Jennifer Clapp and Sarah Martin*
Nicolas Sarkozy made no secret of his aim to use France’s presidency of the G20 as a platform to address food price volatility with tough measures, including regulating speculation on agricultural commodity futures markets. As the first ever meeting of the G20 Agriculture Ministers got underway yesterday, he was optimistic about their efforts: “In adopting this plan you will change not only the lives of a billion farmers but the course of capitalism itself so capitalism once again contributes to the development and well-being of people.”
But the Agriculture Ministers, despite having a number of extensive policy options to address volatility, opted for a ‘light’ touch rather than changing the course of capitalism. The Action Plan adopted by the Ministers includes several marginal measures, none of which tackles market regulation. The centrepiece of the plan is the Agricultural Market Information System (AMIS).
AMIS is based on a similar initiative for oil markets – the joint organizations data initiative (JODI) adopted in 2002. The idea behind these schemes is that more is better. Gathering more information on commodity productivity and market transactions will help to reduce market uncertainty, and contribute to a better functioning, less volatile market. This approach to food price volatility – to work with the market – was clearly much more palatable to the Agriculture Ministers than using a ‘heavy’ hand and regulating agricultural commodity markets, an issue that they avoided by pushing it onto the plate of the G20 finance ministers.
In its quest to increase the transparency of agricultural information, AMIS will immediately face a series of hurdles, both organizational and political. For instance, in its early years JODI was plagued with organizational and coordinating difficulties that contributed to a time-lag before it was fully functioning. More problematic, however, is whether large ‘players’ will participate. It is unclear whether some large agricultural countries, namely India and China, have the capacity and/or willingness to share information on their production and stocks of food. It is also unclear whether the private sector, which controls 70-90 percent of world’s grain trade (no one is quite sure exactly how much), will accept the G20’s ‘invitation’ to provide data that the initiative seeks. These firms have a long history of operating in secrecy in order to protect their market share and ‘market intelligence.’
There is little evidence that these transparency schemes have reduced speculation or market volatility. Even the JODI, with nearly 10 years under its belt, has an uncertain impact on oil markets. In a recent report on price formation in financialized commodity markets, UNCTAD noted that 20 percent of the price of oil is still the result of speculation.
And we have tried the transparency route in the past with respect to agriculture, with weak results. A little over 100 years ago in 1906 the International Institute of Agriculture (IIA) was established to collect and provide public access to world agricultural market data. The aim was to ensure that speculators weren’t the only ones with access to agricultural market information. But speculators did keep the bulk of the information to themselves. By the1920s-30s the US stepped in to regulate speculative activity in agricultural commodities.
For an initiative such as AMIS to be effective and truly transparent, everyone has to share data. Again, an historical perspective on this point is instructive. In 1907 the chief architect of the IIA, David Lubin, wrote to a letter to the Russian minister of Finance asking him to share the country’s crop reports:
“If the Governments of the world will not come together on an official and authoritative report giving the summary of the world, then we must rest satisfied to permit the private crop-reporting agencies to assume this task, and in doing so we must understand that there is no binding force to compel these private agencies to give out the exact import of the data they receive.”
That line could have been written yesterday at the G20 Agriculture ministers meeting. In fact, it practically was. The Guardian reported that China and India are reluctant to release data under this initiative, and that “The action plan encourages the private sector to come forward with this information, but there is no compulsion on big traders like Cargill and Bunge to release data and they may be less than forthcoming on grounds of commercial sensitivity.”
Of course the other route to deal with food price volatility is regulation of commodity markets. But we seem to have forgotten that history lesson, too. The regulations that were instituted in the US in the first part of the 20th century, such as reporting requirements and positions limits, were relaxed over the course of the past 20 years, in a period of stable commodity prices.
Now that agricultural commodity market volatility is back on the agenda, it is odd that the response of the global community is to opt first for more market transparency rather than regulation. It is especially strange since regulation itself was adopted once it was realized that more market transparency was insufficient to prevent volatility. Providing more information in order to make markets function better is hardly changing the course of capitalism. Re-regulation might move us a bit more in that direction.
Sarah Martin is a PhD Candidate in Global Governance at the Balsillie School of International Affairs, University of Waterloo. This post also appears on the Munk Centre web blog at the University of Toronto. Read Clapp’s other recent Spotlight G20 post on the Agricultural Ministers’ Meeting.