Scramble to combat rising food costs

“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. His remarks, in April, came soon after a UN gauge of food prices touched its highest level since its creation in 1990, and as popular uprisings fanned across West Asia, toppling the longstanding rulers of Tunisia and Egypt and destabilising 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 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.

Risk management

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.

Over the past 12 months, the wheat price is up around 75 per cent 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.

In a report 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 urbanisation.

French officials are guardedly optimistic. “We sense the glass is half full,” said an official, who has been working on the draft communique 0but 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 UN Food and Agriculture Organisation 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.

Another area that France and the G-20 finance ministries are examining is the possibility of limiting the scope of positions in agricultural derivatives, standardising 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.

“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, “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 management of stocks, early warning systems based on econometric and meteorological models, and tougher rules negotiated through the World Trade Organisation 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, French Development Agency. “We need to be open to a range of solutions, and test them.”