The Agricultural Outlook this year has again been prepared jointly by the OECD and the Food and Agriculture Organization (FAO) of the United Nations in Rome. As such, the report draws on the commodity, policy and country expertise of both Organisations, to produce this medium term assessment of global commodity markets. The trends in production, consumption, stocks, trade and prices described and analysed in this report cover the years 2006 to 2015. The projections which are presented in the statistical annex reflect specific assumptions concerning key macroeconomic variables as well as agricultural and trade policies. These are discussed below. The projections do not take account of weather shocks and related impacts on crop yields and livestock production. Likewise, no additional outbreaks of animal diseases over the medium term are included in this analysis. There is a clear possibility that such events will occur in reality, and these constitute some of the important uncertainties in the Outlook.

International markets for wheat, coarse grains and rice were characterised by substantial production shortfalls in the face of rising demand and rapidly declining global stocks for several years until the 2003 marketing year. Followed by record harvests and rising stocks in 2004, the global supply and demand situation has been fairly balanced in 2005. World production of wheat and coarse grains have both declined slightly in 2005 from their 2004 levels, but with almost 620 mt and 970 mt, respectively, remain high in historical terms. This second good global harvest in a row resulted from increased plantings for coarse grains, but also from sustained high wheat and coarse grains yields. Due to favourable weather conditions, these declined on average for the world only moderately from their high levels of the previous year. This Outlook assumes continued growth in global crop yields of about 1% per cent per year.

The world oilseed and oilseed meal markets begin the projection period after two years of falling prices. During 2003 and 2004, a combination of increased area and yield recovery resulted in a leap in production. With supplies exceeding demand and stock levels increasing, a sustained downward pressure on prices resulted. In 2005, this trend continued despite a slow-down in the growth of global production. Global stocks-to-use ratios remain above average and cause prices for oilseeds and meals to remain depressed. Vegetable oil markets showed more stability and firmer prices during the same period. After a period of steep price increases came to an end in 2003, prices stabilised at an above average level thanks to a steady expansion of global consumption and trade in 2004 and 2005. Greater diversity of supply and demand, which depends on many sources and uses, has contributed to a relative stability of vegetable oil markets.

World market indicator prices for sugar have surged to their highest levels in a quarter century during the 2005/06 marketing year, with raw sugar prices rising to over USD 19 cents/lb (USD 418.9/t) and white sugar prices to nearly USD 21 cents/lb (USD 463/t) in February 2006, after trading below USD 10 cents/lb for much of the last decade.

Partly driven by changing patterns of meat demand due to rising incomes, global meat markets have witnessed a profound transformation over the past 15 years. Consumers and retailers are requiring a broader diversity and higher quality of meat cuts, more ease in preparation and enhanced assurances about product safety. Meanwhile a growing preoccupation about the ways in which meat is produced and sold is driving increased certification requirements, product safety guarantees and rising demand for animal welfare and environmental standards. Concurrently, the resilience of the meat sector to trade and price shocks triggered by recurring and pervasive outbreaks of animal diseases are frequently and increasingly tested.

As prices of dairy products in world trade descend from their historical peak in 2005, the key questions are how far will they fall, and whether a higher price plateau will be sustained over the medium term. The answers to these questions lie in the changing nature of key forces evolving in the dairy market, as it becomes ever larger and more global in scope. One driver is clearly the rising demand for dairy products world-wide, stemming from assumed solid income growth particularly in Eastern Asia, the Middle East and North Africa. But urbanisation and globalisation continue to affect the demand for storable and tradable dairy products which meet consumer demands for fats and proteins. In many developing countries, improved processing facilities are being established through technology transfer from foreign direct investment by established developed country firms using locally supplied raw milk. In urban markets, retail chains are providing standardised quality products which meet changing consumers’ needs. In many developing countries demand for milk products is growing more rapidly than is milk supply. In this respect, the developments in India, the world’s largest milk producer, and in China, the world’s fastest growing milk producer and consumer, are key to the evolution of world dairy markets.

This section provides information on the methodological aspects of the generation of the present Agricultural Outlook. It discusses the main aspects in the following order: First, a general description of the agricultural baseline projections and the Outlook report is given. Second, the compilation of a consistent set of the assumptions on macroeconomic projections is discussed in more detail. A third part presents an important model element that has been improved for this Outlook, i.e. the representation of production costs in the model’s supply equations.