Food policy experts hoping for tangible outcomes to address an escalating food crisis among developing countries have been disappointed by the outcomes of last week’s first-ever meeting of G20 agriculture ministers in Paris.
June 24’s meeting concluded with an Action Plan on Food Price Volatility and Agriculture that was far less ambitious than food policy experts (such as the head of the International Food Policy Research Institute Shenggan Fan) had hoped for.
One Oxfam policy adviser described the G20 outcomes as “little more than a sticking-plaster” when the food price crisis required major surgery.
Meanwhile, the G20 countries have failed to reach agreement on regulating around the contentious issue of food price speculation.
Looming food crisis
There is a lot at stake for the G20 participants, given that its members account for 54% of the world’s agricultural surfaces, 65% of farmland and 77% of global production of grains (according to 2008 statistics).
As the world is gripped by the second world food crisis in four years, food has been and continues to be a battleground for competing interests where prices, no longer under state control, are left to fluctuate according to the prevailing market forces.
With the commercialisation of agricultural commodities provoking social and political struggles, the question of a “reasonable price” for food is still very meaningful today, especially when food supplies are under increased pressure.
The possible causes of recent rising international food prices have attracted widespread attention and discussion, with the confluence of permanent (structural changes) and transitory factors (shocks) resulting in food price surges currently given the greatest prominence.
On the demand side, these factors include population and income growth, diversion of food crops into the production of biofuels, and decreasing stock levels which can no longer serve their buffer function (markets are therefore more exposed to speculative operations).
On the supply side, factors include the impacts of climate change, the lack of investment in agricultural research and development and energy price volatility.
Other macro-economic factors, such as depreciation of the US dollar, reduced state regulatory role in agricultural production and trade, and speculation on the futures commodity markets are often cited as other possible causes.
Countries likely to be most affected by macro-economic impacts of agricultural price volatility are those with developing or emerging economies.
These countries are generally either dependent on agricultural commodities to build their export revenues or their food imports are significant in the national balance of payment.
In other words, food price variations can have major repercussions on these economies. Low-income food-importing countries will see tragic consequences on the most vulnerable population, usually women and children.
Developed economies are equally exposed to food price volatility and in particular low-income households where the relative impact of food price variations is greater than on the national average, potentially exposing these communities to greater welfare loss.
Most importantly, price volatility threatens farm viability (low prices) and food security (high prices).
Many governments are therefore rightly concerned about the impacts of fluctuating commodity prices on domestic producers and consumers.
Action plan
Covering five key areas, the action plan did endorse a report prepared at the request of the G20 leaders last November by a consortium of international agencies including Food and Agriculture Organisation, International Monetary Fund, World Trade Organisation, United Nations and the World Bank.
The report brief explicitly asked the the consortium “to develop options on how to mitigate and manage the risks associated with price volatility of food and agricultural commodities, without distorting market behaviour.”
The G20 re-iterated its commitment to increase world agricultural production and productivity by strengthening research and development.
But the only concrete measure taken during the meeting was the launch of an International Research Initiative for Wheat Improvement (IRIWI).
Controlling commodities speculation
The regulation over commodity financial markets has also caused tension and disagreement.
Although the lack of coordinated regulation over these markets, and in some instances the absence of rules sanctioning market abuses and price manipulations, is a particular concern to the French, the G20 failed to reach an agreement.
The G20 agriculture ministers have essentially handed over the problem to their financial counterparts for later debate.
In order to increase transparency in physical commodity markets, and despite strong opposition from China and India, the meeting launched a monitoring system, the Agricultural Market Information System (AMIS).
AMIS to be housed at the FAO will require the full participation of the private sector to be of any relevance.
Around 90% of global grain trade is controlled by four private companies: Midland, Bunge, Cargill and Louis Dreyfus. Maize, soy, rice and wheat will be the first agricultural commodities to be monitored by AMIS.
Although the international community accepts that better policy coordination is an important factor in managing food price crises, no major initiative was agreed upon.
However, a Rapid Response Forum, consisting of senior policy officials, will be set up within the AMIS framework.
World Bank hedging measures
As part of an agreed “Agriculture and food security risk management tool-box”, the G20 participants have endorsed the World Bank Group “Agriculture Price Risk Management” (APRM) financial product facilitating commodity hedging by governments.
This measure will offer developing countries access to price risk management tools (such as futures contracts, options) under the supervision and credit exposure of IFC (the private sector arm of the World Bank) and merchant banks.
The initiative, if successful, should help developing economies to remove some of the risk involved with price volatility.
The G20 ministers also agreed to remove any export restriction for food purchased for non-commercial humanitarian purposes by the World Food Program.
The G20 ministers did not propose any restrictions on biofuels production, merely acknowledging the need “to further analyse all factors” nor was there any proposal to increase international stock levels (as it goes against neo-classical economic ideology).
Lack of decisive leadership
There is a sense among the food policy professionals that the G20 ministers did fail to demonstrate decisive leadership, opting to deal with symptoms rather than tackling the causes of the food price crises and overall leaving a taste of “much more could have been done”.
We know intuitively that states and the market economy interact with each other to shape and re-shape each other over time.
However, the modest outcomes from this meeting remind us how the market economy (and its ideological control) constrains the ability of states to act autonomously in their policy initiatives.
Finally, the implementation of any meaningful policy to curb agricultural prices volatility will not be possible without the co-operation of key players in the market economy, from food trading and processing corporations to food manufacturers and retailers.