The Agricultural Outlook published on Wednesday by the Organisation for Economic Co-operation and Development and the United Nations’ Food and Agriculture organisation predicts that global food production will increase strongly in the coming decade, keeping prices down as economies recover slowly from the financial crisis and oil costs remain low.

This is especially expected to affect grain and oilseed prices. “The build-up of high cereal stocks over the past two years, combined with low oil prices, should lead to a further weakening of cereal prices in the short term”, the OECD and FAO wrote. “Slowly rising production costs and sustained demand should strengthen prices again over the medium term.” As a result, the European producer price for wheat is forecast to remain under €200 per tonne for the next ten years.

This, however, is expected to benefit livestock farmers, who will enjoy lower feed and fertiliser costs. “Meat output is expected to respond to an improvement in margins, with lower feed grain prices set to restore profitability to a sector that has been operating in an environment of particularly high and volatile feed costs for most of the past decade,” the Outlook predicts.

The average European beef and veal producer price is expected to drop slightly, from €3.70/kg this year to €3.49/kg in 2024, while pigs, poultry and sheep should see small improvements. “Sheep meat prices will remain high, fuelled by strong import demand in China,” the Outlook indicates.

More generally, increasing demand for protein in developing countries will stoke the global production of milk and meat, while supporting their price.

Strong recovery in milk prices

The OECD and FAO see a strong recovery in milk prices. “Over the next ten years, nominal prices are expected to recover from their current low levels, driven by growing import demand,” forecasters wrote. Cheese is tipped to achieve the strongest price growth; yet for all dairy commodities, even after inflation is taken into account, “prices in real terms are projected to decline slowly, but will stay considerably above pre-2007 levels”.

In Europe, the average milk price is expected to be just under 29 cents per litre this year, but a quick rebound should see it reach 37 cents by 2024.

Presenting the joint report in Paris, OECD Secretary-General Angel Gurría said: “The outlook for global agriculture is calmer than it has been in recent years, but there is no room for complacency. We cannot rule out the risk of new price spikes in the coming years.”

The warning targets commodities that are produced in increasingly concentrated, specialised areas – such as milk. “Exports of dairy products are projected to further concentrate among four prime sources: New Zealand, the European Union, the United States and Australia, where opportunities for domestic demand growth are limited,” the Outlook observes.

“The growing role of a relatively small group of countries in supplying global markets with key commodities could increase market risks, including those associated with natural disasters or the use of disruptive trade measures.”