global food-markets

The New Normal? A Tighter Global Agricultural Supply and Demand Relation and its Implications for

Food Security

Mark W. Rosegrant, Director Simla Tokgoz, Research Fellow

Prapti Bhandary, Senior Research Assistant

Environment and Production Technology Division

ABARES's Outlook 2012 Annual Conference Canberra, Australia

March 6-7, 2012

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Outline

Drivers of agricultural growth and food security

Model description

Baseline projections of supply, demand and food security

Alternative scenarios for crop productivity and energy price

Conclusions and policy implications

Drivers of Agricultural Growth and Food Security

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Drivers of Agricultural Growth and Food Security

Demand drivers • Population growth: 9 billion people in 2050

• Urbanization: 2008 = 50% urban; 2050 = 78% urban

• Income growth

• Biofuels and bioenergy

• GHG mitigation and carbon sequestration

• Conservation and biodiversity

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Drivers of Agricultural Growth and Food Security

Supply drivers • Water and land scarcity • Climate change • Energy prices • Investment in agricultural research • Science and technology policy • Management and governance reform

Model Description

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The IMPACT Model

IMPACT – “International Model for Policy Analysis of Agricultural Commodities and Trade”

Representation of a global competitive agricultural market for crops and livestock

Global • 115 countries

• 281 food production units (countries x river basins)

• 46 agricultural commodities

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Flow Chart of IMPACT Model

Baseline Projections of Supply, Demand and Food Security

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Annual Average Growth in GDP between 2010 and 2050 – Baseline Projections

Source: IFPRI IMPACT Model, September 2011 simulations

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Annual Average Growth in Population between 2010 and 2050 – Baseline Projections

Source: IFPRI IMPACT Model, September 2011 simulations

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World Crop Yields Annual Average Growth Rate

Source: IFPRI IMPACT Model, September 2011 simulations

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World Crop Area Baseline Projections

Source: IFPRI IMPACT Model, September 2011 simulations

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Source of Cereal Production Growth, 2010 - 2050

Source: IFPRI IMPACT Model, September 2011 simulations

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Percent Change in World Prices of Cereals between 2010 and 2050

Source: IFPRI IMPACT Model, September 2011 simulations

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Percent Change in World Prices of Meat between 2010 and 2050

Source: IFPRI IMPACT Model, September 2011 simulations

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Cereal Production Baseline Projections

Source: IFPRI IMPACT Model, September 2011 simulations

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Meat Production Baseline Projections

Source: IFPRI IMPACT Model, September 2011 simulations

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Per Capita Meat Demand Baseline Projections

Source: IFPRI IMPACT Model, September 2011 simulations

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Population at the Risk of Hunger

Source: IFPRI IMPACT Model, September 2011 simulations

Alternative Scenarios for Crop Productivity and Energy Price

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Scenarios Compared to Baseline

Scenario 1 – Yield Increase • Higher crop productivity growth rate resulting in higher crop

yields

• Increase the productivity growth rate for each crop such that the projected crop prices in 2050 in real terms are the same as crop prices in 2010 in real terms

Scenario 2 – Energy Shock • Doubling of oil prices in 2050 compared to baseline • Higher fertilizer price (fertilizer price growth rate increased

by 75%)

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Changes in World Prices of Crops Relative to Baseline, 2050

Source: IFPRI IMPACT Model, September 2011 simulations

Commodity/Scenario Yield Increase Energy Shock

Rice -20.2% 9.8%

Wheat -26.3% 10.1%

Maize -36.3% 13.4%

Other Grains -12.0% 6.4%

Soybeans -19.2% 8.2%

Sorghum -17.7% 6.5%

Source: IFPRI IMPACT Model, September 2011 simulations

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Changes in World Prices Relative to Baseline, 2050

Commodity/Scenario Yield Increase Energy Shock

Beef -4.9% 2.2%

Pork -5.8% 2.2%

Poultry -8.8% 2.5%

Soybean Oil -15.3% 26.3%

Rapeseed Oil -22.8% 50.5%

Milk -3.4% 1.1%

Source: IFPRI IMPACT Model, September 2011 simulations

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Commodity/Scenario Yield Increase Energy Shock East Asia and Pacific -11% 6%

Europe and Central Asia -4% 2%

Latin America and Caribbean -19% 17%

Middle East and North Africa -16% 8%

South Asia -32% 19%

Sub-Saharan Africa -32% 15%

Developed -1% 4%

Developing -26% 14%

World -24% 14%

Source: IFPRI IMPACT Model, September 2011 simulations

Impact on Population at Risk of Hunger Relative to Baseline, 2050

Conclusions and Policy Implications

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Conclusions

World prices of most cereals and meat are projected to increase in real terms in the coming decades with business-as-usual

Rising prices will slow food demand growth for poor consumers, adversely affecting food security and human well being

Population growth in developing world will lead to rapid growth in cereal demand

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Conclusions

Rising income and rapid urbanization in Asia will change composition of demand towards meat and dairy

On the supply side, water scarcity, climate change, land degradation and lack of necessary resources will reduce yield growth rates

With declining water availability and land for profitable cultivation, expansion of area will contribute little to future production growth

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Conclusions

Intensified linkages between energy and agricultural markets

• through growth in biofuels production

• through higher input costs to agricultural production

Developments in energy markets impact agricultural markets and affect food security in developing countries

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Energy Policy Implications

Adopting a low-carbon fuel standard (like the California policy, versus the existing national RFS) would shift ethanol production away from grains and towards other lower-carbon feedstocks

Reduce OECD subsidies and mandates for biofuels; liberalize trade in biofuels

Reduce water, energy, fertilizer subsidies

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Increasing crop productivity: agricultural research, water management, and rural investment • Emphasis on crop breeding (including

biotechnology) targeting abiotic and biotic stresses • Water harvesting, precision agriculture, minimum

tillage, integrated soil fertility management, integrated pest management, reduce post harvest losses

• Rural infrastructure investment to improve access to markets, information, credit, inputs

Agricultural Productivity