ECONOMICS AND TRADE | Achieving growth through open markets
22 May 2008
Global Grain Production Expected to Increase in 2008
Prices also to rise as markets face pressures of high demand
Washington -- Global agricultural commodity production is expected to increase 2.6 percent to a record level in 2008, but the forecast depends on favorable weather.
Yet near-term commodity prices are expected to remain high as the result of a combination of pressures on world food markets. Those include the expanding needs of a steadily growing world population, strong demand by growing middle classes for more meat and dairy foods and protective export restrictions by some grain-producing countries.
Other pressures are demand for grain for use in biofuel production and higher agricultural production and marketing costs linked to higher energy prices.
Prices for grains and oilseeds rose sharply in 2007 and have surged in early 2008, the Congressional Research Service (CRS) reported in May. World prices for major agricultural commodities were up 46 percent in April 2008 compared to a year earlier, U.S. Agriculture Secretary Ed Schafer said at a May 19 press briefing.
The expected continuing high commodity prices will put additional strain on households that spend a large proportion of their incomes on food. Also feeling the pinch will be livestock farmers and food processors, CRS said. Farmers rely on grains for livestock feed; food processors rely on corn as a major sweetener ingredient.
In May, international prices of rice continued to rise but at a slower pace than at the beginning of 2008. After reaching highs in March, wheat prices began to slide in April and declined further in May as wheat-growing regions around the world experienced early favorable weather, the U.N. Food and Agriculture Organization (FAO) reported May 15. Maize prices remained at record high levels.
Markets have not seen such strong demand for grains and oilseeds and such high prices since the 1990s, CRS reports.
The increasing cost of food is "weakening the ability of governments of both poor and middle-income countries to sustain growth, protect the vulnerable or even to maintain order," Henrietta Fore told the Senate Foreign Relations Committee May 14. Fore is the administrator of the U.S. Agency for International Development.
Unfavorable weather during the 2007 growing season in several major cereal-exporting nations resulted in reduced harvests, contributing to a steady rise in world prices, U.S. Department of Agriculture (USDA) researcher Ronald Trostle said in a May USDA report on global agricultural supply and demand. Cereals include wheat, rice, maize, sorghum, millet and other food grains.
Poor weather during 2008 would prolong the current tight supply situation, contribute to price surges and strain countries already facing economic hardship, FAO said in its April crop report.
FOOD AND FUEL DEBATE
Food and fuel prices "have become increasingly intertwined," said Joachim von Braun of the Washington-based International Food Policy Research Institute.
Higher oil prices have made agricultural production more expensive by raising the costs of fertilizer, irrigation and transportation of farm supplies and harvests, von Braun said.
This is causing farmers in developing countries not to plant as much as they once did, Josette Sheeran, executive director of the U.N. World Food Programme, said in an interview published in April by Foreign Policy magazine.
Schafer discounted the theory that growing demand for biofuels is a major cause of higher food prices.
He said that only 3 percent of the increase in world food prices since 2007 is due to the increased demand for ethanol, an alternative fuel often made from corn.
Overlooked, Schafer said, is that record-high oil prices may go up further. "So developing diversity in our portfolio of fuels is, if anything, an even more urgent matter than it has been in the past," he said.
In the United States, grain used for ethanol production is projected to increase 33 percent in 2008 following a 50 percent increase from 2006 to 2007, Joe Glauber of the U.S. Department of Agriculture (USDA) told reporters at the press briefing.
Von Braun said in a May 16 press statement that governments should revoke biofuel subsidies and requirements that a certain percentage of ethanol be used in gasoline.
In an April speech posted on the American Farm Bureau Federation Web site, Bob Stallman, the association's president, stressed that renewable fuel and affordable food "can coexist."
He said Farm Bureau analysis of the costs of food production and marketing shows petroleum-based energy is the primary factor driving domestic food prices.
MORE NEEDED TO SHORE UP DEPLETED STOCKS
Meeting the future global demand for food is being further challenged by the decline in world grain buffer stocks. Wheat stocks are at their lowest level since 1977, and maize stocks are at their lowest since 1983, CRS reports.
Governments deemed these stocks less important following several years of low and stable prices. The private sector reduced stocks to save money when global supplies were readily available, Trostle said.
Aid agencies are focusing more attention on boosting agricultural productivity in low-income countries.
Schafer said the United States needs to convince other nations to focus more on increasing yields through the use of biotechnology, better water and fertilizer management and more precise farming methods.
Some analysts say governments can take other steps to help. They argue, for instance, that countries with export restrictions can lift those barriers so more food is available to those in need.
Others suggest that land set aside for conservation and other uses could be brought into agricultural production.
A transcript of Schafer's press briefing is available on USDA's Web site.
