Supply constraints will push up commodity costs

30 October 2012

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16 July 2012 | Adam Leach

The Agricultural Outlook 2012-2021, published last week by the Organisation for Economic Co-Operation and Development (OECD) and the Food and Agriculture Organization of the United Nations (FAO), cited higher oil prices over the next decade as a “fundamental factor” and a slowdown in production growth from 2 per cent per year to 1.7 per cent as important factors.

The involvement of the oil sector will affect commodity prices from two directions. Oil related costs for food production, such as fuel, will increase and also the growing reliance of oil producers on agricultural commodities, which are used for biofuels and feedstocks, will push costs up. The report said: “Growing resource constraints, environmental pressures and higher costs for some inputs are anticipated to inhibit supply responses in virtually all regions.”

To address the imbalance between demand and supply, the report recommended a global effort to strengthen sustainable production methods and “longer term thinking”. It said that in order to meet demand over the next 40 years, annual production of cereal would need to increase by a billion tonnes and meat production by 200 million tonnes, with further growth needed to address demand coming from areas such as feedstock.

This, coupled with projection that the availability of arable land will only increase 5 per cent over that 40 period means that new methods, enabling producers to get higher yields will be required.

Angel Gurria, secretary-general at the OECD, said: “Increased productivity, green growth and more open markets will be essential if the food and nutrition requirement of future generations are to be met. Governments should renounce trade-distorting practices and create an enabling environment for a thriving and sustainable agriculture underpinned by improved productivity.

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