THE FUTURE OF FOOD Long-term Prospects for the Agro-food Sector OECD THE FUTURE OF FOOD LONG-TERM PROSPECTS FOR THE AGRO-FOOD SECTOR ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuant 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 Economic Co-operation and Development (OECD) shall promote policies designed: ± to achieve the highest sustainable economic growth and employment and a rising standard of living in Member countries, while maintaining ®nancial stability, and thus to contribute to the development of the world economy; ± to contribute to sound economic expansion in Member as well as non-member countries in the process of economic development; and ± to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became Members subsequently 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 the work of the OECD (Article 13 of the OECD Convention). PubliÂe en franËcais sous le titre : SE NOURRIR DEMAIN PERSPECTIVES A LONG TERME DU SECTEUR AGRO-ALIMENTAIRE OECD 1998 Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre franËcais d'exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, Tel. (33-1) 44 07 47 70, Fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: http://www.copyright.com/. All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue AndrÂe-Pascal, 75775 Paris Cedex 16, France. 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 to reach well over 9 billion by the middle of the next century, putting to the test the earth's agricultural carrying capacity. Important technological innovations are com- ing on stream, and significant developments are unfolding in competition, market structures and industrial organisation. At the same time, globalisation and regional integration – underpinned and accompanied by trade liberalisation and the pros- pect of multilateral investment accords – are continuing apace. The cumulative impact of these events is likely to transform the agriculture and food sector, and alter the geographical and functional distribution of production and sales activities across countries and regions. The prospect of such deep-seated change raises a whole host of important issues for governments, industry and consumers alike. To examine these issues, the OECD organised a Forum for the Future conference in June 1997. It brought together key players from government, business and research to identify and discuss the likely course of major changes under way or in prospect in the OECD agro-food sector, and to reflect on the policy consequences for food and agriculture, and the agro-food chain more generally, over the next twenty years. The conference was also intended to provide part of the context for the discussion of emerging policy issues at the OECD Meeting of Agriculture Ministers in 1998. The conference consisted of three sessions. The first reviewed longer-term scenarios for global food demand and supply, with particular consideration of the broad economic and social implications of new technologies. The second focused on the longer-term evolution of the agro-food industry and relevant market struc- tures, in particular with respect to processing, distribution and retailing. The third session addressed the implications for strategic decision-making in both government and business in OECD countries. This publication brings together the papers presented at the meeting as well as an introductory contribution by the Secretariat. The book is published on the responsibility of the Secretary-General of the OECD. 3 TABLE OF CONTENTS The Future of Food: An Overview of Trends and Key Issues by Reza Lahidji, Wolfgang Michalski and Barrie Stevens ....................................7 Prospects for the World Food Situation on the Threshold of the 21st Century by Hartwig de Haen, Nikos Alexandratos and Jelle Bruinsma ...........................21 Major Uncertainties and Risks Affecting Long-term Food Supply and Demand by Per Pinstrup-Andersen and Rajul Pandya-Lorch ..........................................53 The Impact of Biotechnology on the Agro-food Sector by Guy Paillotin ...................................................................................................71 Changes in Food and Drink Consumption, and the Implications for Food Marketing by Alan D. Gordon ..............................................................................................91 Between the Farm Gate and the Dinner Plate: Motivations for Industrial Change in the Processed Food Sector by Dennis R. Henderson ....................................................................................111 The Future of Agricultural Production Structures by Donald McGauchie .......................................................................................141 Long-term Policy Issues and Challenges for Agro-food by Gérard Viatte and Josef Schmidhuber ..........................................................157 Annex: List of Participants ................................................................................195 5 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 supply and 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 evolve rapidly. The second part of this introductory chapter describes some of the major trends 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 under way in the agro-food sector in OECD countries. I. THE LONG-TERM OUTLOOK FOR GLOBAL SUPPLY AND DEMAND World agricultural production to 2010 is expected to grow at an average rate of around 1.8 per cent a year, a slower pace than in preceding decades but fast enough 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 widespread use of agro-chemical inputs. OECD countries, by contrast, will contribute only marginally to the rise in world production. In Russia and the Ukraine, agricultural supply is expected to recover, but slowly, from its collapse of the early 1990s. As 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 effective demand. Food demand is expected to increase vigorously in developing coun- tries – with the exception of some least developed countries – at about 2.6 per cent per annum, primarily as a result of demographic changes. The population 7 THE FUTURE OF FOOD outside the OECD is expected to increase by 80 million each year in the next two decades, pushing up food requirements and, in some regions, aggravating the risks of food shortages. Economic growth, rising incomes and urbanisation, partic- ularly in Asia and Latin America, may also contribute to the expected surge in food 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 the other hand, per capita food demand could gradually level off, and consumption is likely to change much more in composition and quality than in volume over the next two decades. Trade in agricultural commodities looks set to remain at around 10 per cent of world production, although trade in processed food should grow somewhat faster. Developing countries are expected to become net agricultural importers. This 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. The most promising markets for OECD exports are those of livestock and some processed foods, where local