November 7, 2007

 

High demand for grains to spur global inflation for years to come

 

 

Low stocks and high demand for grains would result in higher agricultural prices and food inflation over the next three to five years, Credit Suisse said in a report Wednesday (November 7, 2007).

 

Global food production would needs to grow at 2.5 percent per year just to keep pace with the dietary needs of the population, Credit Suisse said, citing population growth and increased calorie intake as some of the key drivers of demand.

 

Taking into account growing biofuel usage, global agricultural production would have to grow by 3.3 percent per annum to meet global demand, or food price inflation will continue to grow, the Swiss bank said.

 

"The bad news is that grain and oilseed production growth has already been lagging consumption over the past 20 years even before the recent boom in biofuels demand," said the report.

 

It is estimated that the combined impact of government-set biofuel targets globally commits 238 million acres, or 12 percent of total global arable and permanent cropland, to biofuel feedstock production over the next 10-15 years.

 

The US's biofuels target implies that 19 percent-32 percent of total domestic arable acreage would need to be committed to biofuel production by 2017, up from 5.7 percent now.

 

"Acreage expansion potential is questionable given rising environmental concerns and urbanisation. The onus, therefore, is on productivity growth," the report said.

 

However, Credit Suisse noted that cereals have only chalked up productivity growth of 1.3 percent in the past 20 years, despite the advances brought about by GM seeds.

 

Credit Suisse pointed to the declining inventories of grains as a sign that the world has trouble keeping up with demand in recent years.

 

US corn stocks now stand at just 13.5 percent of consumption, the lowest level in 35 years and well below the average of 24.4 percent over the last 20 years.