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| Africa Commodity Exchange |
Increasing costs of production
increases in the costs of production have also impacted on commodity prices; the sustained rise in the price of oil has been the
most significant. Oil is a significant direct cost to farmers who use it to run farm machinery like tractors and harvesters. In
addition, rising demand and high oil prices have also led to increases in transport, nitrogen fertiliser, pesticide and herbicide
costs (production of many agricultural chemicals is highly energy intensive). Strong demand has also seen a steep rise in the
cost of the other two main fertiliser components, phosphorus and potassium, both of which are mined
Heightened public interest in disease, food safety and animal welfare issues are also leading to increased production costs. In
response to these concerns, expensive traceability systems have been implemented in a number of countries. At the same time,
disease outbreaks such as foot and mouth disease, BSE (mad cow disease), swine fever and avian influenza have resulted in
expensive, largescale culls. There is also an increasing number of private standards addressing animal welfare and food safety
issues – all of which incur supply chain costs which are passed on to consumers.
Outlook for global production
Producers around the world are also increasing production in response to high prices. Grain and oilseed production is forecast
to rise significantly1,
offset slightly by reduced wheat production in China. Greater areas are expected to be planted – particularly with the EU
allowing food to be produced on set-aside land in the CAP. Increased global production should put some downward pressure
on prices. However, global demand is expected to remain strong and it will take some years to rebuild stocks, so prices are
unlikely to return quickly to the low levels of earlier this decade.
Over the longer term, there are major challenges to address in order to lift global agricultural production sufficiently to keep up
with the forecast growth in demand. These include: increased demand for water resources resulting in water shortages; the
impact of adapting to climate change; improving the environmental sustainability of agriculture; and the need for reform of
agricultural policies within countries and in global agricultural markets.
increases in the costs of production have also impacted on commodity prices; the sustained rise in the price of oil has been the
most significant. Oil is a significant direct cost to farmers who use it to run farm machinery like tractors and harvesters. In
addition, rising demand and high oil prices have also led to increases in transport, nitrogen fertiliser, pesticide and herbicide
costs (production of many agricultural chemicals is highly energy intensive). Strong demand has also seen a steep rise in the
cost of the other two main fertiliser components, phosphorus and potassium, both of which are mined
Heightened public interest in disease, food safety and animal welfare issues are also leading to increased production costs. In
response to these concerns, expensive traceability systems have been implemented in a number of countries. At the same time,
disease outbreaks such as foot and mouth disease, BSE (mad cow disease), swine fever and avian influenza have resulted in
expensive, largescale culls. There is also an increasing number of private standards addressing animal welfare and food safety
issues – all of which incur supply chain costs which are passed on to consumers.
Outlook for global production
Producers around the world are also increasing production in response to high prices. Grain and oilseed production is forecast
to rise significantly1,
offset slightly by reduced wheat production in China. Greater areas are expected to be planted – particularly with the EU
allowing food to be produced on set-aside land in the CAP. Increased global production should put some downward pressure
on prices. However, global demand is expected to remain strong and it will take some years to rebuild stocks, so prices are
unlikely to return quickly to the low levels of earlier this decade.
Over the longer term, there are major challenges to address in order to lift global agricultural production sufficiently to keep up
with the forecast growth in demand. These include: increased demand for water resources resulting in water shortages; the
impact of adapting to climate change; improving the environmental sustainability of agriculture; and the need for reform of
agricultural policies within countries and in global agricultural markets.