June 16, 2010

 

 

The FAO is cautiously optimistic about the prospects of food commodities in the wake of economic upheaval in the past two years, but average prices for wheat and grains, vegetable oils and dairy are likely to be higher over the next decade.

 

The UN body, together with the OECD, published its annual Agricultural Outlook on Tuesday (Jun 15).

 

It says that although farm commodity prices have fallen from the dizzy heights they reached in 2008, they probably won't sink back to pre-crisis levels any time soon.

 

It predicts that wheat and grain will be on average 15%-40% higher over the past decade in real terms (after adjusting for inflation); and vegetable oils will be around 40% higher. Dairy prices look to remain between 16%-40% higher.

 

But despite world demand for livestock products growing, mainly due to demand from developing countries who are shifting towards more animal protein-rich diets, rises in livestock prices are expected to be "less marked on the whole".

 

While food price rises have an obviously catastrophic effect on food security in developing countries, for the food industry the big question is whether price volatility will continue to squeeze profit margins in the coming years. For now, the FAO is not about to give a firm answer beyond saying that short term volatility remains high.

 

Factors that have had a hand in price shifts include economic growth in emerging markets, biofuel expansion - often to meet governments' targets, and higher production costs, especially in processes where a lot of energy is required.

 

But in presenting the report FAO director general Jacques Diouf said "Governments should implement measures to ensure that farmers have better tools to manage future risks, such as production contracts, insurance schemes and futures markets".

 

He added that as developing countries step up to the plate as suppliers of commodities to global markets, their policies – and their contribution to policy issues - have an increasingly important role to play.