June 15, 2010 / 1:37 PM / 10 years ago

UPDATE 1-Economic upturn, energy to lift farm prices-FAO/OECD

* 2010-19 agricultural prices seen above 1997-2006 average

* Prices prone to volatility, energy an increasing factor

* FAO says farm investment needs to reach poor countries

(Updates with Gurria, Diouf quotes, farm-sector investment)

By Gus Trompiz

ROME, June 15 (Reuters) - Economic recovery and rising energy costs will lift world agricultural prices in the next decade, but prices will fall short of peaks in 2007-2008, the UN’s Food and Agriculture Organisation and OECD said on Tuesday.

“Let’s say it’s now moving at a more cruising speed,” Organisation for Economic Cooperation and Development Secretary-General Angel Gurria said of the outlook for prices.

The price rises would be positive, he said, as it would encourage investments needed to meet rising food demand and cut global hunger.

“You do need a certain expectation of stability and improvement in real prices over time to attract investments,” Gurria told Reuters following a presentation of the OECD-FAO Agricultural Outlook 2010-2019.

A surge in food prices in 2007-2008 sparked riots in developing nations, drove commodity markets to record highs and prompted export bans that roiled the flow of world trade. But the global economic downturn and increased production pushed grain prices from their peaks.

FAO and OECD officials were cautious about their latest price projections, saying agriculture would remain prone to volatility, particularly due to the growing influence of energy markets.

Prices of crop and livestock products, with the exception of pork, were all expected to rise in the coming decade compared with 1997-2006. Wheat and coarse grains were expected to be 15-40 percent higher and vegetable oils up more than 40 percent.

Average prices of dairy products were forecast to grow 16-45 percent, with the outlook improving markedly since a recovery in the market in late 2009.

In their previous 10-year outlook published a year ago while the global economy was still limping, the organisations forecast crop prices would rise 10-20 percent in real terms versus 1997-2006, dairy prices would be slightly higher and meat prices would not exceed the base period.

Although agricultural prices in 2010-19 will be higher than in the decade before the 2007-08 surge, most prices were not forecast to rise rapidly between now and 2019 as increased supplies would restrain prices, a trend FAO has stressed in its short-term crop forecasts.

INPUT COSTS

Rising crude oil, seen at over $96 a barrel in 2019, would support agricultural prices by raising input costs and boosting markets for biofuels that use crops, the new report said.

Biofuels would also be helped by government blending targets, the FAO and OECD said, putting ethanol output at 159 billion litres in 2019, up 110 percent from a 2007-09 average.

Although trailing demand growth, increases in agricultural output would still be sufficient to maintain sizeable stock levels and to keep overall production on track to meet an estimated 70 percent rise in global food output needed by 2050 to supply an increasing global population, the report said.

Production gains would be driven by emerging countries. Brazil would be the fastest-growing farm producer in 2010-19 with an increase of over 40 percent, followed by Ukraine at 29 percent and Russia at 26 percent.

But FAO Director-General Jacques Diouf warned output growth in poorer countries continued to lag richer nations and leading emerging economies, calling on countries to fulfil pledges to invest in small-scale farming in poor countries.

“We need to move from words to action,” he told a joint presentation with Angel Gurria.

The world’s richest nations have promised to invest some $20 billion in poor-country agriculture and Diouf said lengthy discussions with donors had now clarified who would pay what. The investments are also seen as a way of reducing the number of hungry people in the world, which FAO says rose to 1 billion last year.

Editing by Sue Thomas

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