June 23, 2005

  

Global export competition for feed grains and livestock will intensify

 

 

Global competition among exporters of wheat, rice, oilseeds, sugar and livestock is expected to intensify over the next ten years among both developed and developing countries, according to the Organisation for Economic Co-operation and Development's latest Agricultural Outlook, created for the first time in collaboration with the UN Food and Agriculture Organization (FAO).

 

Stiffer competition, combined with higher productivity, would result in a further drop in real prices for most basic food commodities. Farmers would need to continue efforts to improve efficiency and various policy reforms could help improve agricultural markets.

 

With increasing export supplies by low cost non-OECD countries and a continued high degree of protection in many of the rich OECD markets, rising demand growth in developing countries would result in an increase in their share of the global trade in farm products.

 

The report estimates that total world cereal output would increase by over one percent annually with most of the growth occurring in the non-OECD area.

 

Although increasing imports by China and other Asian countries could drive nominal prices higher in the near term, international wheat prices are expected to fall in real terms by around 11 percent over the next 10 years.

 

However, in rebound from recently low levels, real world rice prices are expected to increase over the projection period, reversing the downward trend of the past 30 years.

 

With the growing importance of China and India in global markets, small shocks to either demand or supply in these large countries could lead to substantial external adjustments.

 

Similarly, conditions in the key emerging suppliers, particularly in South America, would be increasingly critical to the evolution of world markets.

 

EU Agricultural Report

 

Coinciding with the release of the Outlook, the OECD has also published its latest Agricultural Policies: Monitoring and Evaluation report, which includes a first assessment of the implementation of the Common Agricultural Policy in the 10 new member states that joined the EU in 2004.

 

It finds that:

• Enlargement has increased the diversity of EU farm structures.
  
  
• Although enlargement brought in large amounts of land and labor, the value of agricultural production increased by less than 10 percent.
  
  
• Farm income in new member states is likely to increase significantly over the medium term.
  
  
• Levels of support in new member states were estimated to be well below levels of the existing 15 EU countries in 2004, but given the relatively small addition their agricultural sectors make to the EU, average support to farmers across the newly enlarged EU relative to farm receipts was reduced by one percentage point only.

In the 30 member countries of the OECD the average level of support to farmers remained unchanged last year at 30 percent of overall farm receipts, most of which continues to be given through trade distorting measures such as the propping up of market prices.

 

The report nevertheless welcomes the move to payments that are less linked to specific commodities in many countries.