FAPRI Outlook: Projected Economic Turnaround Fuels Recovery
Analysts with the Food and Agricultural Policy Research Institute (FAPRI) briefed Congress last week on their 2010 agricultural economic baseline projections, known as the FAPRI Outlook. Despite the recent slowdown in the world economy and supply response to earlier dramatic price increases, which depresses commodity prices in the short run, FAPRI projects that an economic turnaround and bioenergy mandates will grow demand for food, feed, and fuel, stimulating trade and price recovery over the rest of the decade.
FAPRI is an economic research group with centers at Iowa State University and the University of Missouri-Columbia. The outlook projections incorporate recent macroeconomic forecasts and currently adopted agricultural policies.
According to the Outlook, the slowdown in the world economy in 2009 proved to be deeper and more widespread than originally anticipated, with a negative annual rate of real GDP growth of 1.9 percent. But significant recovery is projected for 2010, with long-term real GDP growth of 3.3 percent reached by 2011. The Asian economies withstood the economic crisis, posting positive growth in 2009 (for example, China at 8.5 percent and India at 6.4 percent), and thus lead the world economic recovery.
The U.S. dollar made significant gains in 2009 but it resumes its real depreciation over the rest of the decade against the currencies of Australia, the EU, New Zealand, Argentina, and China.
The economic recovery is accompanied by projected stronger energy prices. FAPRI expects that continuing recovery of crude oil prices and bioenergy mandates will grow demand and strengthen the world price of ethanol through 2019. Global net trade in ethanol is projected to increase by 3.12 billion gallons and reach 4.15 billion gallons by 2019. Biodiesel mandates in the Americas and Europe sustain the high price of biodiesel and vegetable oil, with growth in consumption mostly met by domestic production, as the traditional South American exporters also face domestic mandates.
Other highlights from FAPRI’s 2010 world agricultural outlook:
- Bumper crop production in key wheat producing and importing countries, coupled with a slow economy, depresses the world wheat price over the next two years. An economic turnaround strengthens prices. The world corn price follows a similar pattern, decreasing in 2009/10 but strengthening thereafter. In the long run, grain prices are expected to remain strong because of growing demand for food, feed, and fuel purposes.
- A production shortfall in 2009/10, particularly in India, raises the world price of sugar by almost 60 percent. The price declines by 26 percent in the following year as countries recover. However, it continues to remain high, as more sugarcane is used for ethanol in Brazil, and sugar imports of countries like China and the EU remain strong.
- World prices of oilseeds remain relatively stable in 2009/10 as the supply rebound (especially for soybeans) is met with increased demand resulting from the economic recovery. Vegetable oils lead the oilseeds complex, as demand from both food and biodiesel uses expands firmly over the outlook period. Increasing demand for protein meal from the growing and intensifying livestock sector in Asia supports the price of meal despite large supplies due to strong oil-driven crush. Argentina, Brazil, Paraguay, and the U.S. continue to dominate world soybean production, while China continues to dominate world soybean imports. Palm oil remains the cheapest and most widely traded edible oil.
- Food safety concerns continue to affect the world meat market in the short run. However, sustained income and population growth raises per capita meat consumption and fuels expansion in world trade. Over the next decade, meat trade is projected to increase by 22.5 percent, and recovery in demand, coupled with higher grain prices, strengthens all meat prices. Brazil and the United States gain significant shares in the world meat market.
- Dairy prices declined significantly in 2008/09 as a result of the economic slowdown. In the long run, growth in population and income continues to put upward pressure on dairy prices. Australia, New Zealand, and the European Union remain the big exporters. While exports from the European Union stagnate, Argentina and Brazil expand their dairy exports. The Asian countries, Russia, and Algeria are the main importers in the world dairy markets.
The multi-year FAPRI projections provide a starting point for evaluating and comparing scenarios involving macroeconomic, policy, weather, and technology variables in world agricultural trade. More information is available at the Iowa State (www.fapri.iastate.edu) and University of Missouri (www.fapri.missouri.edu) FAPRI Web sites.