UNCTAD Multi-Year Expert Meeting on Commodities

and Development 2013 Recent developments and new challenges in commodity markets, and policy options for commodity-based inclusive growth and sustainable development

Room XXVI Palais des Nations

Geneva, Switzerland

Food commodity markets – trends and future challenges

Boubaker Ben-Belhassen Trade and Markets Division, FAO

20 MARCH 2013

This material has been reproduced in the language and form as it was provided. The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.

Food commodity markets –trends and future challenges

Boubaker Ben-Belhassen

Trade and Markets Division, FAO

UNCTAD, 20 March 2013

• High vs. volatile prices –causes and effects

• Medium-term market outlook

• Key messages and future challenges

• AMIS –what and what not

Outline

2

Food prices –FAO Food Price Index more than doubled from 2002 to 2012

0

50

100

150

200

250

300

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

FAO

Fo

od

Pri

ce In

dex

, 20

02

-20

04

=10

0

Food Price Index Cereals Meat Dairy

3

Why prices are high

Market fundamentals – S&D

• Strong growth in demand: emerging economies, population growth, changing diets, biofuels

• Weak growth in production: slowdown in yield growth, high petroleum prices, natural resources constraints (land, water)

• Low stocks

Why are food prices high and volatile?

Why prices are volatile

• Production variability, due to weather and climate change

• Increasing trade role by less resilient regions/countries

• Low stock levels

• Growing links with energy and financial markets

• Policy impacts and panic

• Macroeconomic factors (exchange rates, interest rates)

4

Market demand, inclusive of

storage

Quantity

Price

When stocks are low, prices become very sensitive to shocks in supply

Demand for consumption

Equivalent shocks

Different impact on prices

With stocks

Without stocks

Source: Brian Wright

The importance of stocks, PQ space

5

Why food prices matter?

• Food security

• Agricultural development (uncertainty, sub-optimal investment)

• Economic growth and development

• Macroeconomic stability (inflation, exchange reserves, government budgets)

• Political and social stability

6

Food imports bills –more than doubled for developing countries since 2005

0

50

100

150

200

250

300

350

400

450

500

bill

ion

US$

Developing countries LIFDCs

$235 billion

$427 billion

$75 billion

$200 billion

7

A look at the current situation..

Cereal production, utilization and stocks

Wheat production, utilization and stocks

8

A look at the current situation.. Coarse grain production,

utilization and stocks Rice production, utilization

and stocks

9

A look at the medium term..

• OECD-FAO Agricultural Outlook, 2012 edition

• Integrated system of partial equilibrium models of the main food commodities

• Combining model-generated projections and expert knowledge

• Assumptions: population, macroeconomics, policy, and weather

10

World GDP growth assumptions – a multispeed world

11

World population –rapidly populating cities

12

Per capita consumption growth –flat to falling in developed countries, rising elsewhere

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

20

00

= 1

N. America

W.Europe

N.Afr&ME

Asia

L. America

E.Europe&C.Asia

SSA

Index based on constant 2004-06 dollars

13

Shift in global consumption from staple foods to value-added products continues

14

Global ethanol and biodiesel production to almost double in the next decade

15

Agricultural production: growth to slow

1961-70 1971-80 1981-90 1991-00 2001-10 2011-20

All Agriculture

Production 2.7 2.4 2.3 2.5 2.6 1.7

Crops

Production 2.7 2.4 2.3 2.5 2.6 1.7

Livestock

Production 2.9 2.5 2.4 2.2 2.2 1.8

16

Agricultural production index Growth dominated by Latin America, slowest is W. Europe

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Inde

x, 2

000

= 1

W. Europe

L. America

MENA

SSA

N. America

E. Eur & C. Asia

Other Asia

17

Trade patterns: Latin America largest net exporter, Asia largest net importer

-50

-40

-30

-20

-10

0

10

20

30

40

50

Billi

ons

cons

tant

US

, $20

04-0

6 L.America

N.America

Other Asia

MENA

SS Africa

E.Europe&C.Asia

W.Europe

Oceania

18

Real crop prices down from recent peaks, but to stay on a higher plateau

19

Key messages • Production growth slowing in developed countries, growing

faster in developing countries

• Consumption patterns changing rapidly

• Food security remains first concern – Repeated price spike risks remain high

– International policy coherence is increasingly important

• Are we on track to feed the world? – Higher and more volatile prices indicate need for change

– Investment in agriculture, higher productivity and sustainability are the viable policy response

• Price incentives for investment in agriculture have increased

• Emerging Issues: – Confidence in markets, market transparency, policy responses,

supply-side constraints, sustainability

20

How can we eradicate hunger?

• Link hunger eradication to poverty eradication

• Achieve sustainable intensification of agriculture (FAO’s “Save and Grow” paradigm)

• Reduce food losses and waste

• Boost investment in agriculture

• Put smallholders at the centre of action

• Put in place effective food governance and trading systems (policies and institutions)

• Build effective partnerships

• Create markets that are transparent, efficient and inclusive

21

Thank you for your attention!

UN Food and Agriculture Organization (FAO)