HEFUTURE OECD OF FOOD

1 OECDTHEFUTUREOF FOODLong-term Prospectsfor the Agro-food Sector THE FUTUREOF FOOD LONG-TERM PROSPECTSFOR THE AGRO-FOOD SECTOR ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENTORGANISATION FOR ECONOMIC CO-OPERATIONAND DEVELOPMENTP ursuant to Article 1 of the Convention signed in Paris on 14th December 1960,and which came into force on 30th September 1961, the Organisation for EconomicCo-operation and Development (OECD) shall promote policies designed: to achieve the highest sustainable economic growth and employment and a risingstandard of living in Member countries, while maintaining financial stability, andthus to contribute to the development of the world economy; to contribute to sound economic expansion in Member as well as non-membercountries in the process of economic development; and to contribute to the expansion of world trade on a multilateral, non-discriminatorybasis in accordance with international original Member countries of the OECD are Austria, Belgium, Canada,Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, theNetherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, theUnited Kingdom and the United States.

2 The following countries became Memberssubsequently through accession at the dates indicated hereafter: Japan (28th April 1964),Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973),Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary(7th May 1996), Poland (22nd November 1996) and the Republic of Korea(12th December 1996). The Commission of the European Communities takes part in thework of the OECD (Article 13 of the OECD Convention).Publi e en fran cais sous le titre :SE NOURRIR DEMAINPERSPECTIVES A LONG TERME DU SECTEUR AGRO-ALIMENTAIRE OECD 1998 Permission to reproduce a portion of this work for non-commercial purposes or classroom useshould be obtained through the Centre fran cais d exploitation du droit de copie (CFC),20, rue des Grands-Augustins, 75006 Paris, France, Tel.

3 (33-1) 44 07 47 70,Fax (33-1) 46 34 67 19, for every country except the United States. In the United States permissionshould be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400,222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: All other applications for permission to reproduce or translate all orpart of this book should be made to OECD Publications, 2, rue Andr e-Pascal,75775 Paris Cedex 16, France. 3 FOREWORD The pressures for change in the OECD agro-food sector are strong and perva-sive. The world's population, although now growing more slowly, is expected toreach well over 9 billion by the middle of the next century, putting to the test theearth's agricultural carrying capacity. Important technological innovations are com-ing on stream, and significant developments are unfolding in competition, marketstructures and industrial organisation.

4 At the same time, globalisation and regionalintegration underpinned and accompanied by trade liberalisation and the pros-pect of multilateral investment accords are continuing apace. The cumulativeimpact of these events is likely to transform the agriculture and food sector, andalter the geographical and functional distribution of production and sales activitiesacross countries and regions. The prospect of such deep-seated change raises awhole host of important issues for governments, industry and consumers examine these issues, the OECD organised a Forum for the future conferencein June 1997. It brought together key players from government, business and researchto identify and discuss the likely course of major changes under way or in prospect inthe OECD agro-food sector, and to reflect on the policy consequences for food andagriculture, and the agro-food chain more generally, over the next twenty years.

5 Theconference was also intended to provide part of the context for the discussion ofemerging policy issues at the OECD Meeting of Agriculture Ministers in conference consisted of three sessions. The first reviewed longer-termscenarios for global food demand and supply, with particular consideration of thebroad economic and social implications of new technologies. The second focusedon the longer-term evolution of the agro-food industry and relevant market struc-tures, in particular with respect to processing, distribution and retailing. The thirdsession addressed the implications for strategic decision-making in bothgovernment and business in OECD publication brings together the papers presented at the meeting as wellas an introductory contribution by the Secretariat. The book is published on theresponsibility of the Secretary-General of the OECD.

6 5 TABLE OF CONTENTS The future of Food: An Overview of Trends and Key Issuesby Reza Lahidji, Wolfgang Michalski and Barrie Stevens ..7 prospects for the World Food Situation on the Threshold of the 21st Centuryby Hartwig de Haen, Nikos Alexandratos and Jelle Bruinsma ..21 Major Uncertainties and Risks Affecting Long-termFood Supply and Demandby Per Pinstrup-Andersen and Rajul Pandya-Lorch ..53 The Impact of Biotechnology on the Agro-food Sectorby Guy Paillotin ..71 Changes in Food and Drink Consumption, and the Implicationsfor Food Marketingby Alan D. Gordon ..91 Between the Farm Gate and the Dinner Plate:Motivations for Industrial Change in the Processed Food Sectorby Dennis R. Henderson ..111 The future of Agricultural Production Structuresby Donald McGauchie ..141 Long-term Policy Issues and Challenges for Agro-foodby G rard Viatte and Josef Schmidhuber.

7 157 Annex: List of Participants ..195 7 THE future OF FOOD:AN OVERVIEW OF TRENDS AND KEY ISSUES by Reza Lahidji, Wolfgang Michalski and Barrie Stevens OECD Secretariat, Advisory Unit to the Secretary-General Twenty years from now, the way food is produced, sold and consumed in OECD countries will in all probability have drastically changed. Projections of food supplyand demand, as presented in the first part of this paper, suggest substantial trans-formations in consumption patterns, in technologies, in policies, and in interna-tional trade. As a result, market organisation in OECD countries is likely to evolverapidly. The second part of this introductory chapter describes some of the majortrends in the future organisation of the agro-food industry, including differentiation,concentration, and vertical co-ordination. Finally, the third part of the paper inves-tigates some domestic and international policy implications of the changes underway in the agro-food sector in OECD countries.

8 LONG-TERM OUTLOOK FOR GLOBAL SUPPLY AND DEMAND World agricultural production to 2010 is expected to grow at an average rateof around per cent a year, a slower pace than in preceding decades but fastenough to improve per capita food production as world population growth grad-ually loses momentum. The bulk of the expansion in production will be in devel-oping countries, largely due to the intensification of agriculture and a widespreaduse of agro-chemical inputs. OECD countries, by contrast, will contribute onlymarginally to the rise in world production. In Russia and the Ukraine, agriculturalsupply is expected to recover, but slowly, from its collapse of the early Hartwig de Haen et al. show in the next chapter, growth projections in glo-bal and regional food supply principally reflect the likely evolution of effectivedemand. Food demand is expected to increase vigorously in developing coun-tries with the exception of some least developed countries at about percent per annum, primarily as a result of demographic changes.

9 The population THE future OF FOOD 8 outside the OECD is expected to increase by 80 million each year in the next twodecades, pushing up food requirements and, in some regions, aggravating therisks of food shortages. Economic growth, rising incomes and urbanisation, partic-ularly in Asia and Latin America, may also contribute to the expected surge infood demand, not least via rapid changes in diets in favour of more grain-inten-sive foods such as meat, and in particular red meat. In OECD countries, on theother hand, per capita food demand could gradually level off, and consumptionis likely to change much more in composition and quality than in volume over thenext two in agricultural commodities looks set to remain at around 10 per centof world production, although trade in processed food should grow somewhatfaster. Developing countries are expected to become net agricultural will provide OECD producers with an attractive export outlet as well as con-siderable opportunities for foreign direct investment, as their own domestic mar-kets gradually stagnate.

10 The most promising markets for OECD exports are thoseof livestock and some processed foods, where local production is unlikely tomatch demand in regions such as East Asia or Eastern Europe. In this context, theUnited States, Australia and New Zealand might well gain substantial marketshares in world exports at the expense of the European Union (at least under theassumption that present policies continue). Indeed, with their higher efficiency,lower costs and more market-oriented policies, these countries seem better pre-pared than Europe for new competitive conditions. Imports would nonethelesssurge in all OECD countries as a result of lower protection, so that the import pen-etration rate for the OECD area could reach 20 per cent in 2020 compared to 7 percent in 1992, mainly as a result of increased trade among OECD countries. In turn,increased import penetration is likely to put yet more pressure on OECD countries to pursue structural adjustment in their agriculture range of uncertainties is associated with this baseline scenario.