The global COVID-19 pandemic has complicated the outlook for agriculture in 2020 and beyond, a finding that comes as no surprise in a new joint report issued by the OECD (Organization for Economic Co-operation and Development) and FAO (Food and Agriculture Organization of the United Nations). The “Agricultural Outlook 2020-2029” projects that over the next ten years, supply growth will outpace demand growth, causing real prices of most commodities to remain at or below their current levels.
According to the report, global population remains the main driver of demand growth even though the rate of population growth is projected to decline. Per capita consumption of many commodities is expected to be flat at the global level. The slower demand growth for agricultural commodities is projected to be matched by efficiency gains in crop and livestock production, which the OECD-FAO say will keep real agricultural prices relatively flat. About 85% of global crop output growth over the next decade is expected to come from yield improvements resulting from higher input use, investments in production technology, and better cultivation practices. Multiple harvests per year will account for another 10% of crop output growth, leaving only 5% to cropland expansion.
OECD-FAO notes that fluctuations in the factors driving supply and demand could lead to strong price variations around this general path. At the same time, a decrease in disposable incomes in low-income countries and households caused by COVID-19 is expected to depress demand in the early years of the outlook and could further undermine food security. Beyond COVID-19, current challenges include the locust invasion in East Africa and Asia, the continued spread of African swine fever, more frequent extreme climatic events, and trade tensions among major trading powers. The full report is available HERE. Below are some of the highlights:
In the last ten years, cereal production growth outpaced demand growth, leading to ample stocks and lower prices. Over the outlook period of 2020 to 2029, prices are projected to decrease further in real terms, while recovering slightly in nominal terms. Increased production and destocking will continue to exert downward pressure on cereal prices despite increasing demand. Lower anticipated prices, however, could weigh on planting decisions and reduce future supply.
The global average cereal yield is projected to increase by +1.1% p.a. (per acre) over the next ten years, markedly lower than the +1.9% registered in the previous decade, while total crop area is expected to increase only modestly. These changes are influenced by increasing profitability in the Black Sea region where production costs are lower compared to other major exporters.
Global cereal stocks are expected to remain high over the outlook period, except for corn, where the global picture is dominated by the assumption that temporary stocks in China will be eliminated in the coming years. As a consequence, the stock-to-use ratio for corn will fall from about 31% in the base period to about 17% in 2029 globally as China reaches levels of this ratio similar to those in other major countries. Stocks as a share of total consumption are expected to increase for wheat and rice, and remain similar to current levels for other coarse grains.
The COVID-19 pandemic in 2020 will not change the general situation of ample cereal supply and good harvest prospects in the near-future marketing seasons. Short-term risks due to this pandemic are mainly related to distributional aspects and supply problems in some countries which rely on seasonal workers. Over the medium term, once supply chain disruptions are resolved, the impact of the COVID-19 pandemic on cereal markets should be limited unless national policies move towards sustained higher self-sufficiency goals or to a sustained increase in the levels of stock holding. Aside from COVID-10, China’s feed demand, and its overall level of domestic supplies and associated changes in stocks remain a major uncertainty in global cereal markets.
Prices of oilseeds and products in 2019 were at their lowest in several years, a reflection of the slowdown in global demand for oils and protein meals, as well as the uncertainties stemming from bilateral trade disputes. Since trade relations between the United States and China improved towards the end of 2019, trade policies have had less short-term influence on world prices, especially for soybeans. Notwithstanding expectations of a partial recovery in China’s pig herd, African Swine Fever continues to weigh on the country’s livestock sector, curbing feed demand, especially of soybean meal.
During the outlook period, global soybean production is projected to continue to expand at +1.3% p.a., with the expansion of area harvested accounting for about a third of global output growth. With domestic output projected to reach 140 million metric tons by 2029, Brazil is expected to be the world’s largest producer, ahead of the United States with a projected production of 120 million metric tons by 2029. Together, these countries are expected to account for about two-thirds of world soybean production.
Crushing of soybeans and other oilseeds into meal (cake) and oil will continue to dominate demand and increase faster than other uses, such as direct food/feed consumption of soybeans, groundnuts and sunflower seeds. Overall, 91% of world soybean output and 87% of world production of other oilseeds are projected to be crushed by 2029. Additionally, the uptake of vegetable oil as feedstock for biodiesel is projected to increase at a considerably slower pace over the next ten years as national targets for mandatory biodiesel consumption increase at a slower pace than in previous years.
The pandemic spread of the COVID-19 has resulted in a reduction of consumer movement with strong implications for away-from-home consumption. This could affect demand for vegetable oil, which is widely used for deep-frying. In addition, the decline in economic activity combined with reduced crude oil price curb the demand for vegetable oil as biodiesel feedstock. Consumer concerns regarding soybeans stem from the high share of soybean production derived from genetically modified seeds, particularly in the EU. Environmental concerns are also on the rise, especially with respect to a potential link between deforestation and increasing soybean production in Brazil and Argentina.
At the global level, this year’s Outlook projects that meat production and consumption levels will reach a low point in 2020 as a consequence of the multiple outbreaks of AFS across Asia. In the early years of the outlook period, the overall growth in global meat output will be impacted negatively by a decline in availability of pigmeat, only partially offset by higher production volumes of other meat types
Over the first half of the projection period, prices will be supported by supply constraints in several Asian countries and the consequent increased import demand. This is relevant for the pigmeat sector, where ASF-related culling has decreased production in Asia. Higher prices will improve profitability in meat production during the first half of the projection period, despite a gradual increase in feed costs. When pigmeat supplies begin to return to their long-term trend growth, pigmeat prices will decline in real terms over the remainder of the projection period as productivity growth is assumed to continue. While ongoing economic and population growth in developing countries are the main drivers of meat consumption globally, the Outlook projects a leveling-off in per capita meat consumption with a shift towards a demand for quality products in high-income countries.
Trade policies remain a major factor affecting the dynamics of world meat markets. The implementation of various trade agreements over the outlook period could diversify or consolidate meat trade considerably. In the short term, the magnitude and duration of the impact of the current outbreak of COVID-19 is uncertain but meat production (including both slaughtering and processing) and consumption patterns, especially those of food services, are expected to be affected. Other factors that could influence the meat outlook over the medium term include changing consumer preferences and attitudes towards health, the environment, animal welfare, and global greenhouse gas (GHG) emissions which may lead to more modest demand growth.