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.
But if the Ministers have to choose just a few recommendations to prioritize, they should concentrate on the ones where the G20 as a group can have the most helpful impact. That is, they should stick to addressing the forces contributing to food price volatility that originate within the G20 countries themselves. Several areas stand out in particular.
First, they should focus on speculation on agricultural futures markets. It is now widely recognized that financialization of agricultural commodity markets has been an important factor in food price volatility, as summed up well in a recently released UNCTAD report. The IO document acknowledges that speculation can exacerbate volatility trends and recommends that these markets should be better regulated. The G20 is an obvious place to start developing collective policy on this issue because the G20 countries together host nearly all of the world’s commodity futures markets (the US, Europe, India, China, Brazil and South Africa being the largest). It is important to coordinate regulatory changes to prevent commodity investors from moving to less regulated markets if one country decides to strengthen the rules, for example, on position limits.
Taking a tough stand on biofuels is another issue that should be prioritized. Again, the G20 countries are the major players in global biofuel production. Many of these countries directly subsidize the sector and/or have blending mandates which encourage investment in biofuels, including the EU, US, Brazil, Canada, China and Australia. These policies are widely seen to distort markets and divert grain from food uses, which can drive up food prices. It is refreshing to see that the latest version of the IO report goes much further than its earlier iteration on this issue by now firmly recommending the removal of subsidies and mandates for biofuels by G20 governments (its earlier recommendation was merely for more research and reconsideration of policies). It would be a shame if the Ministers fail to adopt this more robust recommendation.
There are many other worthwhile recommendations in the report that should be endorsed by the Ministers. But there is one additional important topic which is not mentioned in the IO report: the issue of large-scale foreign land acquisitions. By addressing this issue, the G20 could make a further contribution to addressing the problems of food price volatility and food security.
Interestingly, this issue is closely tied to both the financialization of agricultural commodities and biofuel policies. One manifestation of financialization in G20 countries has been the establishment of hedge funds that invest in foreign land holdings. Many of these funds have snatched up land in developing countries in order to produce biofuels, which are then imported back to G20 countries to help meet fuel mandates. Problems have been associated with many of these deals, including the lack of proper contracts, the displacement of people from land, and their impact in undermining food security and the environment.
A G20 commitment to strictly regulate such deals, in concert with rules on financial speculation and biofuel restrictions, could help address these problems. Unfortunately, this issue is not even on the G20 Agriculture Ministers meeting agenda. It should be.