Sixty-second Session

Rome, 12-15 January 1999


Table of Contents


1. This document summarizes FAO's latest medium-term projections to 2005 of production, demand, trade and prices for some major agricultural commodities and for almost all countries in the world. The full results, to be published in 1999, will also include projections for commodities not included in the present document, such as sugar, cocoa, bananas and natural rubber, for which work is still ongoing. Assumptions regarding economic and population growth, technological change, normal weather and unchanged agricultural policies (as of mid-1998) were used to prepare a "central or baseline" scenario for individual commodity production, demand and trade projections. It should be stressed that projection results are indicative of what would happen under specified macro-economic, demographic and commodity-specific assumptions, all of which are subject to uncertainty. A number of alternative policy scenarios, reflecting the slowdown in world economic growth following the economic/financial crisis that erupted in mid-1997, and the impact of possible production shortfalls in different parts of the world, were simulated and their results compared to the baseline scenario. A short analysis of their outcomes is briefly described in this document.

2. The projections covering the cereal-feed-livestock-fats and oil complex were generated using the FAO's World Food Model, a price-equilibrium recursive model. The projections for the other commodities used various techniques ranging from econometric single-commodity models to constant-price/constant policy projections of supply and demand. In each case, judgements of commodity specialists and agricultural experts shaped the final results.1

3. The outlook for production of and demand for the main agricultural commodities is for an increase in growth rates compared with the previous decade, even if the latest, lower, growth rates of the world economy are taken into account. But the expansion is still slow, with per caput output and consumption showing only a modest (0.7 percent a year) rise after its stagnation in the previous decade. In the developing countries, production and consumption of the main agricultural commodities are projected to grow at 1.4 percent a year, slightly slower than in the previous decade when per caput production grew at 1.6 percent and per caput consumption at 1.7 percent a year. The deterioration in the expected growth of the world economy will push the projected gain to 1.2 - 1.3 percent a year.

4. The previously identified slowdown in world trade in agricultural commodities, despite the beneficial effects of policy reform, is still foreseen, but the picture is quite complex with an increase in growth rates for cereals, dairy, tea and coffee and some raw materials. The slowdown in trade is based on the sharp falls in growth foreseen for fats, oils, oilmeals, meat, fruit and cotton. The slowdown in the markets for the major agricultural products covered could, however, be offset by growth in some other sectors not covered, particularly in the processed food products area but the evidence on this supposition is simply not available even though their growth rates in the past have been higher than average.

5. The net agricultural trade position of the developing countries is expected on the basis of these projections to deteriorate so that they are likely as a whole to be net importers of agricultural products in the future. Of particular concern is the increase foreseen even at constant prices in the net food import bill of the LIFDCs, something that lends even greater urgency to incentives to boost their food production capacity though e.g. the Special Programme. The situation of the Marrakesh Decision groups of Least Developed and Net Food Importing Developing Countries is similar, a further increase in their food import bills even at constant prices.

6. The outlook for food prices on world markets is notoriously difficult to project as these prices are not just driven by the fundamentals in their own markets but are also influenced by developments in other markets including the financial sector. However, FAO's World Food Model has generated some results that even taking into account the recent deterioration of the world economic outlook point to a level similar to that experienced in 1993-95, i.e. just before the last price surge and subsequent decline, and slightly higher than current (January-October 1998) levels. In viewing the medium-term price outlook it is always difficult to avoid looking at current conditions in world markets but all the more important to do so.

7. Whatever the trend level that prices fluctuate around, the extent of price oscillation is a matter of continuing concern. To gauge the extent of such fluctuations, two "scenarios" have been examined: - one the lower, and more realistic, income growth scenario which shows that 2005 prices of basic foodstuffs, after allowing for all the long run adjustments to take place, would be 2-4 percent lower than those projected under the baseline scenario; - the other simulation sets world cereal output in one year (2005) at 1.8 percent less than the baseline and this leads to a 15 percent increase in cereal prices and a heavy draw-down in stocks which would offset 60 percent of the decrease in production. Now production falls of 2.0 percent or more occur fairly regularly (about one year in three) so that this is a good reason for the fairly regular occurrence of price increases. Stock draw-downs of over 20 million tons are quite manageable in normal years but would be less likely in years of low carryovers or in cases where production shortfalls occur twice in a row or where much larger decreases in output occur. These are the types of scenario that require the continuous close monitoring of the global stock/consumption ratio.

8. The impact of lower incomes and/or higher food prices because of production shocks bears most heavily on the developing countries as is shown by examination of the two scenarios. The moderate production shortfall of 1.8 percent in a situation with adequate stocks, would still lead to a 2.2 percent fall in cereals consumption while the lower income scenario would curtail cereals consumption by 0.8 percent (and that of other higher income elastic foods by more). The projections underline the vulnerability of many developing countries to changes in factors external to the basic agricultural markets - the weather and macro-economic developments - and hence the need for adequate preparedness to safeguard their food security.


Population and income assumptions

9. Global demand for many commodities is crucially linked to economic and population growth and, especially in developing countries, to population shifts from rural to urban areas. Commodity projections to 2005 are based on the United Nations' medium variant, which estimates that world population will expand by 1.3 percent annually between 1993-95 and 2005, down from the 1.6 percent per year recorded in the previous decade. In developing countries population is projected to expand by 1.6 percent annually; in the developed countries population is projected to grow by 0.5 percent while no growth is expected for the economies in transition  (Annex Table 1).

10. World gross domestic product (GDP) in 1987 prices was projected by the World Bank in 1997 to increase by 3.2 percent per year, an acceleration compared with the previous decade. World per caput GDP was expected to increase by 1.9 percent annually to 2005 compared with 1.0 percent annually during the previous decade. In the developing countries, it would rise by 3.8 percent annually and in the transition economies by 3.3 percent per year. However, downward revisions in GDP growth rates estimated by the World Bank in September 1998, reflecting a slowdown in world economic growth, were used in generating a "lower income" scenario, whereby world GDP would grow by 2.9 percent yearly to 2005, and per caput income by 1.6 percent. The lower growth though shared by almost all regions to some extent would be greatest in the CIS and in Asia. However, the slowdown would be greatest in the early years and the effect would be much smaller by 2005.

Growth in agricultural production, demand and trade

11. The growth of production and demand of food and agricultural commodities covered by this study is projected at 2.0 percent yearly to be slightly higher than during the previous decade, and above the projected rates of population increase ( Annex Tables 2 to 5). The growth in aggregate volume of food and agricultural commodity trade is projected to decrease from 2.5 percent annually during 1984*-1994* to 2.2 percent annually during 1994*-2005, despite the increases expected in the volume of trade in wheat, coarse grains, cassava, dairy products and tropical beverages in relation to the previous decade.

12. Factors determining the projected increase of world demand include the relatively strong economic growth still expected in the developing countries and the recovery in the demand projected for some of the economies in transition. Aggregate production growth rates which are projected to increase significantly for grains and dairy products, reflect factors such as increased flexibility over planting decisions and more yield-enhancing research. Together these factors should allow production to keep pace with demand without significant price increases. Trade in many commodities will be particularly affected by developments in the former USSR, a major importer of a number of commodities in the past, and China, where increasing domestic production is expected to reduce imports and, in some cases, make China a net exporter. Other factors affecting trade include domestic policy adjustments that would be undertaken to comply with the Uruguay Round Agreement and the tendency in some commodities, including agricultural raw materials, toward increased consumption and processing in the producing countries.

13. The developing countries will account for much of the growth in overall commodity demand because of their comparatively buoyant per caput GDP expansion and the greater responsiveness of demand to income growth. By contrast a slow growth in demand is foreseen for the developed countries, because high current per caput consumption and slow growth of population are expected to limit the demand growth rate for many commodities. Aggregate production of basic foodstuffs in the developing countries is projected to increase by 3.0 percent annually over the period 1994*-2005, i.e. slower than the 3.6 percent annual rate during the previous decade but still allowing for increases in per caput output. By contrast, the developed countries are projected to raise their production by 1.1 percent annually and the economies in transition by only 0.3 percent annually. The aggregate imports, however, of developing countries for the commodities covered in the projections are expected to rise rapidly over the period 1994*-2005, increasing their share of world agricultural imports from 43 percent for the 1993-95 average to 49 percent in 2005. For the same reasons, the imports of the economies in transition are also expected to grow significantly over the projected period. As a result, the growth rates of exports of the developed countries are expected to increase sharply over the projection period relative to the previous decade.

14. The food import bills of the developing countries are expected to rise substantially reflecting mainly higher volumes imported but also to some extent the slight increase in real prices. This would reflect essentially a continuation of past growth rates but even so, the food import bills of the commodities covered would rise from US$63 billion in 1994* to US$90 billion by 2005, or from US$78.6 billion in 1994* to US$112.4 billion if other foodstuffs are included and are assumed to grow at the same rate of 3.3 percent per annum (Annex Table 6). At the same time, export earnings from all agricultural products covered would grow at 2.9 percent a year so that the net imports of the developing countries would grow quite rapidly from a near balance in 1993-95 to a deficit representing about 7 percent of their export earnings by 2005. This trend was highlighted in FAO's previous projections to the year 2000 and hence the latest study reinforces the concern that the developing countries are likely to become net importers of agricultural commodities in the next few years and per contra the rest of the world would become net exporter. Given the differences in the stage of economic development this comes as some surprise.

15. The food trade position of the Low Income Food Deficit countries (LIFDC) is also of some concern as their basic food import bill of the commodities covered (cereals, livestock products and oilseeds, fats and oils) is projected to deteriorate considerably from a net total of US$14.6 billion in 1994* to US$23.9 billion in 2005 at constant real prices. This would be mainly due to a sharp increase in their net imports of meat and fats, oils and oilmeals. In both cases increasing imports and sluggish exports are behind these changes. If real prices strengthen somewhat as is projected by the World Food Model then their deficit would grow further (Annex Table 7).

16. The situation of the Least Developed (LDC) and Net Food Importing Developing countries (NFIDC) is analogous. Their net food imports at constant prices grow from US$14.1 billion in 1994* to US$21.9 billion by 2005, even without any strengthening of prices (AnnexTable 8).

17. International markets for basic foodstuffs should be in fairly close supply/demand balance, providing weather conditions are normal. Overall, by 2005 real prices are projected under the baseline scenario to be marginally higher than 1994* levels, ignoring year-to-year fluctuations. For instance, cereal prices are projected to be from 2.7 to 6.0 percent higher in 2005 than in the base period, while prices for the four different types of meat would be from 2.8 to 5.5 percent higher than in 1994*. Increases of the order of 4-5 percent are expected for fats, oils and oilmeals, while more moderate increases are projected for dairy products. This result would be moderated under the lower (and more realistic) income assumption discussed below.



18. Global wheat production is projected to expand by 97 million tonnes, or 18 percent, to 644 million tonnes by the year 2005, about 60 percent of which is accounted for by higher yields. Some 57 percent of the increase is foreseen to come from the developing countries and 29 percent from the developed countries.

19. World wheat demand is expected to grow by 14 percent to 642 million tonnes by 2005, an increase of 80 million tons, primarily in the developing countries where average per caput food consumption is estimated to rise by 2.4 kilograms largely as a result of higher GDP growth and the substitution of wheat products for traditional foods, such as rice.

20. Global trade in wheat is projected to expand by 19 percent, or about 19 million tonnes, between the base period and 2005, due entirely to the import demand from the developing countries. Among the primary changes expected, eastern Europe shifts from a net-importing to a net-exporting region while the CIS's wheat import dependency lessens.

Coarse Grains

21. Global coarse grains production is projected to expand by 171 million tonnes (mostly in maize), an increase of over 20 percent, to 1009 million tonnes by the year 2005, largely due to improved yields. About one-half of the growth is anticipated to be accounted for by the developing countries, another 42 percent by the developed countries and the balance in the countries in transition.

22. The global demand for coarse grains is anticipated to rise by 149 million tonnes to 1007 million tonnes by 2005, mostly for feed. The developing countries are expected to account for about 70 percent of the increase, especially for feed use in response to the expected strong growth in the demand for livestock products. The projected total growth in food consumption is likely to weaken while the growth in other (primarily industrial) uses is foreseen to strengthen compared to the previous decade.

23. World imports of coarse grains are anticipated to expand by almost 22 percent, to 116 million tonnes, between the base period and 2005, almost all in the developing countries. The countries in transition are anticipated to shift from net-importers to net-exporters of coarse grains.

24. The prices for wheat and maize, the primary grains, are projected to increase in real terms by about 6 percent each between the base period and 2005. Prices of sorghum/millet and other coarse grains (mostly barley) are expected to experience slower growth, at 4.7 and 2.9 percent, respectively.


25. Between 1994 and 2005, growth in world rice output is projected to increase at a slower pace than the decade before, but so is demand with only a marginal rise anticipated in per caput consumption. Global stocks are projected to expand moderately in absolute terms but slower than consumption resulting in a small contraction of the stocks-to-use ratio from the base period. Similarly, international trade is projected to increase more slowly than in the preceding decade while real prices are anticipated to edge upwards.

26. There are potential impediments to increased rice output that could present a formidable challenge in ensuring access to rice by people in many areas of the world, but there are also potential advances that could be conducive to reaching this objective. Obstacles could include increased competition for water, land and labour resources from more intensive urbanisation and/or industrialisation. At the same time, the need for raising yields in view of the limits to area expansion and environmental safety will probably lead to greater research for genetically modified varieties that are more resilient towards disease and pest attacks and compete better with weeds, although other side effects of such research will have to be watched.


27. Global meat production is projected to reach 268 million tonnes in 2005, with an implicit annual growth of almost three percent since 1993-95, unchanged compared with the previous ten years. Although poultry and pig meat are anticipated to remain the most dynamically growing among the various meat categories, the projected rise in feed prices could depress their rate of expansion somewhat below those recorded since the mid-eighties. From a regional perspective, the developing countries are expected to remain the main contributors to growth in global meat production, even though they are likely to record a slower pace than in the previous decade. Meat production in the developed countries could also expand more slowly, constrained by sluggish growth in domestic demand and environmental constraints. Only a modest recovery is projected for the countries in transition.

28. High income growth should offset the negative effects of higher prices and prompt a notable increase in average per caput meat consumption to 41 kilos in 2005, 6 kilos more than in 1993-95. The shift of consumers towards poultry meat, mainly at the expense of bovine meat, is likely to continue in the next future, but the modest expansion projected for pork consumption should allow this meat to remain the most consumed world-wide. Despite much faster growth, the developing countries' per caput consumption would remain substantially below that of the rest of the world.

29. International trade in meat (including trade in live animals in carcass weight equivalent) has been boosted since the early 1990s by a sudden surge in imports by the former USSR Republics and China. Growth in the future is projected to halve to 3 percent per annum, bringing international trade in meat to 20 million tonnes in 2005. Most of the expansion should reflect larger trade flows in poultry and bovine meat. The developed countries could consolidate their net exporter position, while the trade deficit of the developing countries and of the economies in transition is projected to widen.

30. World prices of meat are projected to rise in real terms, following closely feed price developments. However, efficiency gains should contribute to keep pork prices relatively low.

Oils and Fats

31. During the projection period, the world oilseeds, oils and oilmeals economy is projected to continue to expand, though at a slower pace than in the past 2-3 decades. The relative contraction anticipated in global production and consumption reflects a significant slow-down in developed country markets, while most developing countries are likely to enjoy sustained growth in the demand for oilseed products, which will stimulate local production. While the overall expansion in international trade is also projected to slow down, developing countries are expected to account for the bulk of the anticipated growth. The extent to which these will benefit from the expansion of markets will depend on their ability to develop their production and trade of higher value-added products and to expand their oleochemical industries. World trade in oilcrop products will continue to be dominated by a limited number of countries, and the proportion of global supplies entering international trade will exceed that of most other basic foodstuffs.

32. The influence of the Uruguay Round Agreement will be increasingly felt during the projection period. The Agreement is expected to contribute to the reduction of, potentially market distorting, direct interference of governments in production, marketing and international trade. Policy induced expansion of high-cost production in certain regions is coming to a halt, while the tendency to introduce more production-neutral forms of support should increase producers' responsiveness to market signals. More transparent trade policies are leading to keener export competition and a gradual opening-up of import markets, a trend which has to continue if markets are to expand and South-South trade is to grow.

33. The projections remain subject to a number of uncertainties, in particular with respect to unpredictable economic set-backs in individual countries or regions, as well as to the effects of rising environmental concerns on oilcrop production/processing and the impact on trade of technological innovations such as the recent advances in genetic seed manipulation.


34. World production of milk is forecast to rise to 616 million tons by 2005, representing an average annual increase of slightly over one percent. Demand for milk and milk products is expected to grow slowly. Strongest growth in demand is anticipated to come from the developing countries, where it is projected to grow at the rate of 3 percent per year. World trade in dairy products could reach 44 million tons in 2005, an increase of 9.5 million tons over the base period.

35. The projection results point to milk production moving progressively from high-cost to low-cost countries and to growth being centered in regions with growing demand for milk and milk products. As part of this process, the balance of milk production at the world level will shift towards the developing countries, whose share of total production is projected to increase from 35 percent in the base period to 41 percent in 2005. Some countries within this group, especially the southern cone countries of South America, are projected to become more active in export markets. However, as a whole, the developing countries will remain substantial net importers of dairy products, with the bulk of exports originating in the developed countries. There, the low cost producing countries in Oceania will gain market share at the expense of higher-cost producing countries in the Northern Hemisphere. In terms of total milk production, the percentage of milk traded is projected to remain below 10 percent, emphasizing that for most countries changes in demand will primarily stimulate national milk production.


36. By 2005, world cassava production is projected to increase to 209 million tons (fresh weight.), or 2.2 percent annually as in the past, reflecting both yield improvements and area expansion. In Africa, the growth rate would be faster (2.9 percent) than in Latin America and the Caribbean (1.4 percent) and Asia (1.5 percent) but slower than in the previous decade.

37. World cassava utilisation is projected to increase by 2.3 percent annually to 209 million tons. Sixty percent of the total demand is for food, the remainder for feed and other uses. In Africa, the growth would be slower than in the previous decades, reflecting falling per caput food consumption of fresh cassava due to urbanisation. Overall demand for feed is expected to expand slightly after having been depressed in the mid-nineties as a result of developments largely in the EC, favouring the use of cereals for feed.

38. By 2005, global cassava trade is projected to increase by 1.6 percent to 5.8 million tons (dry weight) from 4.8 in 1993-95, reflecting moderate growth in import demand for cassava feed and for other novel cassava food and non-food products. However, cassava for feed is projected to continue to account for over three-quarters of the world cassava trade and flours and starches for food and industrial uses for the remainder.


39. Import demand for fresh tropical fruits is expected to continue to expand as a result of rising incomes in developed countries, which account for about 80 percent of the market, and heightened consumer interest in, and knowledge of, these fruits. For the four major fruits traded internationally, pineapples, mangoes, avocados and papayas, import demand would expand at average annual rates of 3.0 - 4.5 percent in the period to 2005. Europe would remain the largest market, accounting for nearly 50 per cent of global imports, followed by North America (nearly 30 percent) and Japan (10 percent). Supplies of fresh tropical fruits are considered to be sufficient to meet future market needs. However, for the potential growth in markets to be realized, production needs to be better organized to improve quality and ensure competitiveness and efficiency. In addition, better packaging and distribution are necessary to develop and expand markets for tropical fruits in areas where there are vast selections of other fruits available to consumers.

40. Among other fruit crops, citrus is by far the largest in terms of volume of production and trade. In the period to 2005, production of citrus fruit is expected to continue to grow, although at a somewhat slower rate than in the past. Although growth in demand for fruit would also slacken, there are opportunities for enhanced consumption in the citrus producing countries themselves, and also in emerging markets; and therefore, efforts to expand markets and to promote the health and nutritional benefits of citrus consumption should be intensified. Although export availabilities for some varieties of fruits could exceed import demand over the medium term suggesting that prices could come under downward pressure, prices for tangerines could continue to be remunerative, while those of lemons would remain generally favourable, particularly for "off season" yellow lemons and for limes.

Tropical Beverages

41. At 1993-95 base prices, world tea production is projected to exceed demand by about 3 percent in 2005. Global output would increase by nearly 3.0 percent annually to reach 2.7 million tonnes while consumption is expected to increase at an average annual rate of 2.7 percent to reach 2.6 million tonnes. Developing countries would account for most of the growth in global consumption, reaching a share of 73 percent of the world total. The projections also suggest an imbalance in international trade. A projected exportable surplus of 66 000 tonnes (5 percent of total exports) would exert some downward pressure on prices. Increased imports by countries in transition, particularly the Russian Federation, had underpinned the strengthening of prices since late 1995. However, indications are that the current economic crises in the Russian Federation and weakened economies in other CIS countries may impact negatively on global tea demand up to 2005. Various actions such as the current generic promotion programme and attempts to implement a minimum quality standard for export teas may relieve some of the supply pressure on the world tea market, but adjustments in production levels may also be needed.

42. By 2005 world coffee demand and supply are projected to be almost in equilibrium. However, much will depend on efforts by producing countries to rationalize production expansion. World coffee output is projected to increase at an annual average growth rate of 2.1 percent, while demand would grow at 1.9 percent per year to reach 6.8 million tonnes. Export availabilities and import requirements are expected to be around 5.2 million tonnes at 2005. Latin America and the Caribbean would be the leading producing region, with Brazil supplying 1.7 million tonnes, or 25 percent of the world's coffee output. Other leading producers would include Colombia and Mexico, and Indonesia, India and Viet Nam in Asia. Uganda would remain the largest producing country in Africa. Consumption would continue to be concentrated in developed countries, which would account for 67 percent of total global demand at 2005.

Agricultural Raw Materials

43. In addition to income and population growth which have been the major factors driving the steady growth in world cotton consumption and trade over recent decades, textile trade policy reforms, in particular the phasing out of the Multifiber Arrangement (MFA), will provide a boost to the world textile market. The extent to which cotton benefits from this boost will, however, be limited by competition from manmade fibres, coupled with continuing increases in production costs which are likely to be exacerbated by slower growth in yields.

44. As a result, it is projected that world cotton consumption will grow by 1 percent annually, only half of the growth rate of aggregate fibre consumption, to reach 21.8 million tons by 2005. World trade in cotton is expected to continue to increase by less than one percent annually to reach 6.6 million tons by 2005.

45. By contrast, the various industrial natural fibres face rather diverse but generally less promising futures. World production and consumption of jute, kenaf and allied fibres are projected to remain around their current levels of 3 million tonnes annually, with prospects for growth in production limited by increased competition for land from more remunerative crops while market prospects will remain limited due to competition from synthetics and alternative forms of packaging. Exports of jute fibre are expected to remain fairly stable, while those of manufactures contract. Sisal and henequen, the group accounting for the largest value of production and trade among the hard fibres, has faced weakening demand over several decades, and production is expected to contract to around 250 000 tonnes by 2005. The traditional market, in agricultural twines, has been heavily eroded by the use of synthetics and by the adoption of techniques which do not use twine. Coir also faces a dwindling market in the traditional importing countries, but is increasingly finding market outlets in India, the major producing country, and production in that country is likely to continue to increase. Around 85 000 tonnes of abaca is produced annually, finding a ready market with strong demand from a number of specialised applications in the major industrialised economies, and production and trade are likely to continue to expand. Although diversification to new uses of all these fibres could compensate partly for losses in traditional uses, their impact in volume terms would remain small.

46. Global production of bovine hides and skins is projected to continue to expand at less than one percent annually, as growth in developing countries is offset by some contraction in developed countries. World production of sheepskins and goatskins is likely to rise faster than bovine production due to increased productivity and improved utilisation of livestock products in developing regions. Global demand for leather goods is likely to strengthen under the influence of growing incomes although it will be dampened, in the short run, by the effects of economic difficulties in many countries. Net exports of bovine hides and skins, leather and leather products (in raw equivalent) will continue to expand, especially from the developing countries, as tanning and leather manufacturing continue to shift from developed countries.


Cereal crop failures

47. The baseline scenario assumes normal weather conditions. However, major fluctuations of output could occur due to the vagaries of weather. Furthermore, weather related production shortfalls could occur simultaneously across a wide range of crops and might not be confined to only one geographical region. To assess the implications of supply fluctuations on the cereal markets, various scenarios for the year 2005 were considered but only that referring to a widespread crop failure for all cereals is reported here. It should be emphasised that the assumptions underlying the analyses that follow are not predictions of what will happen but they do illustrate the general consequences of possible shortfalls in production. All simulations were carried out within the framework of the FAO World Food Model.

48. This scenario simulates the effect of a combined shortfall for all cereals amounting to 38.4 million tonnes, or about 1.8 percent from the baseline projection of world cereal production. This represents an assumed reduction of 7 percent in selected countries including the major exporters of wheat, coarse grains and rice separately. Although there is only a low probability of such a geographically widespread crop failure, it should be noted that aggregate crop failures of similar magnitude do take place. Global cereal output fell by over 2 percent on seven occasions in the past 20 years.

49. Following the crop failure, about 23 million tonnes would be released from the cereal stocks projected to be held in 2005. This would meet about 60 percent of the loss in output. The stock reduction would consist of about 8.2 million tonnes of wheat, 5.5 million tonnes of milled rice and 9.1 million tonnes of coarse grains. As the release of stocks would not fully compensate for the loss in output, cereal prices on world markets would increase by about 15 percent in aggregate terms compared with the level projected under the baseline scenario.

50. Developing countries would experience a reduction in their net cereal imports of almost 24 million tonnes, reflecting their difficulty in affording additional supplies at higher world prices. Total cereal consumption in the developing countries would be reduced by 27.6 million tonnes, or 2.2 percent of their projected baseline level. Over 67 percent of the reduction would be in food consumption, while in the high income countries over 80 percent of the reduction in consumption would be in feed use of grains.

Lower income growth

51. The results of the projections discussed in the previous sections were based on assumptions regarding demographic and macroeconomic conditions that were expected to prevail during the next decade when the data were elaborated up to mid 1998.. As population tends to increase smoothly, it is unlikely that actual growth in the medium term would deviate substantially from projected level. Income growth is, however, less predictable and subject to greater uncertainty.

52. According to the latest (September 1998) World Bank economic forecasts, world real GDP is projected to grow at 2.9 percent annually during the period 1995-2005, down from the 3.3 percent per year of its previous assessment. The downward revisions in GDP growth forecasts are more substantial for the ASEAN region and for CIS than for the developed countries. In addition, the impact of the current economic difficulties on world and regional GDP growths appears more severe in the short term implying an expected recovery from the present situation in the medium term.

53. To assess the implications of the crisis on world food markets, the revised World Bank economic forecasts were used to generate an alternative "lower income" scenario which was compared with the baseline projections. This analysis was limited to the commodities covered in the World Food Model.

54. For the world as a whole, lower income growth would result in a general reduction of production, demand and prices for all basic foodstuffs. In particular, world demand for cereals would be lower by about 11 million tonnes, mostly wheat and rice, and world cereal output would be lower by almost the same amount or 0.5 percent of the production projected under the baseline scenario. The net cereal import requirement of the developing countries would also be lower at 134 million tonnes compared with 138 million tonnes in the baseline scenario. For most other foods, demand would be much lower. For instance, demand for fats and oils would be lower by 1.8 percent, or 2.2 million tonnes, compared to the baseline scenario. The demand for meat would be lower by 0.9 percent, or about 2.5 million tonnes and that for butter by 1.9 percent. The impact of slower income growth on the total demand of the developed countries would be moderate because of the inelastic demand for many commodities. The most noticeable fall is for oilmeal proteins (- 1.4 percent with respect to the baseline ).

55. World prices for basic foodstuffs would generally be lower than those projected under the baseline scenario, the reduction ranging from 2 to 5 percent, with the only exception of oilmeals. Therefore, under this scenario real world price levels in 2005 would only be fractionally higher than those prevailing in 1993-95 for cereals, fats and oils and meat and would remain practically unchanged for dairy products.

56. Delegates are invited to review and comment on the projections findings.

1 For details of methodology see FAO Medium-term prospects for agricultural commodities. Projections to the year 2000. Economic and Social Development Paper No. 120, Rome, 1994.