Agriculture prices are projected to fall 2.6% this year but are estimated to rebound in 2020 due to lower crop production and higher costs for energy and fertilisers, the World Bank said in its April Commodity Markets Outlook.
Agricultural and food prices are expected to remain stable over the medium term. However, sharp price changes stemming from energy price fluctuations, adverse weather events, or trade tensions cannot be ruled out, the report adds.
The outlook by the bank also adds that in 2020, agricultural prices are expected to rise 1.7 % on expected cuts in US crop plantings and higher costs of energy and fertilisers. “The outlook for commodity prices is sensitive to policy-related risks, especially for oil,” said Ayhan Kose, director of the World Bank’s Prospects Group. Energy prices affect agricultural production costs directly through fuel use and indirectly through fertiliser and other chemicals use. They also create incentives to shift production to biofuels.
Higher-than-expected energy costs could lift prices of some crops such as grains and oil seeds. Greater-than-projected growth in biofuel production could also lead to higher prices for some food commodities. Food price increases have important macro- and micro-economic impacts through several channels. At the macroeconomic level, food price increases raise inflation and contribute to terms of trade shocks. At the micro-economic level, for households that are net sellers of food products, rising food prices can increase real incomes. However, on average, higher food prices raise poverty, reduce nutrition, and curtail the consumption of essential services such as education and health care.
The report estimates global rice production to increase marginally in 2018-19 to 501 million tonne (mt), a slightly more optimistic outcome than earlier assessments. Global consumption is projected to increase by about 1%, resulting in a stock-to-use ratio of 35%, a 20-year high.
Weather-related disruptions in Brazil and the Philippines have been offset by favorable conditions in most Asian rice producers, including India, Indonesia, Thailand, and Vietnam.
Global wheat supplies tightened considerably this season, with production projected to be 4% lower compared with last season’s record of 763 mt, according to the USDA. The decline is due to weather-related yield losses in key Eastern European and Central Asian producers. The World Bank projects global consumption of wheat to decline marginally from last season, pushing the stocks-to-use ratio down by 1%.
The report on edible oil reports that production outlook looks promising due to favourable growing conditions. Global output of the 17 major edible oils,including palm, soybean, and rapeseed, which together account for two-thirds of global output is forecast to increase 2% in the 2018-19 season. More than two-thirds of the production gains are projected to come from palm oil.