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Food Aid Talks: What’s on the Table?

The Horn of Africa is experiencing its worst drought in 60 years. The impact is so serious that the United Nations has declared a famine in parts of southern Somalia. Several million people face starvation and the UN has called for an additional $300 million in emergency aid to avert an even bigger disaster in the region. The magnitude of the situation reminds us that the renegotiation of the Food Aid Convention (FAC) could not come soon enough.

The FAC is an international agreement among eight major donors (Australia, Argentina, Canada, European Union, Japan, Norway, Switzerland and the United States) that sets out rules for food aid. Its signatories agree to provide a minimum amount of food aid each year to meet the needs of the world’s hungry. The intention of a guaranteed amount of aid is to reduce the UN’s need to rely on special aid appeals to address crises.

Canada has played a leading role in the renegotiation the FAC as chair of the Food Aid Committee, the body that oversees the treaty, since the discussions began in June 2010. Negotiators aspire to have a revised agreement in place by the end of 2011. The current talks are especially challenging given the major changes that have taken place in the negotiating context since the treaty was last updated in 1999.

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In case you missed it. . .

The most important and hotly contested economic issues in the news recently have been the focus of several Triple Crisis Posts. Here is a compilation of what bloggers have to say on the Greek Crisis, the debate on commodity speculation, and the US debt ceiling:

Triple Crisis bloggers on Greek Crisis:

Another Victory for Finance? By CP Chandrasekhar
Restructuring Greece’s Debt Crisis, by Kevin P. Gallagher
The Greek Crisis: The EU’s Wasted Year, by Daniela Schwarzer
The Greek Crisis: Uttering the Other “D Word,” by Matías Vernengo
The Tyranny of Bond Holders, interview with Kevin P. Gallagher

Triple Crisis bloggers on commodity speculation and food prices:

Spotlight G20: Identifying the Drivers of Price Volatility, by Timothy A. Wise
Speculation Drove Wheat Prices up While Supply Expanded, interview with Jayati Ghosh
Spotlight G20: New Evidence of Speculation in financialized commodities markets, by Timothy A Wise
Spotlight G20: Agriculture Ministers Should Strengthen Government Role in Volatile Markets, by guest blogger Sophia Murphy

Triple Crisis bloggers on the US Debt Ceiling Debacle

The Debt-Ceiling: a Guide for the Bewildered, by Matías Vernengo
GOP bad faith on the debt ceiling, by Kevin P. Gallagher
US debt impasse worries the world, by Martin Khor

Spotlight G20: Identifying the Drivers of Price Volatility

Timothy A. Wise

Sophia Murphy and her colleagues have produced an excellent report as part of the Commission on Food Security’s coordinated effort to respond to recent food price increases. The report, “Price Volatility and Food Security,” is one of several from the so-called High Level Panel of Experts (HLPE) to help inform the CFS’s fall meetings on the crisis. As Sophia points out in a recent post on the IATP blog, their report offers a strong challenge to the G20, which recently convened its agriculture ministers for a lackluster effort to take strong action to address volatility and food security. (See recent posts in our Spotlight G20 series.)

Among the intriguing findings in the HLPE report is the analysis of the evolution of demand for agricultural products and the dominant role that biofuels is playing in that demand. The authors rightly point out that while there remains some debate about the role of financial speculation in driving up food prices, there is near-consensus that biofuel policies, primarily in the United States and the European Union, are contributing significantly to price increases and that current policies to encourage biofuels use should be ended. The G20, of course, is only a reluctant part of that consensus.

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Interview with Jayati Ghosh: Speculation Drove Wheat Prices up While Supply Expanded

Triple Crisis blogger Jayati Ghosh was recently interviewed by the Real News Network on how the lack of regulation of speculation in commodities trading has increased food prices. You can read more of her work on commodities markets in her post, Riding the Commodities Roller Coaster, and on the food crisis, Frenzy in Food Markets.

Read more Triple Crisis blog posts on financial speculation in commodities markets.

View more interviews with Triple Crisis bloggers.

Spotlight G20: New Evidence on speculation in financialized commodities markets

Timothy A. Wise

The G20 agriculture ministers dodged most of the tough issues in their meeting last month in Paris, leaving the heavy lifting on France’s ambitious G20 agenda to finance ministers later this year. Among the dodged issues were agricultural price volatility and the so-called “financialization” of commodity markets. Despite a relatively ambitious set of reforms proposed by an interagency group, the agriculture ministers “action plan” took very few actions beyond pushing for better information on grain inventories, as Jennifer Clapp and Sarah Martin explained on this blog. Action was missing, too, on a more serious consideration of grain reserves to curb price volatility (see Sophia Murphy’s recent post).

For their part, volatility and speculation celebrated the continued inaction by further roiling commodity markets, driving global food prices to new highs. And the debate rages on over the extent to which financialization and speculation are to blame for the spike in commodity prices. As I noted in earlier posts and subsequent comments (here and here), the disagreement is less over whether financial speculation causes volatility on commodities futures markets than it is over whether volatile futures markets drive up real commodity prices.

Fortunately, new research from UNCTAD is drawing light from the heat of the debate. The June report “Price Formation in Financialized Commodity Markets,” reviews the evidence and concludes that while market fundamentals determine medium and long-run commodity prices, financial speculation can lead to significant short-term price distortions in real commodity prices.

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Spotlight G20: The G20 Agricultural Action Plan: Changing the Course of Capitalism?

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).

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Spotlight G20: Agriculture Ministers Should Strengthen Government Role in Volatile Markets

Sophia Murphy, Guest Blogger

Tomorrow the first ever summit of G20 Agriculture Ministers will take place in Paris. The French government is to be commended for the initiative. Concerned by the evident disarray in government responses to the food price crisis of 2007-08, the French government moved quickly and deliberately to consider how best to respond. One of their investments, one that might be overlooked in the drama of a G20 summit, has been in research to understand what kinds of tools governments have used to respond to price spikes and volatility, and how effective those tools have been, particularly in developing countries, and particularly with an eye on reducing poverty and vulnerability to hunger. The results of that investment is informing the debate at many levels, and is a welcome addition to a literature that is otherwise rather too orthodox.

One of the main contributors to this research is Franck Galtier, who works with part of the French agricultural research institution CIRAD. Galtier makes the point that countries are each quite different and need their own distinct mix of policies to respond to the specificities of their situation. Galtier has built a typology of responses to price volatility with four categories: measures to prevent (or mitigate) volatility and measures to cope with it, crossed with measures that are designed to leave the private sector in charge versus measures that require the state to intervene. One of his important conclusions is that by far the largest share of international policy advice (and money) for the last twenty years has focused on policies and programs that use public funds either to build infrastructure and open borders; or, to manage risk and facilitate participation in commodities markets. Public interventions to mitigate volatility—to keep prices stable—have been widely neglected. Yet common sense and long experience suggest they might be the best use of money.

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How to Add Value to the G20 Agriculture Ministers' Meeting

Jennifer Clapp

The G20 Agriculture Ministers will gather together for their first ever meeting next week in Paris (June 22-23) to discuss potential measures for the G20 governments to endorse regarding food price volatility. Many are sceptical about what the G20 can accomplish in this area. This scepticism was reinforced by the fact that some G20 members did not even want the meeting to take place when it was first suggested by France, this year’s G20 host.

But the meeting is going ahead. So let’s give the Ministers the benefit of the doubt for a moment. How can they add the most value?

Before they release any statements, the Ministers will likely spend time reviewing recommendations in the policy report Price Volatility in Food and Agriculture Markets: Policy Responses written by ten international organizations, released on June 2. This document is the latest version of a report which has gone through several iterations since it was first leaked back in March.

There is much to applaud in the latest version of this IO report to the G20. Among the various measures proposed are: boosting investment in food production in developing countries, establishing agricultural information systems, improving transparency in commodity futures markets, removing trade barriers, reducing conflicts between food and fuel, instituting emergency reserves, and so on. It is a long shopping list, covering the gamut of potential factors that influence food price volatility.

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How to Add Value to the G20 Agriculture Ministers’ Meeting

Jennifer Clapp

But the meeting is going ahead. So let’s give the Ministers the benefit of the doubt for a moment. How can they add the most value?

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What Food Crisis? Measuring Global Hunger

Timothy A Wise

Last week, Oxfam launched its new international campaign, GROW, to fight food insecurity. The advocacy organization’s campaign materials cite many of the statistics with which the post-food-crisis world has become familiar. Most common is the estimate that more than one billion people in the world are now hungry as a result of the combined impacts of rising food prices and the global economic recession. The estimate comes from the UN’s Food and Agriculture Organization (FAO), and few have questioned the validity of the numbers.

Now two studies suggest the estimate may be inflated. In the May/June special issue of Foreign Policy magazine on food, Abhijit Bannerjee and Esther Duflo, from their perches at MIT’s Poverty Lab Project, have an article with the provocative subtitle, “but what if the experts are wrong?” Meanwhile, IFPRI’s Derek Headey, in a VoxEU post, examines the prevailing FAO/World Bank methodologies for estimating global hunger and suggests that these institutions are overestimating hunger, mainly because they discount the positive impacts of economic growth in some of the world’s most populous countries.

On closer inspection, Bannerjee and Duflo deepen our understanding of the nature of hunger in developing countries, but they offer little here to call into question the billion-hungry estimate. Headey, on the other hand, is onto something, but it’s worth going deeper still to understand the relationship between poverty, high food and agricultural prices, economic growth, and government policy.

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