Global Food and Fertilizer Prices

Presentation at the WB Workshop on

Food and Energy Price Increases and Policy Options
Donald Mitchell
Lead Economist, DECPG
July 9, 2008
1

US dollar prices overplay real increase

International food price indices, 2000=100

300
250

Nominal US dollars

200
150
100

Real, i.e. relative to

developing countries CPI

50
2000M1 2001M1 2002M1 2003M1 2004M1 2005M1 2006M1 2007M1 2008M1

Source: DECPG

Historical perspective

Decades of low prices led to underinvestment

Low food stocks due to policy changes
Structural changes in demand for energy and
metals
High energy prices raise production costs and
increase incentives for biofuels
Other factors: weak dollar, export bans,
speculation
3

Biofuels impacts

US used 80 million tons of corn (24%) for ethanol

last year and expected 100 million this year (31%)
75% of increase in global corn production from
2004-07 went for ethanol in US
Biodiesel will use about 9 million tons of
vegetable oils (7% of global supplies)
Brazil will use about 55% of sugar cane for
ethanol, but sugar exports still adequate to prevent
price increases
4

Biofuel impacts

Expanded corn area (+24%) in US displaced

soybeans last year and raised soybean prices
Expansion of oilseeds for biodiesel displaced
wheat in Argentina, Canada, EU and Eastern
Europe. Production potential of that land was
more than enough to prevent decline in wheat
stocks.
Imports of vegetable oils increased sharply in EU
and US (from 6.4 to 11 million tons)from 2000-07
5

Grain stocks are at record lows

World Grain Stocks-to-Use
40
35
30
25
20
15
10
5
0
1960

1970

1980

1990

2000
6

India banned rice exports Oct 9

(weekly prices of Thai rice exports in US$s)
380
360
340
320

n
Ja
'1

De
c
'4

No
v
'6

O
ct
'9

Se
p
'4

Au
g
'7

'1

Ju
l

300

Grain Prices (nominal $/ton)

1000
800
600
400
200
0
2002

2003

2004
Wheat

2005
Rice

2006

2007

2008

Maize
8

Oilseed Prices (nominal $/ton)

1600
1400
1200
1000
800
600
400
200
0
2002

2003

2004
Soybeans

2005
Soyoil

2006

2007

2008

Palmoil
9

Demand for food and feed

Global consumption of wheat and rice grew less

than 1% per year from 2000-07
Maize consumption grew 2.1% (excluding
biofuels)
Global grain feed use grew 1.3% from 2000-07
Growth slowed from previous decade due to
slowing population growth and low income
elasticities
10

East Asia grain demand (w/China)

(annual growth rated over 5 year periods)

20
16

Feed

12
8
4
0

Total consumption

-4
1970

1980

1990

2000
11

Feed efficiency in East Asia

(Meat produced per unit of grain fed)
0.6
0.55
0.5
0.45
0.4
0.35
0.3
0.25
0.2
1971

1976

1981

1986

1991

1996

2001

2006
12

Current crop situation

Major grains and oilseeds areas are projected to

increase 1.5% in 2008/09 (same as in 2007/08)
Grains production is projected to increase 2.3%
(wheat +8.5%, maize -0.8% and rice +0.7%)
Oilseeds production is projected to increase 8.2%
(soybeans +10.0%, rapeseed +8.2% and
sunflowers +16.5%)
Flooding in US not fully reflected
13

Prices to remain high

Demand for biofuels will probably increase
(new US Energy bill in 2007)
Energy and fertilizer prices expected to
remain high
Surplus production capacity limited (CRP)
Several countries have pasture land that can
be cropped (Brazil, Eastern Europe)

14

Fertilizer
Primary use is for crop production
52% for grains (wheat, maize, rice, others)
15% for fruits and vegetables
11% for oilseeds
4% each for cotton and sugar
18% for all other
15

Global Fertilizer Consumption

(mil tons of nutrients)
Nitrogen

Phosphate

Potash

Total

2005/06

93.2

37.1

25.8

156.1

2006/07p

98.2

39.0

26.7

163.9

2007/08e

100.8

40.5

29.0

170.3

% change
2007vs06

2.7

3.3

4.9

3.2

Source: International Fertilizer Association, www.fertilizer.org

16

Fertilizer Exports, 2006

5.0

Billion US$s fob

4.0
3.0
2.0
1.0
0.0
a da ny na nds um ates ine
i
in rus cco
s
i
a
a
a
s
i
t
a
a
Sp Bela oro
Ru Can erm Chherl Belg ed S Ukr
M
t
G
it
n
Ne
U
17

Real Fertilizer Prices, 1960-2008*

Index in constant 2000 $s relative to MUV

500
400
300
200
100
0
1960

1970

1980

1990

2000

* 2008 is January-June average

18

Real Fertilizer Prices, 1960-2008*

Index in constant 2000 $s relative to MUV

500
400
300
200
100

Energy Prices

0
1960

1970

1980

1990

2000

* 2008 is January-June average

19

Fertilizer prices (nominal $/ton)

1200
1000
800
600
400
200
0
2002

2003

2004

2005
Urea

TSP

2006

2007

2008

MOP
20

Policy response
China imposed a 100-135% export tax on
all fertilizers in March to ensure adequate
domestic supplies
Contributed to a doubling of fertilizer prices
in 2008

21

Outlook
Fertilizer capacity is limited and takes and
new capacity takes 3-7 years to build
Fertilizer prices are tied to energy and crop
prices
Export restrictions by China are adding to
price pressure
Prices likely to stay high for an extended
period

22

Conclusion
Food and fertilizer prices closely linked to
energy prices
Biofuels policies (mandates and subsidies)
are adding to food price increases
Lower tariffs on ethanol in US and EU
would reduce food prices somewhat
Crop production will expand in Brazil,
Eastern Europe and Africa

23

Fertilizer use by crop

Source: International Fertilizer Industry Association

24