JRC analysis looking into some of the key uncertainties related to the main global agricultural commodities has contributed to the publication of the annual OECD–FAO 2014 Agricultural Outlook for the period 2014-2023, released today. The partial stochastic analysis provided by the JRC looks into some of the key underlying assumptions of these market projections.
This approach captures a wide range of possible outcomes in agricultural commodities markets in terms of crops yields and macro-economic conditions. It involves performing multiple simulations in order to quantify the implications for the market outlook of uncertainty about future values of key market drivers like exchange rates, inflation, economic growth, energy prices and yields for the major agricultural commodities (arable crops such as cereals, oilseeds, sugar beet and cane, etc., milk) in world regions of interest. This work provides a complex picture of how the risk associated with these factors is transmitted to production volumes, commodity prices and trade flows, thereby adding a crucial dimension to the policy-relevant information provided by the outlook.
The OECD–FAO Outlook projects a short-term decline in international crop prices largely in response to a larger production in 2013/14. In contrast, meat and dairy products have reached historically high prices, because their output fell short of expectations in 2013. According to the Outlook report, crop prices are expected to stabilise in the medium term, at levels that remain above the pre-2008 period, but significantly below recent peaks. Higher stocks of cereals could reduce price volatility concerns.
The Outlook also projects further growth of trade of agricultural and fisheries products, although at a slower pace than in the previous decade and with the Americas strengthening their dominant position. Recent policy reforms have enabled agricultural markets to become more responsive to market signals, even if producer support, public stockholding policies and biofuel mandates are still quite influential.
Partial stochastic analysis has already been used by the JRC in preparing the annual market outlook of the Directorate-General for Agriculture and Rural Development, which uses the same OECD-FAO model, Aglink-Cosimo. The technique is being further developed within the JRC’s agri-economic modelling platform, iMAP, in order to reinforce its methodology, extend it to other iMAP models and increase its usefulness for analysts.
The European Commission publishes an annual medium-term outlook for the main agricultural commodity sectors, based on the partial equilibrium model Aglink-Cosimo, which projects EU-wide supply and use balance sheets (production, consumption, exports, imports and stocks) 10 years ahead. This projection feeds the equivalent OECD-FAO outlook at global level.
Such projections serve as the reference scenario for the medium-term impacts of changes in EU agricultural policies. These 'baseline' projections are often interpreted by policy makers and market analysts as an indication of plausible market developments taking into account the implemented or already approved policies. The partial stochastic analysis designed by the JRC's Institute for Prospective Technological Studies (IPTS) is able to enhance these projections by setting them in a probabilistic context and, therefore, recognising some of the risks and uncertainties underlying the projected values. This information allows the user to take into account the relative uncertainty of the different projected variables.
In 2013 the JRC published a reference report describing the methodology of JRC's partial stochastic analysis used when preparing the annual market outlook of the Directorate-General for Agriculture and Rural Development or the annual OECD–FAO Agricultural Outlook.