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UN Predicts Global Rise of Food Prices

Commodities / Agricultural Commodities Jun 27, 2010 - 02:07 AM GMT

By: Pravda


Best Financial Markets Analysis ArticleIn the next ten years, prices for agricultural products in the world will grow in real terms by 15-40%, say experts from the Organization for Economic Cooperation and Development and the Food and Agriculture Organization of the UN. The reason for it is the increasing demand for food in developing countries and production of biofuels.

"With the resumption of rapid economic growth backed by continued population growth, demand and turnover of the food market will grow, and this will support prices" - the experts of FAO and the OECD's mentioned in their annual report on the agricultural sector.

According to the report, prices for wheat and coarse grains will increase by 15-40%, prices for oil will grow by more than 40%, while prices for dairy products will increase by 16-45%.

The growth of prices in the beef producing area may not be that high, but here much will depend on the growth of wealth in developing countries. "With the growth of income per capita, meat and dairy foods, which were not previously affordable for everyone, will be in greater demand," the authors of the report say.

In general, the increase in food consumption is due to rising demand from developing countries. The experts do not expect any spikes in the next few years, but they remind us about dependency between cost of food production and oil prices.

Yet, the increase in prices of some foods may begin as early as 2010, experts say. Rice may become considerably more expensive. Analysts predict growth of 63%, up to $1038 per ton (currently the price is $638 per ton), which is associated with the issues experienced by the traditional rice exporters, India and the Philippines. As stated in the report, in 2010 - 2019 average prices for wheat and coarse grains adjusted for inflation will rise to 15-40% compared to 1997 - 2006.

However, the situation in the short term is less clear, reports suggest. This year prices for grains may collapse due to high yields in a number of major grain regions.

According to The Wall Street Journal, the US Midwest expects a record harvest, and their grain elevators cannot handle the load. According to the forecast of the Food and Agriculture Organization, world reserves of grain will grow by 24% this year compared to the reserves two years ago and will reach 8 years maximum. The grain reserves in the U.S. will grow to the highest point since 1987.

Grain traders in Chicago expect a second consecutive record-high grain harvest this year. In Brazil, a record harvest of soybeans is very probable, and Asian farmers are preparing to gather record rice harvest, Agronews said.

Demand for ethanol from biofuel producers may also fall due to the fact that the producers have already reached the limit of ethanol content in the traditional fuel for cars allowed by the Government.

However, the long-term trend, despite annual fluctuations, will still be upward. Prices for vegetable oils will rise in real terms by 40% and higher, for dairy products - by 16 - 45%.

Agricultural productivity around the world is expected to increase by 22% over the next decade. At the same time, productivity levels in Western Europe will remain at the present level. However, in countries of BRIC group (Brazil, Russia, India and China) as well as in Ukraine agricultural production will grow three times faster than in developed economies and will increase by 27%.

The most rapidly developing agricultural producer in terms of all cultures is Brazil. The volume of agricultural production in Brazil is expected to increase by 40% in the period from 2010 to 2019. Growth of agricultural production in Ukraine could reach 29%. In India and Russia agricultural production could increase by 26%, and in China - by 21%.

Agricultural production in general will grow rapidly in developing countries. For example, while the growth in the world on average will be 22%, in developed countries it will be only 10%. In the United States and Canada the growth will be in the range of 10-15% over the same period. Meanwhile, the increase of food in the EU countries will be only 4%.

Food production per capita will grow only in Eastern Europe. It has to do with the forecasted decline in population by 3%. In Western Europe the growth is not expected, there will be no significant changes in Africa. Latin America will have insignificant growth.

The situation with Africa is somewhat more complicated. Now farmlands in African countries are being actively sought by multinational corporations, and firms from countries that import food. The continent is becoming the object of "food colonization”.

According to the Food organization, since 2004, foreign companies have acquired over 2.5 million hectares of land in Africa. Most active buyers are China, India, South Korea and the oil monarchies of the Persian Gulf. Thus, overall food production in Africa will rise, but local people do not have to fear obesity.

According to the UN report, world food security is in jeopardy. Currently about 1 billion people suffer from malnutrition. Further price increases could lead to an increase in the number of hungry people and to provoke food riots in a number of countries.

Vitaly Salnik

Read the original in Russian

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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