The Agro-Food Sector in The 21st Century

Reza Lahidji

The agro-food sector has experienced radical change in the OECD countries over the past ten years. Although food consumption is falling as a share of GDP — in the United Kingdom and in Italy, for instance, it fell from 16% in 1984 to 12% in 1994 — the supply of products is developing constantly, above all through advances in transport and storage techniques. At all stages in the sector (production, processing, trade), firms are becoming larger and are reshaping their relationships with one another. These are only the first results of far-reaching changes which are likely to intensify over the next few years — in consumer expectations, market size, policy and production techniques.¹

Enterprises in the agro-food sector have to face rapidly changing consumer preferences and habits: as their basic food requirements become fulfilled, consumers value a more varied and more sophisticated diet. In the United States a decade of new food products entering the market, in rising numbers each year, culminated in a record 17,000 in 1995. This demand for diversity means, of course, that consumers are becoming less attached to any given product or brand. Meanwhile, widening income gaps are leading to sharper differences in modes of consumption, as is reflected by the success of generic products and 'hard discount' stores.

Over the next 20 years these tendencies will be compounded by the effects of major demographic and social trends. Throughout the OECD countries, the population will age rapidly as the baby-boom generation grows older. Female participation in the workforce should continue to increase, and family size will shrink. These trends might lead consumers to adopt time-efficient ways of eating by using more convenience food and pre-cooked products, and food-delivery services and catering should grow. Furthermore, the recent spate of health scares connected with food (bovine spongiform encephalitis, salmonella, and so on) may remain in the public mind for a Long time. In future consumers might

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request more information on the origin of products or on certain specific characteristics according to current concerns. Produce from organic farming should benefit from these trends, although high prices (on average 30-50% above the equivalent non-organic produce) are likely to keep its market share small.

The second major factor of change will be the globalisation of agro-food markets. Sustained population growth, urbanisation and changing diets brought about by higher standards of living mean that food consumption should gather pace during the next few years in many developing countries in Latin America and Asia. Forecasts from the International Food Policy Research Institute suggest that meat demand in China should rise by 85% over the next 20 years and cereal demand by 30%.²Some observers even believe that pressure on world agricultural production from some developing countries could trigger food shortages and a general surge in prices. The general opinion is nonetheless that the growth potential for the global supply of food is more than adequate to meet booming demand and that any regional shortages could be resolved through trade. On balance, some developing countries will probably become major importers of agro-food products, especially red meat and some processed products³ by the beginning of the next century. Agro-food enterprises based in OECD countries will therefore acquire large outlets for their products, investments and expertise.

The ensuing expansion in trade and international investment will probably be backed by the policies conducted in most countries. In the OECD area as a whole, agricultural policy has been reformed (or is about to be) so as to leave more room for market mechanisms. The next round of international trade negotiations under the World Trade Organisation (WTO) and the Multilateral Agreement on Investment (MAI)

Reza Lahidji is an economist at the Advisory Unit in the Private Office of the Secretary-General of the OECD. E-mail: reza.lahidji@oecd.org

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under preparation at the OECD should lead to further liberalisation of trade in goods and capital, especially in the agro-food sector, which in most countries is still among the most heavily protected sectors.

The third major factor of change will be technical. The food market in OECD countries has already been revolutionised over the past 15 years with the development of new techniques for cooking, packaging, transport and storage. Seasonal fresh produce is now available almost all year round. Supermarket convenience food and microwave cooking are commonplace. The next major changes will concern two activities: biotechnology and information techniques.

The scope for the ...