MercoPress. South Atlantic News Agency

Competition puts squeeze on world prices

Global farm commodity prices will fall in real terms over the next decade under pressure from growing competition and productivity gains, the OECD said yesterday.

In a survey of trends for 2005-2014, the Organization for Economic Cooperation and Development (OECD) and the United Nations Food and Agriculture Organization (FAO) said growth in farm trade would lag other goods because of persistent import barriers. "While agricultural commodity prices are on average increasing, they are expected to decline in real terms, i.e. relative to movements in prices overall," they said in an annual outlook of agriculture trends. Developing countries will import more food and feedstuffs as living standards rise, but most of the new demand will be met by other developing country producers, according to the report. In rich countries, demand will rise only moderately, with other factors such as food safety, the environment and animal welfare taking precedence in determining preferences over traditional factors such as price and income. Output of the 14 products covered by the report will also grow much faster in developing countries than in the world's 30 richest states covered by the OECD, particularly of sugar, rice, beef, butter and milk powders. "The message here is that the high-cost OECD exporters are going to be increasingly challenged (in world markets)," Merritt Cluff, a FAO senior economist, told a news conference.

Trade to riese.

The OECD area will maintain its dominant share of exports of bulk commodities, such as cereals and oilseeds, with rising domestic livestock production in developing countries fuelling the rise in feedstuff needs. But traditional exporters could face rising competition from transitional economies, such as Russia and Ukraine. The projections assume that existing farm support and protection policies, both in developed and developing countries, will remain in place through 2014. So, the outlook could change markedly if the World Trade Organization's (WTO) round of free trade negotiations, due to be finished by end-2006 or early 2007, leads to a significant lowering of trade barriers and subsidies, the survey added. Changing demand patterns will also have an effect, with per capita consumption of meat and vegetable expected to register annual growth rates of over 3 percent. Wheat consumption, however, will be little changed in 2014 compared to 2004. China's farm policy is another major uncertainty, given the size of the market. In the past China has had a policy of self-sufficiency in cereals, but the report assumes a substantial opening of the market for wheat and coarse grains.

Competition intensifies.

Competition will intensify, particularly for temperate-zone commodities, such as wheat and oilseeds, with the emergence of new non-OECD zone exporters and the sustained performance of existing exporters, notably Brazil. Net imports of temperate-zone products by developing countries are expected to rise over the decade, helping to boost wheat exports from OECD countries by 15 percent and those of coarse grains by 25 percent. Yield growth in non-OECD countries will be much faster than in OECD states, particularly for rice, wheat and oilseeds. The United States is projected to remain the largest supplier of wheat to the world market. China is forecast, for example to become the world's largest importer of vegetable oils. For oilseeds, Brazil and Argentina will dominate market growth, and Brazil could overtake the United States as the world's leading oilseed exporter. Brazil will also become the world's largest beef exporter. Looking at particular crops, the OECD said world wheat and maize prices are seen continuing their longer-term declining trend, while rice prices will stay relatively flat. World consumption of vegetable oils is seen rising 2.8 percent a year, followed by oilseed meal at 2.7 percent. Wheat will grow 1.0 percent annually, and coarse grains 1.3 percent. (Bs. Aires Herald)