While international agricultural commodity markets appear to have entered calmer conditions after record peaks last year, food commodity prices are anticipated to remain on a higher plateau over the next decade, underpinned by firm demand but a slowing growth in global production, according to the latest OECD-FAO Agricultural Outlook 2012-2021.

The report suggests that in addition to population growth, higher per capita incomes, urban migration and changing diets in developing countries, as well as rising requirements for biofuel feedstocks, are underpinning demand pressures. At the same time, agricultural output by developed, exporting countries has been slow to respond to higher prices in the last decade. Higher demand will be met increasingly by supplies that come to market at higher cost. With farmland area expected to expand only slightly in the coming decade, additional production will need to come from increased productivity, including by reducing productivity gaps in developing countries, the report said.

The Outlook anticipates that agricultural output growth will slow to an average of 1.7% p.a. over the next 10 years, down from a trend rate of over 2% p.a. in recent decades. Higher input costs, increasing resource constraints, growing environmental pressures and the impacts of climate change will all serve to dampen supply response. Much of the projected growth will come from developing countries, which will increasingly dominate in the production of most agricultural commodities, and also take on a more important role in commodity trade.