US economists see volatile future for world prices

By Stephen Howe

WORLD cereal and protein crop prices will become increasingly volatile over the next few years according to economic forecasts from Purdue University in the USA.

Speaking at New Hollands Food Systems of the Future Conference, the Universitys agricultural business director Dave Downey said although world population growth was running ahead of the increase in food production, that was no longer the key factor affecting price instability.

“World population is growing at 1.7% a year, compared with an increase in cereal output of 1.4%, but that will be insufficient to guarantee increased returns,” said Dr Downey.

The main reason for price instability over the next few years was related to the failure of GATT to provide stability and the ending of the traditional US farm programme based on set-aside. In the past, that had acted as a buffer for both world cereal stocks and prices, he explained.

“More US farmland in production, coupled with a changing global climate, will lead to fluctuating prices throughout the world.”

Longer term (about 10 years) prices would increase, said Dr Downey. There were three reasons for optimism, explained his Purdue colleague Wallace Tyner: those included

  • The growing world population;
  • A slowing-down in yield increases; and
  • Greater dietary expectations in high-population areas of the world, including China, India and Indonesia.

“The growth rate in cereal production has been declining over the past 30 years. In the ’60s, annual production was increasing at 3.3%; that figure has fallen to 1.4 % and the downward trend is continuing,” said Dr Tyner.

There is little potential for increasing the area under cultivation, with any gains balanced by losses to urban expansion and environmental projects, he said.

Meanwhile, farmers must remain vigilant in running their businesses to ensure that they remain viable, said Dr Tyner.