Food prices set to level off

Slowing population growth will contribute to steady prices: report

Food prices will stagnate over the next decade as the population growth rate declines and income expansion in emerging economies slows.

Food costs will stabilize at a level slightly higher than in the years before the 200708 price spike, the Organization for Economic Cooperation and Development (OECD) and the United Nations’ Food & Agriculture Organization (FAO) said in a joint report. Population growth, the main driver of food prices, will slow to 1 percent annually through 2025, the organizations said.

Global food costs more than doubled since 2000 as the population expanded and rising incomes meant more demand for meat, which usually costs more than grains and oilseeds, FAO data showed. Costs reached a record in 2011, prompting Cargill Inc., one of the world’s largest crop traders, to call the end of an era of falling agricultural commodity prices.

“Global population growth, the main driver of demand increases, is declining, while income growth in emerging economies is projected to be weaker,” the OECD and FAO said. “At the same time, consumers, especially in populous emerging economies, show a declining propensity to spend income gains on consuming more basic foodstuffs.”

With global food supplies set to match demand in the 10 years to 2025, prices will stagnate once inflation is excluded, according to the report. Global cereal production is projected to grow 12 per cent by 2025, driven by yield improvements, while usage is projected to expand 14 per cent. In nominal terms, agricultural commodity prices will rise as oil is forecast to increase to $83.20 (U.S.) a barrel in 2025 from $39.30 a barrel, the organizations said.

“Global demand growth varies between commodities, but overall is projected to be slower than in the previous decade,” according to the report. “With overall market growth projected to slow, agricultural trade is expected to expand at about half the rate of the previous decade.”

Protein Products Demand growth for meat, fish and dairy products will grow “relatively strongly,” boosting the need for coarse grains such as corn and protein meals including soybean meal, this year’s best-performing commodity, the organizations said. Lower energy prices and more “conservative” policies in many countries mean demand for biofuels production will change little.

Global food demand will be met mainly by an advance in productivity, with yield improvements expected to account for 80 per cent of crop output increases, according to the report. The OECD and FAO forecast only “modest” gains in crop area and livestock herds.