-co-authored with Annie Wang
In recent decades, the global demand for food has outweighed supply, causing volatility in prices. The G20 Agriculture Ministers gathered in Paris in June to address this problem, but achieved only limited results.
According to the UN Food and Agriculture Organization (FAO), global food production will need to increase 70% by 2050 to keep up with demand. Unfortunately, that is unlikely to occur. According to the World Bank, surges in food prices since June 2010 have pushed 44 million into poverty, defined as living under $1.25 per day.
Soaring food prices have been attributed to a variety of factors: increased demands for biofuel, low global food stocks, and severe weather in major grain exporting countries. Government interventions, too, have contributed to market instability, as in the case of Russia’s decision last year to ban grain exports, which sent wheat prices to a two-year high.
Although the food crisis is global, poor countries are particularly susceptible to market variability: “poor infrastructure, high transport costs, and the absence of credit,” according to a joint report commissioned by the G20, all compound the effects of agricultural shortages. World Bank President Robert B. Zoellick described the global food crisis as “a toxic brew of real pain contributing to social unrest.” Already, they have been linked to protests in the Middle East and North Africa.
Broadly speaking, there are two types of solutions to the global food crisis: proposals to expand supply through technological innovations and proposals to increase trade through financial policies. The G20 meeting ostensibly addressed both these issues, but their conclusions can be considered partial at best.
On the first type of solution, agricultural production, the G20 supported expanded research, even announcing the launch of the International Research Initiative for Wheat Improvement. Despite these measures, Oxfam’s Duncan Green graded their efforts a “fail,” citing the lack of any concrete polices or measures. Indeed, the G20 failed to articulate how research would be disseminated or even funded.
Regarding the second type of solutions, in the area of financial instruments, the G20 supported existing initiatives and called for the formation of new ones, yet offered little guidance as to how they would be run. Many were hoping that the G20 conference would increase regulation of speculative investments, but it offered no clear policy.
As it stands, developing countries can purchase derivatives or hedge to ride out market insularity, but they often inexperienced with these transactions. Moreover, as UN Special Rapporteur Olivier de Schutter notes, in order for small farmers and co-operates to rely on insurance policies, they “shall need considerable capacity-building.” The G20, while encouraging insurance mechanisms, did not address how to institute the necessary social supports for farmers to benefit.
Still, the G20 did single out one notable effort in the area of insurance mechanisms for developing markets: the joint initiative of the International Finance Commission, the private sector arm of the World Bank, and investment bank JP Morgan. Together, they offer simple hedging instruments targeted at the private sectors of developing countries, including farming co-operatives and food processing companies. Under this program, the World Bank will underwrite $200m in credit risk, while JP Morgan (one of the largest commodities dealers on Wall Street) will take on at least that amount. As a result of this agreement, developing countries stand to gain up to $4 billion in price protection.
The G20 conference on agriculture, which was the first of its kind, should be lauded for its efforts if not its results. Ultimately, the reforms it failed to adopt may be as important as what little they did endorse, according to the Guardian. France, for example, pushed for the deregulation of financial instruments, yet Great Britain, with a large financial sector, blocked its efforts. Similarly, both the FAO and World Bank called on an end to biofuel subsidies (thus decreasing demand for agricultural products), but Brazil and the US—both large ethanol producers—thwarted the proposal.
The G20 did not reach any new policies to increase the openness of global trade, a strategy that the Center for Global Development labeled the most likely to mitigate price volatility. They passed that instead to the World Trade Organization-sponsored Doha Development Rounds, which is notable only for its decade-long failure to produce any agreements. Similarly, the G20 was strikingly silent on the issue of global warming despite the well-documented link between climate change and development.
The G20 may indeed be correct in that more research is necessary for these highly complex issues. Still, the clock is ticking, and food is running out.