The UN Food and Agriculture Organization has warned that the current financial crisis will affect agricultural sectors in many countries negatively, including those in the developing world.

World cereal production is expected to hit a new record this year as high prices boosted plantings under generally favorable weather conditions, FAO said today in the latest issue of its “Food Outlook”, a bi-annual commodity publication. World cereal production is forecast to be large enough to meet anticipated utilization in the short-run, and help replenish much depleted global stocks. World wheat production is also forecast to hit a new record, while rice production will increase on last season’s output. Global fish production is forecast to increase by only one per cent in 2008, sustained by firm growth in aquaculture. The difficulties of many banks heavily involved in the financing of world capture fisheries and aquaculture development has limited the credit available to the sector.

The benchmark US wheat price has been seen to fall around 30% from 2008 highs, averaging US$252/tonne last month – back to July 2007 levels. Rice prices, which skyrocketed early in the year, have fallen by about a quarter but still 78% higher than October 2007 prices. The drop has not been as intense as wheat because export restrictions remain in place in some countries.

Greater uncertainty
This year’s record cereal harvest and the recent fall in food prices should not create a false sense of security, said Concepcion Calpe, one of the report’s main authors.

“For example, if the current price volatility and liquidity conditions prevail in 2008/09, plantings and output could be affected to such an extent that a new price surge might take place in 2009/10, unleashing even more severe food crises than those experienced recently,” she warned. “The financial crisis of the last few months has amplified downward price movements, contributed to tighten credit markets, and introduced greater uncertainty about next year’s prospects, so that many producers are adopting very conservative planting decisions.”

The report stresses that most of the recovery in cereal production took place in developed countries, where farmers were in a better position to respond to high prices. Developing countries, on the contrary, were largely limited in their capacity to respond to high prices by supply side constraints on their agricultural sectors.

Implications for the poor
The sharp 2007/2008 rise in food prices has increased the number of undernourished people in the world to an estimated 923 million. Lower international commodity prices have not yet translated into lower domestic food prices in most low income countries.

“There is a real risk that as a consequence of the current world economic problems people will have to reduce their food intake and the number of hungry could rise further,” Calpe added.

Long-term challenges
The report says that world agriculture is facing serious long-term issues and challenges that need to be urgently addressed. These include land and water constraints, low investments in rural infrastructure and agricultural research, expensive agricultural inputs relative to farm-gate prices, and little adaptation to climate change.

To feed a world population of more than nine billion people by 2050 (around six billion today) global food production must nearly double.

Population growth will take place mostly in developing countries and for the greater part in urban areas. A shrinking rural work force will thus have to be much more productive. This will require more investments in agriculture, machinery, tractors, water pumps, combine harvesters etc., as well as more skilled, better-trained farmers and more efficient supply chains.

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