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13/09/2016 Demand growth for agricultural products to slow - FT.

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July 11, 2014 11:04 am

Demand growth for agricultural products to slow


By Neil Hume, Commodities Editor

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Demand for agricultural products is set to increase at a slower pace over the next decade, but
demand for protein-rich foods will rise substantially as consumers in the developing world
adopt a more western diet.

The projections, from the widely followed annual agricultural outlook from the UN Food and
Agricultural Organisation and the OECD, highlight how fast-growing Asian economies are
Getty
reshaping global agricultural production.

It also shows the challenge facing the agricultural industry as populations and incomes rise in markets
that cannot grow enough food to feed themselves.

Cereals are still at the core of human diets, but growing incomes, urbanisation and changes in eating habits contribute to the transition
of diets that are higher in protein, fats and sugar, the report said.

Over the next decade the FAO and OECD expect global meat consumption to increase 1.6 per cent a year, resulting in more than 58m
tonnes of additional meat being consumed by 2023 and poultry overtaking pork to become the most popular meat product.

The report says the change in dietary preferences leads to a shift towards greater production of coarse grains and oilseeds, which can
be used to feed livestock, away from staple food crops such as wheat and rice.

Expansion of the livestock sector alters the demand for crops like coarse grains and oilseeds . . . the emergence of biofuel and other
industrial uses adds a further important dimension to demand, the report said. Coarse grains and oilseeds are crops such as corn,
sorghum and soyabeans.

The FAO and OECD estimate almost 160m tonnes of additional feed will be needed by 2023 as consumers in developing economies
raise their protein levels. Based on strong feed demand, coarse grain and oilseed demand will grow 20 per cent and 26 per cent
respectively over the nine-year period.

However, this does not translate into higher prices for coarse grains or oilseeds. Adjusted for inflation, the FAO and OECD see coarse
grain prices in 2023 very close to current levels.

The production response to the high prices in recent years is expected to be especially strong in the United States, the Russian
Federation and Argentina. Global demand will not be able to absorb this supply at current prices, the report says.

Based on this expected surplus, coarse grains prices will experience considerable decreases over the next three years before
rebounding to about $230 a tonne from 2017/18. This in turn leads to a decline in the price of oilseeds in the short term as farmers
substitute coarse grains for crops such as soyabeans.

Overall, the FAO and OECD expect global food price inflation to slow and volatility to decline.

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13/09/2016 Demand growth for agricultural products to slow - FT.com

At the start of the (204-2023) outlook period, food price inflation at the consumer level appears lower and more stable for all regions
than it has been in the turbulent years following the price crisis, the report said.

Food costs surged in 2007-08 when a series of droughts around the world hit supplies of key agricultural commodities. They surged
again in 2010-11 after Russia banned wheat exports. Markets have also been volatile with near record prices in 2012 prompting
increased production that tipped wheat, rice and sugar markets into surplus and impacted prices.

Crop prices are expected to drop for one or two more years, before stabilising at levels that remain above the pre-2008 period but
significantly below recent peaks, the report said. Meat, dairy and fish prices are expected to rise. In real terms, however, prices for
both crops and animal products are projected to decline over the medium term.

RELATED TOPICS Agricultural Commodities, United States of America

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