that although strong harvests are expected to push down commodity prices later this year, real prices are projected to be an average of 20 percent higher for cereals and 30 percent higher for meats over the 2011-2020 period, in comparison with the last decade.

Continued high food prices could be disastrous for populations in developing countries. At the press conference for the report's release, OECD Secretary-General Angel Gurría observed that, "While higher prices are generally good news for farmers, the impact on the poor in developing countries who spend a high proportion of their income on food can be devastating." Gurría later warned that "people are going be forced, either to literally eat less, or find other sources of income."

Adding to these problems, the average annual growth rate for global agricultural production is projected to decline from 2.6 percent to 1.7 percent in the next decade due to high energy and fertiliser costs.

The report does suggest a possible solution to volatile food prices in the form of farm investments. In a statement, FAO Director-General Jacques Diouf emphasised the importance of "boosting investment in agriculture and reinforcing rural development," especially for smallholder farmers in low-income food-deficit countries.

Price volatility could also be mitigated if governments provide better information on commodity markets. "If we're trying to avoid volatility, information is absolutely of the essence," said Gurría. Diouf affirmed Gurría's statement, noting that an improved information system would also be key for improving the transparency of these markets.

One positive finding of the report was that global agriculture production is expected to continue outpacing population growth, with production per capita rising slightly. However, this is not the case for all regions: in sub-Saharan Africa, local production is unlikely to keep pace with population-driven demand, leading to increased food deficits.

Biofuels deemed a culprit in food price increases

Invigorating the "food for fuel" debate, the Outlook reports that the projected rise in commodity prices can be blamed on expanding biofuel production. By 2020, it is expected that 13 percent of global coarse grain production, 15 percent of vegetable oil production, and 30 percent of sugar cane production will be used for the production of biofuels.

Diouf called for cuts to biofuel subsidies, arguing that "the problem is not biofuels themselves...the problem is the policies adopted by certain governments to encourage the development of biofuels."

Similar concerns about the impact of biofuel subsidies on food prices came up in a June 2011 ICTSD study, prepared by economics professor Bruce Babcock of Iowa State University. His findings revealed that US ethanol subsidies - which amount to approximately US$6 billion a year - magnified increases in maize prices, which were already rising thanks to market-driven growth in ethanol demand.

Maize prices were inflated by as much as 17 percent in this year alone, according to Babcock's findings. In addition, had US ethanol production not increased from its 2004 levels, 2009 maize prices would have been 21 percent lower than they actually were.

Last Thursday, the US Senate voted to make substantial cuts to ethanol subsidies; however, the bill still requires approval from the US House of Representatives and President Barack Obama to become law. The Senate also voted to cut a tariff on imported ethanol; for more, see our article on the US-Brazil cotton controversy in this issue.
G-20 Agriculture Ministers meeting crucial forum for these issues

The food security issues reviewed in the Agricultural Outlook will likely be discussed at the meeting of G-20 Agriculture Ministers, which is currently taking place in Paris. These discussions are being held as a precursor to the November G-20 Summit.

French Agriculture Minister Bruno Le Maire told reporters on Friday that it is crucial for these G-20 agricultural ministers to reach an agreement on resolving the growing food security problem. Le Maire cautioned that without an agreement in Paris on these issues, the next hundred years could become "the century of hunger."

ICTSD reporting;  "World faces century of hunger without farm deal, France's Le Maire says," BLOOMBERG, 17 June 2011; "Decade of soaring food prices forecast," FINANCIAL TIMES, 17 June 2011; "Senate vote marks start of end for ethanol subsidies," REUTERS; 16 June 2011; "High food prices here to stay, says UN and OECD," THE TELEGRAPH, 18 June 2011.

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