Food prices rose slowly and regularly between 2002 and 2006. But late in 2006, they exploded, causing a rise in the Food and Agricultural Organisation (FAO’s) Food Price Index from 120,2 in June 2006 to 213,5 in June 2008 – a 92% increase in just two years.
Prices then dropped and the index reached a low of 140 in March 2009. Prices didn’t stay depressed for very long – they rose to 197 by October 2010, the highest level since June 2008. Current food prices are still 8% below the 2008 peak.
Global outlook for the next decade
The annual Agricultural Outlook published by the FAO and the Organisation for Economic Co-operation and Development contains expert input from both organisations for a global outlook for the next decade. Their analysis of the underlying drivers of agricultural markets provides important information for policy specialists – and for farmers who have to do their own long-term planning to position themselves strategically.
The 2010 to 2019 Outlook assumes that the world economy is in a recovery phase, albeit with uncertain growth, especially in developed countries. By contrast, rapid growth is expected in developing countries. They expect a slight drop in population growth rates to 1,1% per year compared to 1,2% in the previous decade. There should still be higher growth in developing countries, with Africa’s population growing at 2% per year. Inflation should stay low at about 2%, but it will be higher in developing countries.
Agricultural commodity markets are increasingly driven by developing countries, who’s higher incomes and population growth have created huge markets. Economic development has also, in some countries, resulted in a slow growth of domestic production capacity. There should be positive growth in world production of major food products.
World consumption of agricultural products is also dominated by emerging economies. Rising per capita income, population growth and continuing urbanisation, causes changes in eating habits and diet, with a move away from stable foods and grains to more processed and prepared food products and convenience foods. As growing income results in food becoming a less important part of total household budgets in developing countries, this will also cause less price-sensitive demand.
Demand growth in developed countries will be slower. The developed world’s population is aging and concerns about health and diet issues will drive the composition of total demand.World commodity prices should stay at high levels. World prices, except for sugar, have calmed down a lot since the volatile 2006 to 2008 period. Larger supplies and weak demand in the aftermath of the global recession have depressed prices.
The global economic situation has improved. Stronger demand, with the anticipated return to higher economic growth, should outpace production growth and ensure that prices stay above the 2000 to 2006 average level.
The impact of these more favourable prices on South African farmers will depend on the rand exchange rate against international currencies like the dollar, euro and pound.
The FAO expects a strengthening in the value of the US dollar compared to other currencies. Current dollar weakness has resulted in a stronger rand. But with US inflation at very low levels and little chance of South African inflation moving below the 3% lower band, in the longer term, the rand should weaken against the dollar.
