Thursday, November 18, 2010

Global Food Security: Highlights of the November 2010 FAO "Food Outlook"

The November 2010 (biannual) FAO Food Outlook report has been released. [pdf] In this post I've selected highlights and important graphs from the report as related to global food security, prices, and stock-to-use ratios of cereals, rice, wheat, and other important trends.

The FAO Food Price Index averaged 197 points in October 2010, up 25 percent from the corresponding period last year and 4 percent above the September average. The Index climbed for the fourth consecutive month, reaching its highest level in 27 months. The October average was only 7 percent, or 16 points, below its record high value of June 2008.

International prices of nearly all the commodities included in the index rose, but in particular sugar, soybeans and coarse grains.

World cereal production this year, which is currently put at 2 216 million tonnes, is 2 percent below the previous year’s level and, although it represents the third largest crop on record, it is 63 million tonnes less than the forecast reported in the June 2010 Food Outlook. Most of the downward revision, involving wheat and coarse grains, following cuts in production in major grain producing countries in the Commonwealth of Independent States (CIS) and disappointing yields in the EU, Canada and the United States.

World cereal stocks for crop seasons ending in 2011 are forecast to fall to 512 million tonnes, down 7 percent from 53 points, from October 2009. Among the major cereals, international prices of barley, maize and wheat increased the most. Between July and October, wheat and coarse grains increased by 35 and 47 percent respectively while rice prices gained 14 percent.

Although global production in 2010 is set to decline by at least 5 percent from 2009, wheat stocks have proven sufficient to cover this year’s decline in world output, especially in major exporting countries. World wheat closing inventories are forecast to fall to 181 million tonnes, 10 percent below the 2010 level but still 25 percent above the critically low level of 2008.

On aggregate, the ratio of (wheat) stocks held by the major exporters to their disappearance (i.e. domestic utilization plus exports) is forecast to reach 18.4 percent, down 3.3 percentage points from the previous season but well above the critically low ratio of 11.8 percent in the high-price 2007/08 season.

Global rice output this season is forecast to reach a record level, sufficient to cover world consumption without the need to draw down reserves. The forecast for trade in 2010 has been raised to a level that is 5 percent above 2009, with much of the yearly increase expected to be met through larger exports from the United States and Viet Nam.

At the forecast level of 133 million tonnes, the world stocks-to-use ratio, an important indicator of world food security, would equal 28.5 percent next year, an improvement from the 27.4 percent estimated for 2010 and the highest value since 2002.

World meat production in 2010 is anticipated to grow by a mere 1 percent, to 286 million tonnes, restrained by reduced animal inventories, high feed costs and a relatively weak consumer demand, which will make it difficult for producers to transfer the full increases of costs to prices.

At USD 1.026 trillion, the forecast cost of importing foodstuffs at the global level in 2010 would be some USD 133 billion or 15 percent more than in 2009, and only a fraction short of the landmark USD 1.031 trillion reached in 2008. On the back of sustained economic recovery and rising freight costs, particularly in the latter half of the year, noncereals are expected to account for almost all the annual growth in global food bills, with values foreseen to surpass the record levels registered in 2008.

The composition of the imported food basket, by and large, mirrors a return to economic growth in many countries, with large increases expected for the high-value products. The world cereal import bill in 2010 is expected to remain virtually unchanged from the previous year’s level. Compared with 2009, a reduction in wheat traded volume and in rice quotations could offset the impact of higher prices of wheat and coarse grains on global cereal trade value.


Selected Quotes from the Report:

"Global cereal supply and demand still appears sufficiently in balance. While acknowledging the sudden increase in prices and deterioration of prospects for cereal markets in recent months, for wheat in particular, the Groups did not conclude that this situation was indicative of an impending food crisis. Unexpected crop failure in some major exporting countries followed by national responses and speculative behaviour rather than global market fundamentals, have been amongst the main factors behind the recent escalation of world prices and the prevailing high price volatility."

"Due to several structural changes in both the futures markets and the underlying agricultural commodities markets, prices and volatility levels will probably remain elevated for the foreseeable future. Higher prices will be necessary to encourage greater productivity and infrastructure development."

"Another leading factor (for price increases) has been the weakening of the United States Dollar (US Dollar) from mid-September, which continues to sustain the prices of nearly all agricultural and non-agricultural traded commodities."

"Sheep and goat meat production is set to remain virtually unchanged in 2010 at 13 million tonnes due to restocking. Dry weather in recent years reduced supply in key producing areas including Oceania, South America and parts of Africa, but timely and abundant rains this year, coupled with strong lamb prices, are encouraging farmers to rebuild their flocks and herds. Some output growth has been observed in these areas which compensates for the decline in Europe."

"Throughout recorded history rust fungi have been the most damaging diseases affecting wheat. Significant changes in both stem and stripe rust populations currently pose serious threats to wheat production. Stem rust, once the most feared disease of wheat, has re-emerged in a new virulent form, designated as Race Ug99. First identified in East Africa, Race Ug99 is migrating and mutating rapidly. Most global commercial wheat cultivars are susceptible to Ug99.

In addition, new, highly aggressive races of stripe rust are devasting wheat crops in several regions. Breakdown of key resistance genes and genetic uniformity are driving these epidemics. Substantial and successful global initiatives are underway to address the stem rust threat, but similar efforts are urgently needed for stripe rust. Continued and sustained investment will be required to address both current and future challenges posed by wheat rusts."