PARIS, July 4 (Reuters) – Higher agricultural productivity and slightly larger crop areas in the coming decade will cover rises in food demand, leading to stable prices and a period of more restrained agricultural markets, the FAO and OECD said on Monday.

In their annual Agricultural Outlook report, the Food and Agriculture Organization and the Organisation for Economic Cooperation and Development said food consumption would be tempered by moderate economic growth, slower population increases and the trend for households to allocate extra income to non-food items, including in developing countries.

The 10-year projections reinforced the view that agricultural commodities are emerging from the era of intense volatility unleashed by price spikes and supply tensions in 2007-2008, as faltering global economic growth curbs demand and strong output bolsters stocks. (Full Story)

“With supply and demand growth broadly matched, real agricultural prices are projected to remain relatively flat,” the FAO and OECD said.

“The increased demand for food is projected to be satisfied through productivity gains, with modest changes in crop area and livestock herds,” the organisations said in their report.

For crops, yield increases would account for 80 percent of production growth, the remainder coming from the expansion of crop areas, notably in Brazil and Argentina, they said.

Developing countries would continue to lead consumption growth due to rising populations and higher per capita spending.

This would cut the number of undernourished people to 8 percent of the global population, or under 650 million, in 2025 from 11 percent, or nearly 800 million, now, they estimated.

Developing countries, like developed nations, would see the consumption of sugar, oils and fats increase faster than that of cereals and protein as people consume more processed food, the FAO and OECD said.

There would also continue to be a shift in demand in developing economies towards animal proteins such as meat, fish and dairy products, leading to higher prices for livestock and feed products compared with staple food grains.

Per capita consumption of fish in developing countries, excluding sub-Saharan Africa, is set to exceed that of developed countries by 2025. This would result in fish produced by aquaculture overtaking volumes of caught fish, the report said.

Agricultural exports will remain dominated by a small group of countries, with several commodities forecast to be dependent on one country for more 40 percent of export flows in 2025, such as Brazil for sugar and soybeans, the FAO and OECD said.

Reforms being introduced in China were one source of uncertainty for the market outlook, however, notably the scale and timing of the country’s planned release of part of its huge maize stocks, they said.