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May 17, 2011

G-20 struggles to face up to agriculture price volatility

Last week, a background paper for the G-20 Summit of Agricultural Ministers on price volatility from eight international organizations appeared [1]. The paper, dated May 2, was presented last week to the sherpas who are preparing for the summit, to be held in Paris on June 23.  

The analysis treats the failures of international markets seriously. It provides a clear and useful explanation for why price volatility, so useful at low levels in the movement of goods, becomes a serious problem when price swings are too large. Yet the paper is fundamentally dissatisfying.

The start and end points of the recommendations (more so than the analysis) is how to ensure open market liberalization works. And even at that, ends up compromised by the politics of free trade, in which poorer countries can be held to a much higher standard than the richer countries that fund the international agencies providing the advice. So on the one hand, developing countries should further increase their dependence on international markets, while relying on finance (including loans) from the international system—finance that has a poor track record to date, both for timeliness and adequacy. On the other hand, the G-20 countries themselves can continue to disrupt those same international markets, asked only to moderate their public subsidies and mandates for biofuels.

The authors of the report do not question whether the emergence of high levels of volatility in international markets, at a time when international markets are more important to more countries’ food security than ever before, warrants a more fundamental rethink from the governments that are so central to agricultural trade (most of the them G-20 members). Given the mix of agencies involved in drafting the paper, and the critiques some of those organizations have provided of globalization, especially since the food price and financial crises in 2008, this is a pity.

New elements—fundamentally important elements—have been introduced into this final version of the paper, which is the third version to have circulated. For instance, the paper now discusses how to tackle very high levels of food waste, which plagues rich and poor countries alike, though for quite different reasons. Some of the more questionable claims (such as the need to increase food production by 100 percent by 2050) have been toned down, though they remain problematic (the final version suggests a 70-percent increase is needed).

Yet the recommendations are anything but bold. Volatility in international agricultural commodity markets is a problem that is both hurting G-20 interests and that G-20 member states could largely remedy. Instead of promising money to other countries, and thinking of new ways to manage risk, the G-20 need to look to their own policies to consider how to mitigate the causes of uncertainty that are feeding current levels of volatility.

The G-20 includes most of the major exporters of food. Most of the members continue to push for market access for their products—even those, such as China and India, that carefully control their domestic agricultural markets. The G-20 (and the companies they host) have a lot at stake in ensuring international markets function in ways that meet importers’ interests. G-20 members, such as Argentina and India, exacerbated the 2008 food crisis by taxing or banning certain food exports. Others, such as the United States, Canada and European Union persisted in biofuel subsidies that created pressure on demand, and raised prices, at a time when a number of countries were facing food riots. The implications of what the food exporting countries did were not lost on poor net food importing countries (known by the acronym NFIDCs), which are now looking with significantly renewed interest at the possibility of increased food self-sufficiency.

With hindsight, the failure of net food exporters to accept the legitimacy of NFIDC demands for safeguards to protect their access to food, while at the same time insisting on their right to distort international markets with domestic preoccupations was probably the last straw for the Doha negotiations. There is no sign, unfortunately, that the international organizations who authored the report have been given (nor yet taken) the leeway to comment on this crisis in the consensus that has shaped international trade policy since the early 1990s.

Members of the G-20 house the world’s largest agribusinesses, the commodity exchanges that set commodity futures prices, produce most of the grain-fed livestock and provide the subsidies and mandates that prop up the industrial biofuel industry. While the NFIDCs turn to diversifying their food security strategies to encompass more than increasingly unreliable international markets, the G-20 has it within its power to lessen the likelihood and the degree of volatility itself. They have a significant interest in using that power. Unfortunately, there is far too little in the IO contribution to the G-20 Agricultural Ministers’ Summit to help them achieve this realization.

[1] FAO, IFAD, UN HLTF, UNCTAD, and WFP, together with the World Bank, IMF, WTO and the OECD.

Sophia Murphy

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