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Despite the significant impact of the global financial crisis and economic downturn on all sectors of the economy, agriculture is expected to shoulder the crises relatively better. This is the result of the recent period of relatively high incomes but above all because food is a basic necessity and a demand for food is relatively income-inelastic.
An assessment of an even deeper and more prolonged recession with lower GDP and incomes than in the outlook baseline suggests that the reduction in agricultural prices, production and consumption, associated with lower incomes is likely to be moderate, as long as economic recovery begins within 2-3 years.
Demand for higher cost livestock products, such as beef, pork and dairy, would be the most seriously affected as demand for livestock and dairy products is more reactive to income changes than demand for cereals. It follows that grains used for animal feed tend to be more responsive to changes in income than those directed to human consumption.
Usually, income changes have a proportionately greater impact in low income countries because of their higher income elasticities and where food consumption forms a larger part of household budgets, compared to many OECD countries where food expenditures, in general, form a smaller part of household budgets, and are usually less responsive to changes in incomes and prices.
Percentage change in biofuel and crop prices with lower income growth in alternative GDP scenarios, compared to baseline levels
Percentage change in meat and dairy prices with lower income growth in alternative GDP scenarios, compared to baseline levels
The reductions in crop and biofuel prices associated with the lower GDP scenarios were only about one-half those for livestock products. Among cereals, maize prices were the most responsive to lower GDP, reflecting its use primarily as a feed ingredient rather than a biofuel feedstock.
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