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10-year outlook: Rising crop prices, but higher input costs

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“With prices of fertilizers and other farm chemicals and machinery costs closely related to oil prices, any rise in oil prices is expected to quickly translate into increasing production costs,” according to the Agricultural Outlook 2013-2022. “Rising oil prices are an important and uncertain assumption underlying agricultural price projections,” the report notes.

For the coming decade, global agriculture will see rising prices for crops and livestock — but those prices will be flat when adjusted for inflation, and projected higher energy costs will keep pushing farmers’ input costs upward.

“With prices of fertilizers and other farm chemicals and machinery costs closely related to oil prices, any rise in oil prices is expected to quickly translate into increasing production costs,” according to the Agricultural Outlook 2013-2022, a joint analysis by the Organization for Economic Cooperation and Development (OECD) and the Food and Agriculture Organization (FAO) of the United Nations.

“Rising oil prices are an important and uncertain assumption underlying agricultural price projections,” the report notes, and “a depreciating U.S. dollar is expected to reduce the relative competitiveness of other exporters, while increasing the purchasing power of many importers.”
 Additionally, “Some inputs such as water are becoming increasingly constrained in availability to agriculture and more costly to procure” and “higher production and supply costs will reduce the profitability of capital- and input-intensive agriculture, which can be expected to further slow the growth in production.”

Agricultural trade is projected to increase, the report says, “with developing countries capturing most of the growth in exports.”

Today’s high commodity prices “are expected to fall in response to a rebound in production,” but reduced global livestock inventories will keep meat prices high.

Over the next decade, average prices for cereals, oilseeds, sugar, and cotton “are expected to be relatively flat in real terms, compared to the previous decade, which included several years of record high prices.

During the coming 10-year period, global agricultural production for commodities covered in the Outlook is projected to grow at only 1.5 percent annually, on average, compared to 2.1 percent in the previous decade, reflecting rising costs, growing resource constraints, and increasing environmental pressures.

“Production shortfalls, price volatility, and trade interruptions remain a threat to global food security,” the report notes. “As long as food stocks in major producing and consuming countries remain low, the risk of price volatility is amplified. A widespread drought like that in the U.S. and Commonwealth of Independent States (CIS) countries in 2012, on top of low stocks, could raise crop prices by 15 percent to 40 percent.” Energy prices “add another source of uncertainty.”

Overall, the analysts say, “The increasing scarcity of arable land, water constraints, and rising input and energy costs all serve to highlight the critical importance of achieving higher agricultural productivity in a more sustainable manner — both at the farm level and upstream/downstream sectors of the food supply chain. This will be required to insure the increasing food supplies needed by an expanding global population and to reduce upside price pressures over the long term.”

See the complete 120-page report here: http://bit.ly/10NcUzG

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