Global Food Markets Face Supply-Shock Risk on Imbalances

LAGOS (Capital Markets in Africa) – Most food commodities are dominated by a handful of exporting countries, exposing global markets to significant supply shocks when crops disappoint or policies change, according to the Organization for Economic Cooperation and Development and the United Nations.

For products ranging from wheat to cheese and pork to poultry, the top five supplying countries will account for more than 70 percent of global exports in 2026, the OECD and the UN’s Food & Agriculture Organization wrote in a report published Monday. At the same time, imports are becoming increasingly important for food security, particularly in Africa and the Middle East.

“This may imply a greater susceptibility of world markets to supply shocks, stemming from natural and policy factors, rather than demand shocks,” the Paris-based OECD and Rome-based FAO said.

Disruption risks in the global food trade are increasing with climate change, while London-based think tank Chatham House last month highlighted a potential squeeze of key shipping routes. Recent events such as flooding in Brazil or export bans on wheat from Black Sea countries that helped contribute to unrest as part of the Arab Spring, are some examples of trade bottlenecks, Chatham House said in its report.

The dependence of the Middle East and North Africa on agricultural imports is expected to continue in the next decade, OECD and FAO said. Grain imports account for at least half of demand in Algeria and Egypt, while Saudi Arabia is almost wholly reliant on imports for its cereal consumption, according to the report.

On the other hand, net exports are projected to increase from the Americas, Eastern Europe and Central Asia. The biggest market concentration is seen in the soybean market, with just Brazil and the U.S. dominating about 80 percent of global exports, the organizations said. Export concentration among the top five suppliers is projected to increase by 2026 for products including beef, cheese and poultry.

Demand growth for agricultural commodities is expected to slow “considerably” over the next 10 years as spending in China slows and biofuels output is curbed by moderate crude prices. Still, India and Sub-Saharan Africa will drive a large share of global demand and China will continue to play an important role in consumption growth for many commodities, the organizations said.

Record production and ample stockpiles of most commodities last year have kept prices well below the peaks in the past decade. Prices will probably remain at lower levels in the next 10 years, the OECD and FAO said. Wheat and corn are expected to rise by less than 1 percent a year, and soybeans and oilseeds should stay at similar levels, they said. Meat and fish prices will fall, while sugar will drop by about 2 percent a year.

On the supply side, while crop yield growth is projected to slow slightly, production could be increased by closing big yield gaps that remain in some regions, especially in sub-Saharan Africa, the report said. The global cereal planted area will only increase marginally in the 10-year outlook period.