According to FAO, limited expansion of agricultural land, rising production costs, growing resource constraints and increasing environmental pressures are the main factors behind the trend. But the report argues that farm commodity supply should keep pace with global demand.
The OECD-FAO Agricultural Outlook 2013-2022 expects prices to remain above historical averages over the medium term for both crop and livestock products due to a combination of slower production growth and stronger demand, including for biofuels.
The report says agriculture has been turned into an increasingly market-driven sector, as opposed to policy-driven as it was in the past, thus offering developing countries important investment opportunities and economic benefits, given their growing food demand, potential for production expansion and comparative advantages in many global markets.
However, production shortfalls, price volatility and trade disruption remain a threat to global food security. The OECD/FAO Outlook warns: "As long as food stocks in major producing and consuming countries remain low, the risk of price volatility is amplified. A wide-spread drought such as the one experienced in 2012, on top of low food stocks, could raise world prices by 15-40 per cent."
China, with one-fifth of the world's population, high income growth and a rapidly expanding agri-food sector, will have a major influence on world markets, and is the special focus of the report. China is projected to remain self-sufficient in the main food crops, although output is anticipated to slow in the next decade due to land, water and rural labour constraints.
Presenting the joint report in Beijing, OECD Secretary-General Angel Gurría said: "The outlook for global agriculture is relatively bright with strong demand, expanding trade and high prices. But this picture assumes continuing economic recovery. If we fail to turn the global economy around, investment and growth in agriculture will suffer and food security may be compromised."
"Governments need to create the right enabling environment for growth and trade," he added. "Agricultural reforms have played a key role in China's remarkable progress in expanding production and improving domestic food security."
FAO Director-General José Graziano da Silva said: "High food prices are an incentive to increase production and we need to do our best to ensure that poor farmers benefit from them. Let's not forget that 70 per cent of the world's food insecure population lives in rural areas of developing countries and that many of them are small-scale and subsistence farmers themselves."
He added: "China's agricultural production has been tremendously successful. Since 1978, the volume of agricultural production has grown almost five fold and the country has made significant progress towards food security. China is on track to achieving the first millennium development goal of hunger reduction.
While China's production has expanded and food security has improved, resource and environmental issues need more attention. Growth in livestock production could also face a number of challenges. We are happy to work with China to find viable and lasting solutions."
Developing countries to gain
Driven by growing populations, higher incomes, urbanization and changing diets, consumption of the main agricultural commodities will increase most rapidly in Eastern Europe and Central Asia, followed by Latin America and other Asian economies.
The share of global production from developing countries will continue to increase as investment in their agricultural sectors narrows the productivity gap with advanced economies. Developing countries, for example, are expected to account for 80 per cent of the growth in global meat production and capture much of the trade growth over the next 10 years. They will account for the majority of world exports of coarse grains, rice, oilseeds, vegetable oil, sugar, beef, poultry and fish by 2022.
To capture a share of these economic benefits, governments will need to invest in their agricultural sectors to encourage innovation, increase productivity and improve integration in global value chains, FAO and OECD stressed.
Agricultural policies need to address the inherent volatility of commodity markets with improved tools for risk management while ensuring the sustainable use of land and water resources and reducing food loss and waste.
Outlook for China
China's consumption growth is expected to outpace its production growth by some 0.3 per cent per year, signaling a further but modest opening of China's agricultural sector, the report said.
China's imports of oilseeds are expected to rise by 40 per cent over the next ten years, accounting for 59 per cent of global trade.
Both the meat and dairy sectors will continue to expand which will result in higher imports of feed grains. China is expected to become the world's leading consumer of pig meat on a per capita basis, surpassing the European Union by 2022. China should maintain its leading role in global aquaculture at 63 per cent of global production and remain the largest fish exporter.
China is projected to remain self-sufficient in the main food crops, although output growth is anticipated to slow in the next decade. Key uncertainties around the agricultural outlook for China should be closely monitored and addressed, the report said. These include the sustainability of high levels of economic growth, increasing resource constraints on production, land degradation and water depletion, and greater production variability due to climate change.
According to FAO estimates, China's food security has improved with the number of undernourished falling by almost 100 million since 1990, despite adding an additional 200 million people to its population. Ensuring the food security of the estimated 158 million persons still undernourished remains a major challenge, the report said.