Supply disruptions, climate fundamental challenges for agrifood sector in coming decade

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Photo by Raphael Rychetsky on Unsplash

The global agrifood sector faces fundamental challenges over the coming decade, particularly the need to feed an ever-increasing population, the impacts of the climate crisis and the economic consequences and disruptions to food supply linked to the war in Ukraine, according to a report.

The findings of the latest OECD-FAO Agricultural Outlook 2022-2031 report underscore the crucial role of additional public spending and private investment in production, information technology and infrastructure as well as human capital to raise agricultural productivity. 

Prices of agricultural products have been driven upward by a host of factors, including the recovery in demand following the outbreak of the COVID-19 pandemic and the resulting supply and trade disruptions, poor weather in key suppliers, and rising production and transportation costs.

These have been further exacerbated recently by uncertainties regarding agricultural exports from Ukraine and Russia, both key suppliers of cereals. Russia’s role in fertiliser markets has also compounded already existing concerns about fertiliser prices and near-term productivity.

The report underlines major risks to key commodity markets: equilibrium prices for wheat could be 19% above pre-conflict levels if Ukraine fully loses its capacity to export and 34% higher if in addition Russian exports are 50% of normal amounts.

A scenario simulating a severe export shortfall from Ukraine and Russia in 2022/23 and 2023/24, and assuming no global production response, suggests a further increase in the number of chronically undernourished people in the world following the COVID-19 pandemic.

No peace, no food security

“Without peace in Ukraine, food security challenges facing the world will continue to worsen, especially for the world’s poorest,” OECD Secretary-General Mathias Cormann said.

An immediate end of the war would be the best outcome for people in both Russia and Ukraine and for the many households around the world that are suffering from sharp price increases driven by the war, he added.

“These rising prices of food, fertilizer, feed and fuel, as well as tightening financial conditions are spreading human suffering across the world,” said FAO Director-General QU Dongyu.

An estimated 19 million more people could face chronic undernourishment globally in 2023, if the reduction of global food production and food supply from major exporting countries, including Russia and Ukraine, results in lower food availability hitting worldwide, QU added.

According to the Outlook, global food consumption, which is the main use of agricultural commodities, is projected to increase by 1.4% annually over the next decade, and to be mainly driven by population growth.

Most additional demand for food will continue to originate in low- and middle-income countries, while in high-income countries demand will be limited by slow population growth and a saturation in the per capita consumption of several food commodity groups, the report said.

Greenhouse impact

Over the next decade, global agricultural production is projected to increase by 1.1% per year, with the additional output to be mainly produced in middle- and low-income countries. The Outlook assumes a wider access to inputs and shows that increased productivity-enhancing investment in technology, infrastructure and training will be critical drivers of agricultural growth.

However, a prolonged increase in energy and agricultural input prices – such as fertilisers – will raise production costs and may constrain productivity and output growth in the coming years. 

According to the report, direct greenhouse gas (GHG) emissions from agriculture are projected to increase by 6% during the next decade, with livestock accounting for 90% of this increase.

Agricultural emissions are, nonetheless, projected to grow at a lower rate than production, thanks to yield improvements and a reduction in the share of ruminant production, indicating a decline in the carbon intensity of agriculture.

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