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Food for Thought: Ensuring Future Supply

Global Economic Prospects 2009: Commodities at the Crossroads

Man working in field

Food demand should grow less rapidly over the next 25 years with weaker growth in population and GDP. More farmed land and better yields are likely to lead to stronger agricultural production and lower prices. Supply growth depends on public policy and investment in technology and infrastructure, and is open to risks posed by climate change and biofuel demand.

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Weaker population and GDP growth expected over the next few decades should dampen global demand for food in the same period. The world’s population, which grew at a yearly average of 1.6 percent between 1970 and 2005, is expected to grow by only 1 percent a year on average over the next 25 years.

If agricultural productivity continues rising at about 2 percent a year, global food shortages are unlikely. However, the future balance between demand and supply will be sensitive to policies; climate change; demand for biofuels; and the extent of investments in infrastructure and research.

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Figure 2.15

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Figure 2.26 

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Manageable food demand

Higher incomes in developing countries imply that per capita food consumption will likely go up in many developing countries, but the impact on overall food demand is expected to be small.

A 10 percent increase in per capita income will increase grain demand by 6 percent in poor countries but only 2 percent in middle-income countries.

The FAO estimates that global demand for primary food commodities will increase by about 1.5 percent a year between 2008 and 2030.

Demand for cereals, edible oils and meats will grow by 1.2, 2.3 and 1.7 percent, respectively — slower than between 1990 and 2006. Much of the new food demand between 2008 and 2030 will likely be generated by developing countries.

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The effect of biofuels on food prices

Demand for maize in biofuel production was one of the largest factors contributing to the increase in food crop prices over recent years. Greater demand for biofuels was prompted by generous subsidization and mandates for biofuels in the U.S. and Europe and import restrictions placed on ethanol produced from sugar. Biofuel production in Brazil, the U.S., and the E.U. (which account for over 90 percent of world production) has risen by 18 percent a year since 2000.

At oil prices above $50 a barrel, production of biofuels from food crops — even without subsidies — remains profitable. Thus the price of maize has become much more sensitive to the price of oil (and more volatile).

Other grain prices have also become sensitive to oil prices because as land-use shifts toward meeting biofuel demand, wheat and soybean production declines forcing their prices up as well.

The future impact of the oil market on food crop demand and prices is uncertain. New technologies might make ethanol production cheaper, lowering the $50 threshold.But technologies for fuel sources such as cellulose, and for alternative energy sources could reduce biofuel-related demand for food crops, and so also food prices.
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GM crops - the next green revolution?

Growing seeds

The most important recent breakthrough in agricultural technology has been genetically modified (GM) crops that need fewer pesticides. In 2006, farmers in 22 countries planted GM seeds on 100 million hectares, which is about 8 percent of the global crop area.

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Rising agricultural productivity, farmed land

Over the past 50 years, agricultural output has risen steadily, with the largest gains seen in Asia and North America. Increased crop yields have been the major underlying cause.

Many countries have expanded irrigation and fertilizer use, while using improved seed varieties. In 2000, high-yield grain varieties were used on 90 percent of farmed land in South and East Asia; improved grain varieties are spreading in Africa too.

Although much of the best agricultural land is already in use, farmland can still be extended without cutting down forests, especially in Africa, Brazil, Ukraine and the Russian Federation. The world’s agricultural supply potential is far from exhausted. 
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Technology likely to drive improved crop yields

Considerable potential exists for expansion of irrigation, more intensive fertilization and use of improved seeds in many countries, especially in Sub-Saharan Africa and Eastern Europe and Central Asia. If these regions were more productive, global cereal yield could rise by as much as 9.4 percent, enough to meet several years’ worth of increasing demand.

Policies should encourage research and development, as well as direct agricultural extension services towards smallholders. Recent advances in biotechnology could also offer poor countries improved yields through new plant varieties that are more resistant to the impacts of climate change. Good regulatory systems should be established to evaluate the risks and benefits.
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