By Matthew Saltmarsh
May 31, 2011
“One shock away from a full-fledged crisis.” That is how the World Bank president, Robert B. Zoellick, described the effects of the recent increase in world food prices.
Workers inspecting oranges in Brazil. Rising food prices have pushed global inflation higher.
His remarks, in April, came soon after a United Nations gauge of food prices touched its highest level since its creation in 1990, and as popular uprisings fanned across the Middle East, toppling the longstanding rulers of Tunisia and Egypt and destabilizing a host of other regimes.
Those upheavals, in a region once known as the Fertile Crescent but now dependent on imported grain, were set off in part by concerns about the rising cost of essential foodstuffs, demonstrating to global leaders the extreme effects that food price spikes can have on social, economic and political stability.
Now, France is now using its chairmanship of the Group of 20 leading economies to keep the issue of volatility in commodities, and especially food, at the top of the international agenda.
The French government has convened the first-ever meeting of G-20 agriculture ministers for June 20 and June 21 in Paris. It hopes to achieve agreement on an action plan that would be sent to G-20 leaders when they meet in the French city of Cannes in November.
The plan would include commitments to stem sudden and excessive fluctuations in agricultural prices; improve security of supplies; bolster transparency of information, especially about stocks; and improve risk management and the regulation of agricultural derivatives.
Since the warnings this spring, there has been a slight letup in price pressure as commodities have slipped from their peaks. On Wednesday, wheat futures for July delivery on the Chicago Mercantile Exchange were at $7.89 a bushel, down 3.7 percent, after an announcement by Russia that it would let a ban on wheat exports expire on July 1.
But over the past 12 months, the wheat price is up around 75 percent after drought and fires led to the Russian export ban last summer, as floods damaged crops in Canada and Australia, and as a particularly dry spring in Western Europe threatens output this year. Few analysts expect a major retrenchment in prices in the months ahead.
Aid agencies have started pushing for more action. In a report released Tuesday, Oxfam International said the global food system was buckling under pressure from climate change, ecological degradation, population growth, rising energy prices, increasing demand for meat and dairy products and intensifying competition for land from biofuels, industry and urbanization.
The charity warned that prices for staple foods including corn and wheat would more than double in two decades unless action were taken. “The warning signs are clear,” the report said. “Surging and unstable international food prices, growing conflicts over water, the increased exposure of vulnerable populations to drought and floods are all symptoms of a crisis that may soon become permanent.”
Oxfam called on governments to seek a fairer and more sustainable food system by investing in agriculture, managing food distribution better and promoting equal rights for women, who produce much of the world’s food.
It also called on the private sector to shift away from a model that profits at the expense of poor producers, consumers and the environment. Specifically, it said that three global companies — Archer Daniels Midland, Bunge and Cargill — held disproportionate sway over the world grain trade and that their activities were adding to volatility.
Meantime, higher food prices, along with rising energy costs, are affecting economic debate and policy making.
In March, a paper published by the International Monetary Fund concluded that an increase in food prices resulted in less private consumption and greater income inequality, as well as fueling anti-government demonstrations and riots. This year, a number of central banks, among them the European Central Bank, the Bank of Canada and the Reserve Bank of Australia, have raised interest rates, citing inflationary pressure as a factor.
That pressure appears to be taking root. On Tuesday, the Organization for Economic Cooperation and Development said that consumer prices in industrialized countries rose 2.9 percent in the year to April 2011, after growth of 2.7 percent in March. It was the highest rate since October 2008 and was driven by an acceleration in food and energy prices.
In the euro area, inflation eased to an annual rate of 2.7 percent in May from 2.8 percent the month before, the statistics agency Eurostat said. Still, that rate remains well above the E.C.B.’s comfort zone of just below 2 percent.
In the lead-up to the meeting in June, Bruno Le Maire, the French agriculture minister, has visited China, Brazil, Russia and India, and he will head to the United Stares this week.
French officials are guardedly optimistic. “We sense the glass is half full,” said an official, who has been working on the draft communiqué but was not permitted to speak publicly. “Everybody in the G-20 agrees on the need to improve the system.”
Specifically, France is pushing for the creation of a database on stocks, dubbed the Agricultural Market Information Initiative, that would be managed by the U.N. Food and Agriculture Organization in Rome. It would track stocks held by countries and shifts in demand, although some countries, like China, have been reluctant to divulge information they deem strategic.
France has also asked international organizations like the World Food Program and the World Bank to draw up plans to establish reserve stocks of food in countries seen as most vulnerable to shortages, and to look at new insurance products to better hedge farmers’ risks.
Another area that France and the G-20 finance ministries are examining is the possibility of limiting the scope of positions in agricultural derivatives, standardizing those products and tightening regulation of over-the-counter transactions. But some experts argue that food price volatility is less the result of speculation and more an inevitable side effect of climatic conditions and economic and demographic factors. These experts contend that it may be more useful to mitigate the side effects than to seek to prevent price swings.
“Everybody blames speculation,” Alexander Sarris, professor of economics at the University of Athens and a former senior official at the United Nations, told a World Bank development conference in Paris on Monday, “but speculation is a symptom and not a cause of spikes.”
Governments should facilitate the development of a range of tools, he said, to help mitigate the effects of price rises, including better information about and management of stocks, early warning systems based on econometric and meteorological models, and tougher rules negotiated through the World Trade Organization to avoid arbitrary export bans.
Some participants in the conference said that insurance policies already existed that paid farmers immediately after damaging changes in weather, but they contended that more needed to be done to educate the users of such financial products about their benefits.
Others said “virtual” food reserves, or financial funds designed to compensate those affected by price surges, could also be introduced, along with drought- and food-resistant seeds.
“Whatever we do, we will have volatility in future,” said Pierre Jacquet, chief economist at the French Development Agency. “We need to be open to a range of solutions, and test them.”
