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“Don’t panic” is rather tricky advice to give when people are rioting in the streets. Yet in the midst of a crisis over food shortages, that is the message from the Organisation for Economic Co-operation and Development’s latest survey of agriculture. It expects the spike in prices “will not last and prices will gradually come down”.

Compared with 2007-08 levels, in five years’ time nominal rice and corn prices are expected to be 2 per cent and 7 per cent lower respectively. Wheat is forecast to be about a quarter cheaper than today.

Part of this reflects the elimination of “transitory factors” such as Australia’s drought. In the medium term, however, the OECD thinks that market forces will work their magic. Consumption of cereals is expected to rise by 6 per cent over the next five years, mainly due to population growth and changing diets in developing nations such as China.

But production is expected to rise by 8 per cent as crop yields improve and more land is cultivated. The upgrade to the OECD’s forecasts has not actually been that large: versus its estimate of three years ago, it expects cereal output in 2012-13 to be 3 per cent higher. But it is enough to push supply above demand.

Still, the margin for error is minuscule. In 2012-13 cereals production is expected to exceed consumption by just 0.3 per cent. That makes prices sensitive to any market distortions. The state promotion of biofuels is one such factor: since the end of 2004 about 60 per cent of higher grain production has been eaten up by biofuels use. The OECD assumes this ratio falls to 40 per cent, but the medium-term direction of governments’ policies remain unclear.

Meanwhile, emergency export bans and other impediments to free trade could easily prevent the extra forecast production from fulfilling demand. The OECD may be counselling calm, but given that empty stomachs are involved it is hard to relax.

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