Tuesday, 28 June 2011

A MISSED OPPORTUNITY: THE G-20 ACTION PLAN ON FOOD PRICE VOLATILITY AND AGRICULTURE

By John Thompson, co-convenor, STEPS Centre food and agriculture domain and joint coordinator, Future Agricultures Consortium

The Group of Twenty (G-20), comprised of the world’s 19 largest economies, plus the European Union, was created as a response both to the financial crises of the late 1990s and to a growing recognition that key emerging-market countries were not adequately included in the core of global economic discussion and governance. Collectively, the G-20 countries account for 85% of global gross national product, 80% of world trade and 66% of the world population. On 22-23 June 2011, a meeting of the group’s agriculture ministers was held in Paris – the first of its kind – after France made global food security and commodities regulation a centrepiece of its G-20 presidency following the 2007-08 food crisis. At the end of the meeting, the ministers issued a 24-page communiqué called ‘Action Plan on Food Price Volatility and Agriculture’, which addresses some of the symptoms of price volatility on agricultural markets, but fails to confront its root causes.

The ministers sidestepped many of the most contentious issues facing global food and agricultural policy, including biofuel subsidies and export bans, as a serious split hampered efforts to reach a broad consensus. The event highlighted how many large agricultural economies, such as the Argentina, Brazil, France, Russia and the US, remain deeply divided over how to respond to record high food prices around the world and improve governance of the global food system.

The action plan does include three notable initiatives: the International Research Initiative for Wheat Improvement (IRIWI), Global Agricultural Geo-Monitoring Initiative (GAGI) and the Agricultural Market Information System (AMIS). IRIWI will coordinate research efforts across major wheat growing countries in both public and private agencies, while GAGI would be launched to aid better crop forecasting. AMIS will seek to develop early warning systems on looming food crises in any part of the world by providing a framework for monitoring country-level data production, demand, price, trade and stocks. A 'Rapid Response Forum' will be created in the UN Food and Agriculture Organisation (FAO) to take note of the alerts provided by the early warning system under AMIS – although the agency, already short of money, will have to run it without new funding, so questions remain about its long-term viability. Moreover, private sector players, such as the large grain traders (e.g. ADM, Bunge, Cargill and Dreyfus), for whom knowledge of stocks and harvests represent a key competitive advantage, are ‘urged’ to participate in AMIS (with promises that it will have ‘a framework to ensure the confidentiality of proprietary and sensitive information’), but no measures are set forth to make certain they work in the public interest. Nonetheless, the good news is that China and India have both agreed to participate in AMIS – a major advance, given that both countries regard food stocks as a strategic issue and have resisted reporting on stocks levels and harvests in the past.

Beyond these valuable, but largely technical efforts, the watered down communiqué contains only vague references to some of the most difficult issues facing agricultural producers in developing countries. While the G-20 nations largely agree on the need to improve agricultural productivity and enhance transparency, they disagree on biofuels, export controls and on the regulation of commodities and financial markets.

The G-20 commissioned international bodies, including the FAO, the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD) and the World Bank, to research how best to deal with rising food prices. A key report, Price Volatility in Food and Agricultural Markets: Policy Responses, underlined the negative role of biofuels on price volatility and recommended a rethink of policies which incentivise biofuels, adopted by many G20 States members. Not surprisingly, two big ethanol producing nations, the US and Brazil, blocked agreement. American geopolitical interest lies in using its vast agricultural surplus to wean itself off Middle Eastern oil, while Brazil's growth is driven by its agroexports. So the biofuels issue has been kicked into the long grass of ‘more studies needed’.

There is also no deal either on giving up export bans when prices spike. During that last food price crisis, several countries stopped exports of key crops to keep the cost of staples in check at home, but added to anxiety about global supplies and fuelled further price rises by doing so. Emerging economy governments, perhaps not surprisingly, were not keen to give up one of the few tools they have to keep the lid on urban unrest in times of food inflation. However, there is agreement that exports for humanitarian aid will not be caught up in export bans in future, but the details are lacking.

Another glaring omission from the action plan is climate change. The impact of extreme climate events – droughts and floods – has been one of the major drivers of food price volatility in the last few years, but it gets short shrift in the communiqué. In it the G-20 stresses ‘the need to invest more and increase cooperation in research and development for climate change adaptation, especially for smallholder farmers, and mitigation technologies, and to help developing countries to enhance their capacity for addressing climate change in agriculture’ and that it supports the United Nations Framework Convention on Climate Change (UNFCCC). But there are no specific commitments or initiatives on either the adaptation or mitigation agenda. Instead there is mention of the need for more sustainable agriculture and more responsible use of water resources. Consequently the challenge of meeting growing demand for food as global environmental change impinges on agricultural productivity is reduced to little more than business as usual statements and diplomatic hand-waving.

Perhaps not surprisingly, there was no clear agreement on the regulation of agricultural financial markets, which was supposed to be the cornerstone of the ministerial meeting. While the action plan reflected many of France's ambitious proposals for its G-20 presidency this year, it falls short of calls by Paris for a tough crackdown on derivatives trading, thanks in part to strong resistance from the UK. France had wanted all G-20 countries to commit themselves to imposing so-called ‘position limits’ – a curb on how much of the market an investor can buy into – but this was removed from the final version of the communiqué. Instead, we are left with insipid statements from the agriculture ministers about how ‘appropriately regulated and transparent agricultural financial markets are indeed key for well-functioning physical markets’, but no concerted action for better regulation of those markets. Further, the ministers ‘strongly encouraged’ their counterparts in the G-20 ministries of finance to take decisions for better regulation of agricultural financial markets, leaving it up to them to adopt concrete measures on the matter.

It would appear that we will have to face another food price crisis before the world’s most influential nations get serious about tackling the really tough issues.

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