Prospects better for world trade, says OECD report

28 April 2000

Prospects better for world trade, says OECD report

By Philip Clarke

PROSPECTS for world agricultural markets have taken a significant turn for the better in the past 12 months, according to the latest five-year Agricultural Outlook report from the Organisation for Economic Co-operation and Development.

"Economic growth has been more vigorous than expected in most regions, including some of the worst hit by the financial crises of the past two years," it says. "Consumer spending power seems to be stabilising and currency volatility has begun to settle."

In particular, the OECD points to South-East Asia, "the former engine of global commodity import growth", where there has been sustained recovery. "Brazil and Russia also appear to be emerging earlier than expected from their currency crises."

But, while stronger demand is on the way, it will take a while for markets to shrug off the recent depression, which has seen many commodity values slump by more than 35%. "Re-balancing markets will take time and another year of relatively low prices looks likely," says the report.

The recovery process is not being helped by recent cash handouts to US farmers to compensate for low prices. "There is a danger that it may encourage them to expect automatic aid whenever prices are low, which could be far more distorting to markets."

The EU is also criticised for watering down the Agenda 2000 reforms and for its continued use of export subsidies, which sustain low world prices.

But these are likely to be offset by growing demand for food in developing countries over the next five years, with the emphasis on feed grains and meat. "Improved consumer spending power and migration of rural populations to urban areas will result in up- graded diets," says the report.

Trade will benefit as a consequence, with net exports of pork up 98% by 2005, poultry up 48% and cheese up 33%. "A decade of stagnation in world cereal trade should also finally end with OECD area exports expected to rise 26% by 2005 from the average for 1994-98.

"Generally tighter world stock to use ratios should set the stage for a gradual recovery in prices for all sectors," it adds.

But the NFU believes there is little to get excited about. "There is no quick fix," says economist Derrick Wilkinson. "There is nothing to suggest there will be any improvement for the next two years, and when it does come it will only benefit developing countries."

Critically, the report also predicts that the k will remain weak for the next four years "reversing last years expectation of a stronger k". &#42

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