Agribusiness: Era of high commodity prices coming to an end

Area and yield by region: Area and yield growth 2025 vs. 2013-15 (left) and share of agricultural area in 2025 (right).
Area and yield by region: Area and yield growth 2025 vs. 2013-15 (left) and share of agricultural area in 2025 (right).

The latest 10-year outlook from the OECD and the Food and Agriculture Organisation of the United Nations warns that the recent era of high agricultural commodity prices is likely to be over for all sub-sectors.

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The OECD report is an assessment of prospects for the coming decade of the national, regional, and global agricultural commodity markets.

Its findings include:

• Increases in food demand are limited by slowing population growth and a gradual saturation of consumption in emerging economies

• Efficiency gains in production enable production growth at lower real prices

• Productivity growth is driven mainly by yield improvements.

• Cropland expansions are mainly in Latin America and Sub-Saharan Africa.

• Prices for main crops, livestock, and fish products all fell in 2015

• Meat prices fell from record highs in 2014

• Dairy product prices continued declines that started in 2013 and 2014

• Crop prices fell further from their peaks in 2012

The main factors behind lower prices have been:

• Several years of robust supply growth

• Weakening demand growth due to the overall economic slowdown

• Lower oil process

• Further accumulation of already abundant stocks

What does it mean for New Zealand?

& Low dairy prices have caused a reduction in the total dairy herd, which dropped by 2.7 per cent in 2015.

• Drought and adverse weather conditions have restricted production in Oceania's pasture-based systems, which is expected to reduce production in New Zealand by 6.8 per cent and to stall growth in Australia.

• With low dairy prices serving as a barrier to market entry for non-traditional exporters, export growth will continue to be satisfied by a small concentration of key exporters.

• By 2025, the European Union will be the principal exporter of skim milk powder and cheese, while New Zealand will remain the lead exporter of butter, and will be an increasingly dominant player in whole milk powder accounting for more than 40 per cent of world exports.

- NZ Herald

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