The Forum for the Future of Agriculture held a workshop on market outlooks and policy implications for the agricultural and food sectors on November 19, 2024 in Brussels.

Opening the workshop, Mark Titterington, Co-founder & Director, Forum for the Future of Agriculture, thanked the speakers and the moderator, and set the context. The Forum’s mission is to help build a more resilient and sustainable food and agriculture system not just in Europe, but globally, he said. “In order to be able to do that, we need to understand where we’re coming from. We need to understand what the market outlooks are. We need to understand the data. And some would argue that a gap has emerged in many cases between the perception and the reality.”

Setting the scene

Moderator Angelo di Mambro, Agrifood editor at Euractiv, invited three guests on stage for the first panel: John Baffes, Senior Agriculture Economist, Development Economics Prospects Group, World Bank; Petr Havlik, Program Director, International Institute for Applied Systems (IIASA); and Tassos Haniotis, Special Advisor for Sustainable Productivity, Forum for the Future of Agriculture. Each guest gave a 20-minute presentation followed by questions.

Food inflation: Is this time different?

John Baffes’s presentation covered current market conditions, food and energy price inflation, and long-term trends.

Long-term price data on energy, agriculture and metals from the latest World Bank’s Commodity Markets Outlook confirms that pre-pandemic, commodity prices were stable,  during and post-pandemic, they became highly volatile, and since the first quarter of 2023, stability has returned. However, commodity prices today are 20-40% higher than pre-pandemic, depending on the commodity, and on average about 20% higher.

Crop yields have varied slightly from season to season, and overall inventories have reduced, causing some tightness in global markets. Energy price fluctuations – oil, natural gas, and coal – have impacted the agricultural sector.

Natural gas prices have put European agriculture and the European economy at a competitive disadvantage to the U.S. “Natural gas prices skyrocketed right after the invasion in Ukraine… and have stayed higher than pre-pandemic – 50-100% more, depending on the math, while U.S. natural gas prices are lower than pre-pandemic. This puts Europe, especially the fertilizer sector, at a competitive disadvantage.” Natural gas inventories in Europe are at extremely high levels – “which is good news, but of course that means there may be higher prices, which is bad news.”

However, the World Bank forecast for 2025 is a potential easing of price pressures across energy and agricultural commodities.

Food inflation also had a greater impact in Europe than the U.S. “Food inflation led the way on energy price inflation more or less everywhere, but the Euro area had much greater inflationary pressures than the U.S.”

Policymakers need to consider inflation from two different perspectives, however. While central bankers see the rate of inflation coming down, consumers see prices at the supermarket, which are still high. And this may affect how they vote.

G20 countries have experienced a 23-24% increase in food prices over three years, and emerging markets have experienced even higher food price inflation. Turning to energy, the traditional focus on oil prices as a primary driver of energy inflation has shifted to natural gas and coal.

Mr Baffes concluded by analysing commodity price trends over time, telling the audience: “Agricultural commodities are driven for the most part by long term trends, not short term variability, influenced by population growth. Energy and metals prices, and other prices, are determined more by medium-term factors, and they follow mostly income growth.”

Can we have the fuel and eat it? Land use pressures and sustainability questions

The relationship between land use and climate change priorities was addressed by Mr Havlik, citing various research and analysis, including both global and European studies, on climate and biodiversity. Key topics covered the role of land use in carbon emissions, the impact of biomass use for energy, the integration of climate and biodiversity policies, and the projected effects on agricultural markets and prices.

Land use in climate mitigation encompasses direct agricultural emissions, carbon sequestration and carbon sinks, especially in forest management, as well as biomass. Mr Havlik highlighted the growing trend for producing biomass for the bioeconomy; “We are now regularly approached by companies… about the projected prices of biomass and related biofuels…some are seriously assessing the business opportunities of transitioning into biomass from fossil fuels.”

He outlined a baseline and different pathways ahead for climate mitigation alone, biodiversity restoration alone, or a combination of both, and concluded: “Depending on the ambition of the global community and depending on the efforts in the other sectors of the economy, the contribution from the land use sector may be different.”

Each of the pathways implies synergies and trade-offs, with different land uses, such as forests, pastoral or biomass, increasing or decreasing. Under one scenario, for example, agricultural land could decrease by 200 to 600 million hectares by 2040 – increasing the number of people at risk of hunger. Under all scenarios, climate or biodiversity policies alone would substantially reduce emissions from land use change, but the best result would come from a combination of both.

In conclusion, Mr Havlik emphasized the need for significant policy changes to meet climate targets and highlighted the potential consequences of inaction. Policy needs to be founded on realistic climate change scenarios, rather than assuming business-as-usual. The impacts of climate change, such as increased water stress, should be integrated into policymaking and land use planning. Understanding the complex interplay between different factors is  essential to assess long-term impacts of policy on climate, biodiversity and food security.

“The current policies, which are often the central assumption of our baseline and outlook scenarios, are getting nowhere close,” he said. “There has to be an evolution to avoid a dangerous climate change.”

The blissful linearity of market outlook and the nonlinear nature of their uncertain prospects

Agricultural outlooks are often based on linear assumptions – but “the baseline numbers do not always make sense”, said Tassos Haniotis. “And in that case, what type of policy implications do we have?”

Referring to the OECD-FAO Agricultural Outlook 2023-2032, he highlighted rapid changes in agricultural markets, particularly in production and consumption. It foresees strong growth in feed and fuel, slow growth in food, and stagnation in fibre. Asia and Africa dominate global consumption increases, while OECD countries see a decline due to stagnant population growth and dietary shifts.

Food security risks and the role of trade are often underestimated, distorting policy priorities, and limiting trade exacerbates the problem. There is a polarization between food security and climate change, yet they should be treated as complementary issues rather than either/or.

Expectations of both maize and wheat production are over-optimistic, adding to an already difficult market. “It surprises me that the EU is expected to increase significantly its exports,” he said. Taking into account forecasts for each of the major producing countries, he concluded: “You produce a scenario where Russia is feeding the world, or at least sub-Saharan Africa. Food security and global security come together with any implications you want to place on that.”

As to land use in climate mitigation and the forecast changes in emissions, Europe is the only area expected to achieve an increase in production with a decline in emissions. Elsewhere, there are different degrees of increases in production with a simultaneous increase of emissions. “That raises all sorts of policy questions,” Mr Haniotis concluded.

Global uncertainties exist in many areas: food, energy, particularly the impact of natural gas prices on fertiliser production and Europe’s dependence, the role of a Ukraine integrated into Europe, and tensions in sub-Saharan Africa among them.

Going forward, debate needs to focus on three areas: raising productivity while reducing environmental impact, adopting new scientific techniques, and finding ways to harmonize and measure carbon footprint.

The first session concluded with questions from the audience to the three presenters and a lively debate.

Panel – What does all this mean for policies?

In the second session, Moderator Angelo di Mambro posed questions to the panel. The panel members were:

• Lee Ann Jackson, Head of the Agro-food Trade and Markets Division, OECD Trade and Agriculture Directorate
• David Laborde, Director for Agrifood Economics Division, Food and Agriculture Organization (FAO) of the United Nations
• Pierre Bascou, Director for Markets and acting Deputy Director-General for Markets and International – DG Agriculture and Rural Development – European Commission
• Ann Tutwiler, Chair of the Global Alliance for Improved Nutrition (GAIN) and Senior Fellow at Meridian Institute
• Joseph Glauber, Senior Research Fellow, IFPRI, CGIAR
• Tassos Haniotis, Special Advisor for Sustainable Productivity, Forum for the Future of Agriculture

In OECD countries, what type of policies are available to push the priorities which have been outlined by our speakers in the first session?

Lee Ann Jackson said that the OECD was moving from measuring productivity growth towards measuring sustainable productivity growth. The latest report, which is broadly speaking global, sees a shift towards more general services support (e.g. innovation, infrastructure) rather than direct farmer support, but this shift is slower in emerging economies. Of USD 842 billion in agricultural support, about half goes to direct support to farmers and only 14% goes to this general services support.

Countries are thinking about how to set objectives, measure and monitor to know whether or not they are actually achieving the environmental outcomes they are looking for.

The OECD is taking a number of steps, e.g. a conference on sustainable productivity growth, a global forum on agriculture, developing measurements in sustainable productivity growth, developing measurements in carbon footprint in sustainable supply chains. And also examining the issue of how to communicate new technologies, which are perceived differently by different groups.

David Laborde said that policy monitoring shows low-income countries sticking to very traditional farm policies that are production-oriented and input-oriented, including large subsidies, for example, for fertilizer. “It contributes to producing more, but not in a good way. And we have a lot of negative externalities, including soil degradation. So we need to see a shift in terms of policies.”

Europe and China have largely been moving in the right direction. “Africa will need to move much faster because it will add 1 billion people in a continent that is already a major food importer today.” Production and productivity need to increase – but in specific places.

What is Europe doing on food price inflation? And how is it improving transparency of pricing in the food supply chain?

Pierre Bascou Food price inflation is at an unprecedented high – at the beginning of 2023, it averaged 20% across the EU, and in some countries 60%. Although it is now around 2%, food prices have remained high.

The EU Commission responded swiftly to food inflation with a number of measures including social support, lowering VAT, and encouraging farmers to take up support available under the CAP. There is also a major effort under way to address mistrust and lack of transparency throughout the food supply chain.  “In the past 2-3 years we have seen a lot of mistrust and lack of confidence between the different sectors of the chain, the farmers, the processing industry and the retail sector. It was of paramount importance for us to address this and make sure the single market is functioning to keep food prices as low as possible.”

The EU also developed its Market Observatory system and set up the agri-food chain Observatory, to increase information and evidence on the functioning of the food chain and build trust. The Observatory will extend to additional countries in 2025.

The perspective from GAIN (Global Alliance for Improved Nutrition) is that diets need to be both nutritious and affordable. What are your thoughts on that?

Ann Tutwiler When we talk about a healthy diet, we often mean healthy for the individual, but we also need it to be healthy for society. The costs of non-communicable diseases caused by unhealthy diet, malnutrition and under-nutrition are vast, not only healthcare costs but loss of economic activity.

Research funding often goes to commodity crops but research into fruits, vegetables and nutritious crops is also needed to make them safer and to reduce waste.

On the supply side, we also need to invest in general services and innovation to improve logistics and storage. And companies need to be held to account on their food offerings. On the demand side, programmes like school feeding and workplace nutrition make a big difference. Prescribing food as medicine and making food more accessible are both important: “There a lots of solutions, these are just a few that GAIN and I are working on.”

What will happen with trade in today’s uncertain situation, especially after the U.S. election? Are trade tensions on the rise, and are they a real risk to the food supply?

Joseph Glauber said there is no question that President-elect Trump will impose trade tariffs, even from day one. “Agriculture is not the reason for a trade war but it suffers significant collateral damage.”

Looking at 2018-2020, he said U.S. soybean producers were big losers because of the trade war with China. Despite increasing exports to the EU and Brazil, U.S. producers were damaged, and so was China, with Brazil being the big winner. And that was a bilateral situation – tariffs across the board bring a whole range of questions.

Assessing the impact of tariffs is very difficult because the information is largely in the Press and there are no real details. And we shouldn’t forget that the WTO is in a weakened state.

Returning to Europe, what are the main threats and opportunities arising from policies – domestic and EU – including the CAP and other food policies?

Tassos Haniotis The U.S. and Europe are both the largest partners and the largest competitors. He said. The relationship needs to be strengthened but we will find ourselves fighting.

“The biggest challenge we face is how to marry the economic and environmental dimensions of our policies. We have to admit that farmers are economic actors but also providing environmental services.”

There is a need to reassess priorities among biodiversity, emissions, water and soil. “Soil comes first, because if you address soil health, you address all the other dimensions. And by addressing soil health, you focus on a better definition of sustainable productivity and better leverage in terms of the redistribution of support. We haven’t started focusing on this area because it relates to sensitive issues in the policy debate.

“Politicians have to take difficult choices, and they need very clear pros and cons for their  different options. The starting point of any solid policy decision has to be solid policy analysis.”

The session also ended with challenging questions from the audience.

Closing

Jurgen Tack, Secretary General, European Landowners’ Organization, summed up by highlighting the emphasis that the Markets outlook workshop placed on discussion based on data and rigorous analysis. “We had a very tough overview of facts and figures and the scientific background to what we have been discussing.” This is a trend that the Forum will continue in the future.

Thanking the experts on the panels for their contributions, he concluded: “The numbers do not always lead to the same conclusions… but the numbers are the beginning of the discussion.”

You can find out more about the speakers and watch videos of all the sessions on the event page.