No return to 'cheap food': G20 ignores food importers problems

David Tresilian. al-Ahram Weekly, Friday 1 Jul 2011

How Egypt would be able to secure its supplies at affordable prices remain an unanswered question, as G20 agriculture ministers meeting in the French capital last week sidestepped measures to tackle food price volatility

With the expected hike in food prices, will Egypt be able to secure the supplies it needed at affordable prices? (Photo: May Shahin)

Agriculture ministers from the G20 group of developed and developing countries meeting in Paris for a two-day summit last week issued a 24-page declaration setting out measures intended to deal with fluctuations in world food prices that have led to riots in some developing countries and gone hand in hand with broader price increases, leading some observers to warn of an end to the period of cheap food.

According to a joint report produced by 10 international organisations, including the FAO, the IMF, World Bank, WFP and IFAD, and submitted to the French presidency of the G20 before last week's meeting, "there is no doubt that the period since 2006 has been one of extraordinary volatility" in world food prices, with prices for some commodities, rising several hundred per cent between 2005 and peak prices in 2007-2008.

"The price rises caused grave hardship among the poor and were a major factor in the increase in hungry people to more than one billion," the joint report said.

"As of spring 2011, world food prices have once again reached the levels of 2007/08, giving rise to concerns that a repeat of the earlier crisis is underway," with a spike of 36 per cent in global food prices having taken place over the last year.

Food-related riots took place in many countries across the developing world during the 2007/08 crisis, forcing countries that are net food importers, among them Egypt, to pay higher prices for food on international markets and to spend more on subsidies to keep local prices down, exacerbating balance of payments problems.

Egypt has been particularly affected by rising international food prices since it imports some 70 per cent of its annual consumption of wheat.

Last year's decision by the Russian Federation to ban wheat exports following a drought at home put upward pressure on world wheat prices, leading to questions as to whether Egypt would be able to secure the supplies it needed at affordable prices.

According to the joint report submitted to the G20 ministers before last week's meeting, the same factors that contributed to the earlier surge in world food prices are again present this year, including "weather-related crop losses, export restrictions, high oil prices, and a depreciating US dollar, against a background of a continuing tight supply- demand balance."

While some of these factors could be successfully hedged against, the report said, future decades were likely to see an inexorable trend of rising world food prices, putting an end to recent decades of cheap food.

"Growing population and income in emerging and developing countries will add significantly to the demand for food in the coming decades," the report noted. "By 2050, the world's population is expected to have reached about 9 billion people and the demand for food to have increased by between 70 and 100 per cent. This alone is sufficient to exert pressure on commodity prices."

The joint report, requested by G20 leaders at their November 2010 summit meeting and designed "to develop options for G20 consideration on how better to mitigate and manage the risks associated with the price volatility of food and other agricultural commodities," contained 10 recommendations for consideration at last week's meeting.

Among these were measures to increase the productivity of agriculture in the face of rising world demand for food, including improving technology, setting up a market information system that would ensure greater transparency of information about world food production, thereby reducing panic buying, and intervening in the agricultural future markets to dampen speculation.

Other measures put forward in the report included reducing price-distorting agricultural subsidies in developed countries, banning export subsidies, and curtailing the kind of export bans put in place by food-exporting nations to protect domestic supplies during crisis periods, driving up world prices and affecting net importers such as Egypt.

Such bans should only be put in place as a "time-limited measure of last resort, allowed only when other measures, including domestic safety net measures for the poorest, have been exhausted and taking into account the food security needs of least developed countries and net food importing developing countries," the report said.

Subsidies on biofuel production or consumption should be removed, the report continued, since these took agricultural commodities out of the food supply and redirected them for biofuel production, driving up food prices.

"Between 2000 and 2009, global output of bio-ethanol quadrupled and production of biodiesel increased tenfold... With such weights of biofuels in the supply-demand balance [for sugar cane, oilseeds, sugar beet and coarse grains], it is not surprising that world market prices of these products are substantially higher than they would be if no biofuels were produced."

There was a need, the report said, for G20 governments to provide support for emergency food reserve systems, allowing humanitarian food purchases to be exempt from food export restrictions and emergency taxes, and to support funding mechanisms to help low-income countries buy food during price crises.

While some of the joint report's proposals were endorsed at last week's G20 meeting, member governments, among them the US, Brazil and China, joined to defeat recommendations to end subsidies on biofuel production and to scale back export bans, both of which had been described in the report as contributors to food price volatility and steadily rising prices.

The G20 declaration, to be presented to the G20 heads of government meeting in November, said that measures would be taken to set up a market information system to ensure greater transparency of information about world food production, but it only vaguely noted that there were "significant barriers to international trade in agriculture, which need to be reduced."

"The first responsibility of each member state is to ensure the food security of its own population," the declaration said, ruling out a scaling back of food export barriers. On biofuel production, the declaration said that the matter would be "further analysed."

On increased regulation of the agricultural commodities markets, some analysts having argued that increased speculation in recent years has added to swings in prices that do not reflect underlying fundamentals, the ministerial declaration said that this would be further considered by the International Organisation of Securities Commissions in September.

The earlier joint report had said that while "there is no doubt that investment in financial derivatives markets for agricultural commodities increased strongly in the mid-2000s," introducing the kind of speculative pressures seen in other markets, there was still argument about how far such speculation had contributed to food price volatility.

"The extent to which financial speculation might be a determinant of agricultural price volatility is subject to disagreement," the report said. "It is clear, however, that well-functioning derivatives markets for agricultural commodities could play a significant role in reducing or smoothing price fluctuations."

Commentators in the European press responded to the G20 declaration with scepticism. Quoted in the British Guardian newspaper, Olivier De Schutter, UN special rapporteur on the right to food, said that the G20 declaration "tries to address the symptoms of price volatility on agricultural markets, but it fails to address the causes," in his view linked to the financialisation of the agricultural commodities markets.

Observers working on food security were also sceptical. According to the international NGO Oxfam, "expectations that politicians were finally starting to take the global food price crisis seriously were crushed in Paris. Fixing the global food system and ending the food price crisis requires major surgery, yet the G20 produced little more than a sticking plaster."

"Crossing our fingers and hoping the crisis will go away is simply not good enough when millions of people are going hungry because of high and volatile food prices," the NGO statement read.

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