Agricultural OutlookProspects, Productivity and Policies

Wayne Jones,OECD Trade and Agriculture

10 November 2011

Prospects for agriculture are good…

Global consensus on medium term prospects for agriculture and fisheries

• Higher average prices

• Increasing production

• Growing non-food use

• Expanding trade

Higher average commodity prices% change in average real prices 2001-10 to 2011-2020

Wh

eat

Maiz

e

Ric

e

Oil

seed

Oil

see..

.

Veg.

Oil

Raw

S..

.

Beef

Pig

meat

Pou

ltry

Fis

h

Bu

tter

Ch

eese

SM

P

WM

P

Eth

an

ol

Bio

di.

..

-10

0

10

20

30

40

50

60

Rising agricultural and fish production

60

70

80

90

100

110

120

130

140

150

160

N.America L.America W.Europe E.Europe&C.AsiaN.Africa&M.East S.S.Africa Asia&Pacific Oceania

EU production projectionsEU27 Production: % change 2011-2020 vs. 2001-10

0 5 10 15 20 25 30 35

Oilseeds

Veget. Oils

Protein meals

Wheat

Cheese

Poultry

Pigmeat

Coarse grains

-25 -20 -15 -10 -5 0

Sugar

Skimmed Milk …

Beef

Butter

Whole Milk Powder

Fish

Rice

Rising non-food demandShare of global production used for biofuel feedstocks

Sugar cane Vegetable oil Coarse Grains Sugar beet Wheat0%

5%

10%

15%

20%

25%

30%

35%

2020 2008-2010Percent

Expanding global trade

N.America13%

L.America27%

W.Europe6%E.Europe&C.Asia

11%N.Africa & M.East0%

S.S.Africa-1%

Asia&Pacific38%

Oceania4%

Share of export gains 2011-2020

EU production projectionsEU 27 Net position 2011- 2020 vs. 2001-2010: exports minus imports in thousand tonnes (absolute difference)

0 1000 2000 3000 4000 5000

WheatOilseedsPigmeatCheese

Skimmed Milk Powder

-6000 -5000 -4000 -3000 -2000 -1000 0

Veget. OilsSugar

Coarse grainsProtein meals

FishRiceBeef

ButterPoultry

Whole Milk Powder

Good global prospects but rising…

…production costs

…market/price volatility

…resource constraints

…and slowing productivity growth

Rising production costs

• FACEPA and agri-benchmark farm level analysis

• Variable costs have gone up – mainly energy and feed

• Impacts different by farm type and prod’n structure

• Costs have risen less than input prices (farmers adjust)

• Farm income rises with farm size

Greater market/price volatility…

• Weather (climate change)

• Low stocks

• Energy prices

• Exchange rates

• Inelastic demand

• Ag and trade policy

Resource constraints: water shortages

• 47% population under severe water stress by 2050

• Irrigation costs rise with energy prices

• Water pricing to agriculture will increase

• 60% freshwater withdrawals by agriculture (2010)

• 40% freshwater withdrawals used by agriculture (2050)

The need to increase productivity growth

• Growing demand for food and fuel

• Increasing competition for land

• Important water constraints

• Uncertain impacts of climate change

Improving agricultural productivity growth is not an option to consider - it is an essential requirement fro increasing global food supplies on a sustainable basis.

Slower agricultural TFP growthAverage annual growth rate by period (%)

Slower projected global output growth…Global agricultural production growth

2.60%

1.70%

0.0%

1.0%

2.0%

3.0%

2001-2010 2011-2020

Productivity and Sustainability

• Need to reduce waste/carbon footprint (sustainable consumption and production)

• Need to increase productivity in a more sustainable manner

• Productivity and sustainability can be complimentary outcomes

•Precision farming (fertilizer/crop protection)

•More efficient water use (drip irrigation)

•Eco-system approaches (intensify production, conserve organic matter)

Governments can help

Governments need to link policies to priorities

• Invest in innovation

• Improve sustainability

• Facilitate producer risk management

EU policy reforms

Since 1992 several reforms of the Common Agricultural Policy have aimed at reducing distortions to production and trade in agriculture

Post 2013:

• Reduce market distortions

• Strengthen AKS systems

• Target environmental policies

OECD Trade and Agriculture

www.agri-outlook.org