Six Takeaways from the 2015-2024 OECD/FAO Outlook

The OECD and FAO recently released their joint agricultural outlook for 2015-2024. It is a useful forward-looking exercise to understand the opportunities and pressure points in the agriculture industry. Here are six takeaways that I believe are particularly important.

 

1.    World population growth is expected to slow in the next decade – so income growth continues to be a major driver of food consumption. Slower population growth is expected in all regions. Yet the projection is still to have more than 8 billion people on earth by 2024 – that’s an increase of 768 million, with nearly half of the increase in the Asia and Pacific region.

2.    With biofuel demand stable and not growing, feed use will drive increased cereal demand over the long term. Cereals are still the main staple of the daily diet across the world. Global consumption of cereals is projected to expand by 390 million tonnes by 2024, with coarse grains constituting more than half of the increase. The source of growth is what caught my attention: feed demand accounted for 36% of the growth in coarse grain consumption in the past decade. But over the next ten years, feed demand will account for almost 70% of the growth – that’s a major shift.

3.    In the medium term, cereal prices are expected to rise in relation to increases in production costs. Cereal prices started from low levels in 2014 compared to the average of the past seven years. In the short term, higher production and stock buildup may cause prices to slightly decrease.  But projections call for the downward movement in cereal prices to bottom out over the next couple of years.

4.    Oilseed production is projected to expand by more than 20% over the next ten years due to strong demand for protein meal.  Expansion will come mostly from areas that traditionally produce soybeans. Vegetable oil production is also projected to climb (24%) over the same period, but the pace of growth observed in the last decade is projected to slow. Note that these long-term projections do not capture changes in diets such as the elimination of transfat which is expected to open up opportunities for high oleic canola varieties.

5.    Improved profitability underpins growth in the livestock sector. Long-term projections for the livestock to feed price ratio suggest growth in livestock production, particularly in industries with strong demand, such as pork and poultry. World consumption of pork meat is projected to expand by 12% (13.5 million tonnes) over the next ten years. Bovine meat consumption is projected to also increase by 12% (8.1 million tonnes).

6.    Meat prices will start coming back down from record-high levels and stabilize about 20 percent lower than current prices. This stabilization process will start towards the end of 2015 and not conclude before 2018.

Overall, it seems clear that Canada will remain a reliable and diversified exporter of agricultural commodities and food products.  With continued world population growth and a growing demand for food diversity, the OECD/FAO outlook paints a bright future for Canadian agriculture, particularly so in the livestock industry.

Craig Klemmer, Senior ag economist