Food prices to be 'high and volatile' until 2020

Spikes in food prices in recent years hit consumers hard worldwide Food prices will be high and volatile for the next decade, driven by rising incomes in emerging nations and demand for biofuel, a joint OECD and FAO report forecast on Friday. Although prices will probably fall  from high levels reached earlier this year, long-term price increases of up to 20 percent for cereals and 30 percent for meat can be expected, the Organisation for Economic Cooperation and Development and Food and Agricultural Organisation warned.
"A slow growing supply set against expected high demand underlies the projection of high and more volatile agricultural commodity prices," they said in their Agricultural Outlook 2011-2020.
The report, published before a meeting next week of G20 agricultural ministers, places the blame for increased volatility on tight markets rather than speculation.
At a meeting in Paris the G20 ministers are to try to reach agreement on measures to increase transparency and regulation of commodity markets after spikes in food prices in recent years hit consumers hard worldwide and sparked unrest in several countries.
The report forecasts that higher energy prices and limits on land and water resources will constrain increases in yields and overall production, while growing populations and rising incomes in emerging nations such as China and India will sustain strong demand.
"These developments, coupled with the implementation of biofuel mandates have increased demand and made processors and consumers much less responsive to high commodity prices," said the OECD and FAO report.
With low stocks and sticky demand the report found that weather-related production variations have become a "prime source of international price stability", as evidenced by soaring prices following a drought in Russia and wet weather in the United States last year.
"Weather-related crop yield variations are expected to become an even more critical driver of price volatility in the future," the report said.
Although the OECD and FAO believe commodity prices will likely fall from peaks hit earlier this year, they forecast the price of fish, porc, and cheese to be 10 percent higher this decade in real terms than in the last decade.
They foresee price rises of 15 percent for rice; 20 percent for maize, vegetable oils and sugar; 30 percent for poultry, and nearly 50 percent for butter.
The OECD and FAO expect global agricultural production to grow at 1.7 percent annually on average over this decade, down form 2.6 percent last decade. Production per capita is still projected to rise 0.7 percent annually.
The report also foresees further robust growth in the use of agricultural products to make biofuels.
By 2020, the OECD and FAO expect 13 percent of global coarse grain production, 15 percent of oil production and 30 percent of sugar cane production to be used to make biofuels.
Higher oil prices would encourage further use of agricultural feedstocks for biofuel production, they noted, and may make it viable in some countries without government policy support.