Food Prices to Fall but Supplies Remain Tight: OECD

Agricultural commodity prices should fall back from their current highs as fresh supplies come onto the market, the Organization of Economic Cooperation and Development said in a report on Friday. However, food prices will continue to put upwards pressure on inflation.

Wheat field
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Wheat field

Volatility is set to continue, as low stock levels, unpredictable weather conditions, and volatile energy markets and exchange rates impact on food prices. Speculation is also increasingly believed to contribute to price volatility, the report said.

Grain production in key areas in the UK, France and Poland have been impacted by drought, while the relaxation of export bans in the Black Sea region has done little to moderate prices.

In the long term, the current high price environment for commodities could stimulate much-needed investment in agricultural production and technology, which could moderate concerns over the ability of the sector to feed a growing population, the OECD said.

However, with energy costs high and evidence that higher international market prices are not filtering through to consumers, there are signs that investments in productivity are slowing. Pressure on water supplies and the availability of agricultural land are also increasing, the OECD said.

Global production will grow 1.7 percent per year, down from 2.6 percent last decade, according to the OECD.

A long-term slowdown in the yield improvements of key staple crops – which the Food and Agriculture Organization of the UN warned about earlier in the year – will continue to push prices higher, the OECD said. Per capita food consumption will rise in emerging markets in Eastern Europe, Latin America and Asia.