Volatile prices will thwart food sector for next decade, OECD

By Graham Holter

- Last updated on GMT

Related tags: Agriculture

Volatile prices will thwart food sector for next decade, OECD
Food manufacturers can expect commodity prices to fall in coming months, but in the longer-term the cost of cereals and meats is likely to remain volatile.

That’s the prediction in a new report issued by the OECD and the UN Food & Agriculture Organisation, which stated that “a good harvest in the coming months should push commodity prices down from the extreme levels seen earlier this year”.

But the authors warned: “Over the coming decade real prices for cereals could average as much as 20% higher and those for meats as much as 30% higher, compared to 2001-10.

”Higher prices for commodities are being passed through the food chain, leading to rising consumer price inflation in most countries. This raises concerns for economic stability and food security in some developing countries, with poor consumers most at risk of malnutrition.”

Production slowdown

The report predicted that global agricultural production would grow more slowly over the next decade than during the past 10 years, with farm output expected to rise by 1.7% annually, compared to the 2.6% growth rate of the past decade.

Despite this slower growth, per capita production is still projected to rise by 0.7% annually, wrote the authors: “Per-capita food consumption will expand most rapidly in Eastern Europe, Asia and Latin America, where incomes are rising and population growth is slowing. Meat, dairy products, vegetable oils and sugar should experience the highest demand increases.”

The report called on G20 countries to boost agricultural productivity in developing countries, reduce or eliminate trade-distorting policies and establish a new mechanism to improve information and transparency on agricultural production, consumption, stocks and trade.

Devastating impact

OECD secretary-general Angel Gurría said: “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.”

Ethanol, butter and poultry have seen the biggest price increases over the past 10 years, according to the report.

Food retailers in Britain saw sales volumes fall by 3.5% year-on-year in May, the worst monthly performance for almost three years.

Prices rose 5.3%, which the Office for National Statistics (ONS) said had contributed to the decline, and economists have predicted that household spending will fall by around 1% this year.

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