OECD/FAO: Agricultural production growth to slow in coming decade

Agricultural production is expected to grow more slowly over the coming decade, according to the Organisation for Economic Co-operation and Development (OECD) and the UN Food and Agriculture Organization (FAO). In another report, the FAO noted that government interventions, such as taxes or subsidies, may be useful in addressing nutritional needs.

The OECD-FAO Agricultural Outlook 2013-2022, launched last week, projects the state of global agriculture for the next ten years. This year's report found that global production is likely to grow at 1.5 percent annually, on average, compared to 2.1 percent in the preceding decade. The outlook also projects rising prices for both crop and livestock products over the next ten years, due to a combination of slower production growth and stronger demand - including for biofuels.

However, some uncertainty remains, the report cautioned, due in part to the "two-speed" global economic recovery - as seen with the weak improvements in developed economies and the strong growth in developing ones.

"If we fail to turn the global economy around, investment and growth in agriculture will suffer and food security may be compromised," OECD Secretary-General Angel Gurría warned at a Beijing launch event for the report, while noting that the outlook paints a "relatively bright picture" if such an economic improvement is seen.

Additional sources of uncertainty for agricultural markets include production shortfalls, price volatility, and trade interruptions, the outlook says. A major drought, combined with low food stocks, also has the potential to raise crop prices by 15 to 40 percent.

Call for increased investment

Developing countries are expected to take centre stage on trade and production in farm goods, the agencies said. Emerging economies will account for the majority of exports of coarse grains, rice, oilseeds, vegetable oil, sugar, beef, poultry, and fish, while the OECD countries' share of trade is expected to continue to decline.

Global sugar production will increase by almost 2 percent each year, primarily from sugar cane in India and Brazil. Developing countries as a whole are likely to account for 80 percent of the growth in global meat production and for 74 percent of global milk production gains.

To capture a share of these economic benefits, governments will need to invest in their agricultural sectors to encourage innovation, increase productivity, and improve integration in global value chains, the FAO and the OECD found.

"Let's not forget that 70 percent of the world's food insecure population lives in rural areas of developing countries and that many of them are small-scale and subsistence farmers themselves," FAO Director-General José Graziano da Silva said in Beijing last week.

"Investment in rural areas is still lagging behind," he added, highlighting particularly the lack of investment in food storage and transportation.

Feeding China: domestic challenge, trade opportunity

The 2013 report places a special focus on China, given its significance to global production and trade in agriculture. The Asian economic powerhouse is the world's largest producer and consumer of certain key cereals, such as rice and wheat. With an enormous population, changing appetites, and quick economic growth, the country's influence in global markets is expected to continue increasing in the coming decade.

The OECD and FAO found that more food and higher incomes have cut the number of hungry in China by 100 million since 1990. However, the Asian giant is also facing problems of water and land scarcity, leading Beijing to place food security and self-sufficiency at the top of its policy agenda.

Chinese consumption of farm goods will likely outpace production by 0.3 percent annually, potentially creating an opportunity for those looking to export. China is expected to become the world's leading consumer of pigmeat on a per capita basis and account for 59 percent of global oilseed imports by 2022.

Government intervention can improve nutrition, FAO says

In a separate report also released last week, the FAO found that malnutrition is posing major social and economic costs on countries at every income level. The 2013 edition of the State of Food and Agriculture report finds, for instance, that productivity loss and direct healthcare costs as a result of malnutrition could account for up to five percent of global gross domestic product (GDP), equivalent to US$3.5 trillion per year or US$500 per person.

This cost can justify government intervention in food markets through nutrition-specific food price subsidies and taxes, the FAO says, as part of a series of recommendations. Price subsidies, for instance, could encourage the consumption of more diverse foods such as fruits and vegetables. Taxes, meanwhile, could discourage the consumption of less nutritious food.