Remarks by Angel Gurría, OECD Secretary-General, for the presentation of the OECD-FAO Agricultural Outlook 2008-2017 Paris, OECD Conference Centre, 29 May 2008

Watch the video of the press conference (English - French)

Good afternoon ladies and gentlemen and welcome to the OECD.

The current international food crisis, with its many causes and consequences, is a major global challenge. Therefore, it demands a swift global response led by international organizations acting in close coordination. This is why I am pleased to welcome my friend of many years, Jacques Diouf, Director General of the FAO, to join our voices and present to you and to the world a relevant and timely publication, the “OECD-FAO Agricultural Outlook 2008-2017”.

This is already the fourth year that our organisations have worked together on the Agricultural Outlook. This pooling of information and expertise has been particularly useful in analysing and understanding the current exceptional agricultural market situation and in providing the appropriate policy recommendations to deal with it.

Now about the substance. Let me start by saying that we do not expect the current price levels to last. Supply and demand will adjust and push prices down. But the average of most agricultural commodity prices over the next 10 years will still exceed the average of the previous decade, by 10 to 50% in real terms, depending on the commodity you look at.

To build these projections we have made a clear distinction between transitory and permanent factors behind the current prices. We consider that the recent weather related yield drops are temporary. As yields return to normal and farmers respond to higher prices, supply will expand and bring prices down. That in turn will tone down the panic reactions both by market participants and by some governments  which have contributed to exacerbate prices.

But after the “spike in the hike” disappears, the more permanent factors will come into play. High oil prices, growing biofuel production and purchasing power growth in emerging countries will slow down the long term decline in real prices.

We also think that there may be more volatility in agricultural commodity prices in the future, due to continued low stock levels. The surge of investment in futures commodity markets from non-traditional sources may also play a role, but the extent to which this is the case is still uncertain.
Such distinctions between transitory and permanent factors help us to understand better what has caused the current price spike. And this analysis is crucial to design the appropriate policy responses. Let me mention some of them:

In the short term, there are immediate and urgent needs for food aid and humanitarian assistance to avoid that poor people go hungry. So far, the donor community has responded promptly and generously to the call of the UN and the World Food Program.

In the medium term, there is a real need to improve the purchasing power of poor food buyers. I am talking about doubling our efforts to combat poverty; about enhancing our development work; about fulfilling our aid commitments. We must empower people so that they can acquire enough food even at the higher prices  relative to past averages  that are expected to prevail in the future. The end of cheap food in a world where half the population lives with less than two dollars a day is a source of grave concern. Thus, the OECD has launched a multidisciplinary project that brings together several areas inside the Organisation to analyse the various policy options to deliver on this ambitious development agenda.

Agricultural trade policies also require further reform. Trade restricting policies have undesirable and often unintended impacts, especially in the medium and long term. Subsidies to agricultural exports have contributed to damage the agricultural capacity and rural social stability of many developing countries. A swift and ambitious conclusion of the Doha Round of WTO negotiations could detonate the potential of markets to balance supply and demand at the global level.

Looking at the supply-side, climate change is a serious concern. Investments in R&D, technology transfer and extension services, particularly in less developed economies, could do much to increase productivity and output. The use of genetic modification (GMOs) also offers potential that could be further exploited.
On the demand side, the rapid increase in demand for biofuels  largely policy driven  warrants a close review. Our joint analyses with the International Energy Agency (IEA) suggest that the objectives pursued are unlikely to be delivered by current biofuels support policies. Alternative approaches offer potentially greater benefits; for example to encourage reduced energy demand and GHG emissions, to provide for freer trade in biofuels and to accelerate introduction of ‘second generation’ production technologies that do not rely upon current commodity feed stocks.

The recent rise in food prices is an issue of a truly global nature. Current developments on global food markets are having dramatic implications for food security among the poorest. At the same time, speculative factors and inward looking policy actions contribute to the nervousness and volatility of markets. What is needed now is an objective, effective and coherent global response to avoid making a difficult situation worse.

Close co-ordination among both governments and among the relevant international organisations is essential. The OECD is pleased to have joined the United Nations High Level Task Force on Food. At a Conference call yesterday, Mr. Diouf was appointed Vice Chair of the Task Force by SG Ban Ki Moon, and we will be working with him closely in advancing this important agenda.

The OECD would also convene a series of high level events before the end of 2008, where governments of member and major non member countries can jointly consider alternative solutions. A first forum would focus on policy adjustments that would lead to an increased supply of food in the short term. These issues will be discussed at our Ministerial Council meeting next week.

The connections between global structural poverty, climate change, the deadlock of Doha, international migration, the missed MDGs, the current food crisis and the recent fall in global development aid flows are now more evident, more telling. The message is clear: we are sailing on the same boat, over troubled waters and only a well coordinated, well planned and well executed collective response will get us to safe port. I trust this joint OECD-FAO work publication will facilitate such response.

Thank you very much.