Growth in demand for metals and foods is expected to slow by a third in the next 10 years, according to the World Bank. That is bad news for metal and food producers.
The bank says global growth in demand for agricultural commodities will fall from an average 2.8% per annum during the post-global financial crisis period 2010-2016 to an average of 1.8% during 2018-2027.
This substantial fall is likely to lead to lower agricultural prices. Rice and wheat would lead the slowdown.
To be sure, India’s farm prices are largely protected from international competition. But the reason for the slower growth in demand for agricultural commodities is that consumers shift from grains to foods with high protein and fat content as incomes rise. That trend will be seen in India as well, and agricultural production and policies will have to change accordingly.
The decline in growth of metals consumption is projected to be even starker—global demand growth is expected to fall from an average of 4.2% during 2010-16 to an average of 2.8% per annum during 2018-27. A big reason is the slowdown in China’s growth and its shift from investment-driven to more consumption-oriented growth.
Says the World Bank report, “Growth in aluminum and copper would remain high, reflecting their high income elasticity of demand, while growth in zinc would remain modest."
Energy prices, of course, are of particular interest to India. Unfortunately, the report says that global demand for energy during 2018-27 will be slightly higher than during 2010-16. It says global crude oil consumption growth will remain steady, while growth in demand for coal will taper off. Natural gas demand growth will, however, rise as demand for clean energy increases.
The report concludes: “Demand for most commodities may decelerate over the next decade as economies mature, infrastructure needs are met, and GDP and population growth slows. Much of future GDP growth will come in the services sector, which is not materials-intensive, while environmental and resource concerns and new technologies will reduce demand for traditional raw materials, as well as encouraging substitutions between them. These trends have already become evident in advanced economies, and a similar path could be expected for the major EMDEs (Emerging Market and Developing Economies)."
Several consequences follow from these trends:
1) Commodity importing nations will benefit, while commodity producers will lose;
2) Inflationary pressures from raw material and food prices will be limited; and
3) The crisis in agriculture is likely to get worse.