Another study forecasting higher real food prices for the next decade has recently been published by three authors associated with the Humboldt University in Berlin led by Professor Harald von Witzke. The working paper provides a useful qualitative survey of the reasons why agricultural supply will have difficulty in keeping up with the demand for food and other products of agriculture (including bioenergy). For the more technically minded, it uses a partial equilibrium multi-market model (descended from the venerable SWOPSIM model once supported by the US Department of Agriculture) to provide quantitative estimates of price levels for the key grains and oilseeds which are the focus of the study.
The agricultural treadmill was the term coined by US agricultural economists to describe the tendency for agricultural supply to outrun demand for agricultural products, leading to a downward pressure on agricultural prices and thus farm incomes. It characterised world food markets broadly during the period from 1870 to 2000. The Humboldt paper joins an increasing number of forecasting studies which indicate that the treadmill came to a halt around about 2000 and that the reversal since then is likely to continue for the next one to three decades (depending on the time span of the study).
Focusing on the period 2003/05 to 2013/15, the study foresees that the EU will switch from being a net exporter of grains to a net importer, while its import deficit in oilseeds will increase. The principal reason for the changes in the net trade position is the significant growth in domestic demand for bio-energy production.
An aside in the study is what it projects for organic food production in Europe. Noting that organic food production requires more acreage than conventional farming, it observes that the growth in the area devoted to organic production has been slowing down and that sustained high prices for food in general will contribute to a further slow-down in this market segment.
A video presentation by Professor Harald von Witzke summarising the report can be found at the following two YouTube links
Humboldt report on global market trends Part 1
Humboldt report on global market trends Part 2
