The global agrifood sector faces fundamental challenges over the coming decade, particularly the need to feed an ever-increasing population in a sustainable manner, the impacts of the climate crisis and the economic consequences and disruptions to food supply linked to the war in Ukraine, according to OECD-FAO Agricultural Outlook 2022-2031 by the Food and Agriculture Organization of the United Nations (FAO) and the Organisation for Economic Co-operation and Development (OECD).
The report focuses on assessing the medium-term prospects for agricultural commodity markets. The findings of the report underscore the crucial role of additional public spending and private investment in production, information technology and infrastructure as well as human capital to raise agricultural productivity.
Prices of agricultural products have been driven upward by a host of factors, including the recovery in demand following the outbreak of the COVID-19 pandemic and the resulting supply and trade disruptions, poor weather in key suppliers, and rising production and transportation costs, which have been further exacerbated recently by uncertainties regarding agricultural exports from Ukraine and Russia, both key suppliers of cereals. Russia's role in fertilizer markets has also compounded already existing concerns about fertilizer prices and near-term productivity.
The report provides a short-term assessment of how the war may affect both global agricultural markets and food security. It underlines major risks to key commodity markets: equilibrium prices for wheat could be 19% above pre-conflict levels if Ukraine fully loses its capacity to export and 34% higher if in addition, Russian exports are 50% of normal amounts.
A scenario simulating a severe export shortfall from Ukraine and Russia in 2022/23 and 2023/24, and assuming no global production response, suggests a further increase in the number of chronically undernourished people in the world following the COVID-19 pandemic.
“Without peace in Ukraine, food security challenges facing the world will continue to worsen, especially for the world’s poorest,” OECD Secretary-General, Mathias Cormann, said. “An immediate end of the war would be the best outcome for people in both Russia and Ukraine and for the many households around the world that are suffering from sharp price increases driven by the war.”
“These rising prices of food, fertilizer, feed and fuel, as well as tightening financial conditions are spreading human suffering across the world,” said FAO Director-General, QU Dongyu. “An estimated 19 million more people could face chronic undernourishment globally in 2023, if the reduction of global food production and food supply from major exporting countries, including Russia and Ukraine, results in lower food availability hitting worldwide.”
Over the next decade, global agricultural production is projected to increase by 1.1% per year, with the additional output to be mainly produced in middle- and low-income countries. The Outlook assumes wider access to inputs and shows that increased productivity-enhancing investment in technology, infrastructure and training will be critical drivers of agricultural growth. However, a prolonged increase in energy and agricultural input prices – such as fertilizers – will raise production costs and may constrain productivity and output growth in the coming years.
Aquaculture production is expected to reach 108 Mt by 2031, but despite the expected continued growth, it represents a significant slowing from the previous decade. Several factors are driving the slower projected growth in aquaculture production, according to the report. Firstly, the cost of feed was relatively low from 2013 to 2019 leading to higher profits for producers. Secondly, the aquaculture to feed price ratio will remain below 2019 levels until 2025 due to the high price of feed during the first half of this coming decade. From 2025 onwards, that feed price ratio is expected to remain at profitable levels for producers leading to a new period of growth for aquaculture production in the second half of the decade.
There are several other factors contributing to the slower aquaculture production growth including slower gains in productivity, more stringent environmental regulations in the world’s largest producers, most notably China, and challenges building new production facilities due to competition for land.
From a species perspective, strong production growth is expected for shrimps and prawns (+31%) and tilapia (+25%).
Fishmeal and fish oil
Fishmeal will experience a 16% decline in real prices. The price of oilseed meals, a direct competitor in the feed market, will decline more than fishmeal resulting in a small increase in the relative price of fishmeal when compared to 2021 but will remain significantly lower than in the previous decade.
The price of fish oil is projected to decrease by 17% in real terms. This decline stands in contrast to the previous decade when the price of fish oil grew by 44%, driven mostly by the huge increase in the price of vegetable oil, a direct substitute. Several factors are contributing to the expected decline in real prices of fish oil over the projection period including an expected decline in the vegetable oil price, slower aquaculture production growth, more efficient use of fish oil-based feeds in the production cycle and a stabilization of the omega-3 demand (of which fish oil has a high content) as a dietary supplement from the food sector.
The price of fish oil relative to vegetable oil is expected to gradually return close to the average recorded since the arrival of the new plateau started in 2012. Overall, the real price of fish oil and fishmeal will remain high compared to pre-2005 levels, according to the report.
Cereals and soybeans
Over the next decade, cereal production is expected to increase by 343 Mt (+ 12%). Almost half of this production increase will come from maize, while wheat and rice account for about 20% each and other coarse grains account for the remaining 10%.
Soybean production is projected to increase by 1% p.a. during the outlook period to reach 411 Mt by 2031, more than double the combined output of other oilseeds at 188 Mt. Brazil and the United States are expected to account for about two-thirds of world soybean production and more than 80% of global soybean exports. Demand growth in China is expected to slow down considerably, driven by improved feed efficiency combined with efforts to achieve lower protein meal shares in livestock feed rations. Nevertheless, a strong rebound is expected in pork production (around 14 Mt increase in the next decade). In the European Union, the second-largest user of protein meal, consumption is expected to decline as growth in animal production slows and other protein sources are increasingly used in feed. By contrast, in Southeast Asia increasing animal production is projected to raise the demand for imports of protein meals.