Food Price Volatility: What Was and Wasn’t Said in the Leaked Report to the G-20

Jennifer Clapp

Triple Crisis is pleased to welcome Jennifer Clapp as a regular blogger.

Despite the slight dip in the FAO food price index in March, global food prices still remain 37 percent higher than they were at this time last year. In this context, eyes are fixed on the upcoming G­20 meetings where France, as host, has pledged global leadership on the issue of commodity price volatility.

A confidential draft report prepared by 9 international organizations for the G­20, leaked in late March, gives us a glimpse into the analysis on volatility in food and agricultural markets that informs the G­20.

In some ways, the document moves the discussion in important directions. It recognizes the significance of addressing food price volatility if the global community is to make progress on improving food security for the world’s poorest people. It acknowledges that there is a role for stringent regulation of agricultural commodity futures markets, although it does not pick a side in the heated debate over whether futures markets themselves are the major cause of recent episodes of price volatility.

In other ways, however, the report’s analysis and recommendations fall short. In particular, it lacks balance on at least two important issues:

The first is the report’s interpretation of the role of trade policies. It is not surprising that it denounces trade protectionism as an impediment to food security. A large amount of text is devoted to what it deems “inappropriate policy responses” of governments, namely food export restrictions and hoarding. The report points out that some 25 countries imposed such restrictions in recent years. Although not explicitly stated, these were mainly developing countries that had recently opened up their agricultural markets and found themselves exposed to global food price swings. Among the report’s recommendations is a call for the G­20 governments to immediately strengthen trade disciplines on export restrictions.

The strong focus on the role of food export restrictions compares with scant mention of other forms of trade protectionism that have fuelled food insecurity in poor countries. Developing countries, for instance, blame longstanding domestic agricultural subsidies in rich countries for dampening their own farmers’ production incentives. This distortion of agricultural markets, at least in part, is why many of the world’s poorest countries have gone from being net agricultural exporters in the 1960s to net agricultural importers today.

The report calls on G­20 governments to complete the Doha Round agriculture talks. But these talks have been effectively stalled since 2008 precisely because of the rich world’s unwillingness to reduce domestic farm subsidies and allow poor countries to have strong safeguard mechanisms that enable them to block surges of subsidized imports when it threatens their farmers’ livelihoods. Whether a “successful conclusion” to the round will incorporate provisions to rebalance the rules remains to be seen.

A second key imbalance in the report is its analysis of the role of biofuels in feeding food price volatility. The report recognizes that increased investment in biofuels has pushed up food prices by diverting grain out of food markets. But it fails to provide an in-depth analysis of the factors that have contributed to this trend or the relative impacts on the environment and food security of first generation, food-based biofuel feedstocks versus second and third generation feedstocks. The report’s cursory analysis of the issue only vaguely alludes to the use of trade measures that favor domestic feedstocks, as well as biofuel subsidies and mandates as exacerbating the problem.

Rather than suggest a global agreement to immediately curtail these market-distorting practices and limit the use of food-based feedstocks in biofuel production, the report only notes that such policies “warrant reconsideration.” The recommendations that follow call for further study of the issue, contingency plans for when food and fuel uses conflict, and more integrated international biofuel markets. This is hardly tough talk, especially when compared to the report’s emphasis on food export restrictions.

The report is important as much for what it emphasizes as for what it does not.  It selectively chooses which “market distorting behaviours” deserve attention, perhaps reflecting the political weight of the key players behind the organizations that wrote it. While it is good to see the G-20 finally tackling the problem of food price volatility, it is important that the body fully debate all aspects of these important issues and not avoid the topics that make some players uncomfortable.