Following a decade of robust demand growth, OECD-FAO forecasts that agricultural demand is expected to slow over the next decade and will be mainly driven by population growth.

This is largely due to an expected slowdown in demand in China (0.6% per annum compared to 2.3% over the last decade) and other middle income countries, as well as in global demand for biofuels.

Global food demand is projected to increase by 1.4% per annum over the next decade. Low and middle income countries will continue to drive food demand growth.

The slower demand growth for agricultural commodities is projected to be matched by efficiency gains in crop and livestock production, which will keep real agricultural prices relatively flat.

Population growth will be the main determinant of demand growth and the bulk of additional demand will come from regions with high population growth.

Continuing income growth and urbanisation in China, India and southeast Asia will also drive food demand growth for several commodities. China will account for 34% of additional global demand for meat.

Production outlook

The outlook forecasts that global agricultural production is to increase by 1.1% per annum. However, a prolonged increase in energy and agricultural input prices will increase production costs, which may restrict productivity growth in the coming years. The additional output will be mainly produced in middle and low income countries, according to OECD-FAO.

Growth in crop output is largely expected to come from increased yields. Similarly, a large share of increased animal production will come from improvements in animal productivity, resulting from more efficient management and feed efficiency.

EU slowdown in dairy growth

Dairy is forecast to be the fastest growing livestock sector, with milk supply projected to increase by 23%, about half of which originated in India and Pakistan, which together account for one-third of global milk output in 2031.

Growth will come from herd expansion. Growth in EU milk production is expected to remain limited, constrained by policies on sustainable production and the expansion of lower-yielding organic and pasture-based production systems.

Herds in the EU are expected to decline, limiting growth to 5% by 2031. New Zealand is expected to be similar to the EU, experiencing herd decline of around 5%.

Growth in the US is expected to be stronger than in the EU. The EU is forecast to maintain its dominance in butter production, which will grow by only 4%.

The EU’s share in global butter production is forecast to fall from about 20% in 2019-2021 to 15% in 2031. Global skim milk powder production is forecast to grow by 20%, whole milk powder by 15% and cheese by 13%.

Regulation to drive EU production decline

Beef production is expected to expand by 8%, accounting for 12% of global meat production growth. Latin America will account for 33% of this.

EU beef production expected to decrease over the next decade on account of a smaller herd size, in response to reduced export opportunities and high costs from stricter GHG emissions reducing measures.

Poultry is forecast to account for more than half of the global growth in meat production in the next decade, with Asian and Pacific regions expected to account for about 50% of the production growth.

The outlook provides little optimism for EU pig producers. While pork production is projected to increase by 17% and account for 38% of global meat production growth, most of this is to originate from China. European production is expected to decline over the next decade, as tighter environmental and animal welfare regulations are expected to increase costs.

Comment

The impact of environment and climate regulation in the EU is clearly expected to impact production over the coming decade.

Both production and demand over the period of this outlook will be strongly influenced by post-pandemic recovery in the global economy and significantly by the impact and duration of Russia’s war in Ukraine.

Food price inflation, while devastating for regions and people affected by hunger, will also likely impact demand across all regions.

The authors also point to uncertainty regarding the impact of changing diets and the increase in vegetarian, vegan and flexitarian diets in high income countries, which could depress demand for livestock proteins, particularly among the young. The signals to farmers are less about expansion of production and more towards consolidation.