PIIE Blog | RealTime Economic Issues Watch
The Peterson Institute for International Economics is a private, nonprofit, nonpartisan
research institution devoted to the study of international economic policy. More › ›
Subscribe to RealTime Economic Issues Watch Search
RealTime Economic Issues Watch

The G-20’s Action Plan on Food Price Volatility and Agriculture

by | June 24th, 2011 | 04:40 pm
|

The G-20 Agriculture Ministers met in Paris last June 22 and 23 to tackle the issue of food price volatility with the goal to improve food security. The Ministerial Declaration "Action Plan on Food Price Volatility and Agriculture" is a 24-page document whose main objectives are: 1) improve agricultural production and productivity to respond to the growing demand for agricultural commodities; 2) increase market information and transparency with the aim to stabilize expectations; 3) strengthen international policy coordination to enhance confidence and for a better response to food market crises; 4) improve and develop risk management tools to mitigate the risks descending from food price volatility, particularly for the poorest countries; and 5) improve the functioning of agricultural commodity derivatives markets.

The issues discussed are of utmost relevance. According to the World Bank, even before the food, fuel, and financial crises, 1.1 billion people were living on less than $1 a day, and 923 million were undernourished. It is not hard to imagine that the situation has not improved today, since food prices are still volatile and that, in spite of the fall in international food prices, local food prices remain high in many countries. The involvement of all the major international organizations (FAO, OECD, The World Bank Group, IFAD, UNCTAD, WFP, WTO, IMF,IFPRI, UN HLTF), as requested by the G-20 Summit in Seoul, is therefore justified to better address the problems at stake.

Let us consider the objectives listed above, with the exception of point 5, which is left to the attention of G-20 finance ministers and central bank governors.

Concerning agricultural production and productivity, the emphasis is on the role of research to improve the quality and the quantity of crops. The document also stresses the importance of supporting public-private partnership toward the end of increasing agricultural investment. A special emphasis is placed on the importance of rice for food security, being the main crop consumed in Asia and increasingly in Africa. The document emphasizes the triple challenge for agriculture: meeting food security objectives while adapting to climate change and reducing contributions to greenhouse gas emissions, a task that requires a strong cooperative effort in research and development of new technologies.

On market information and transparency a number of initiatives are envisaged, aimed at improving a number of parameters of data on agricultural markets, such as quality, reliability, accuracy, timeliness, and comparability. This would help counter speculation, which is often viewed as due to lack of information. To this end, the ministers have launched the Agricultural Market Information System (AMIS) to encourage data sharing among major agricultural market participants. The success of this very important initiative will nonetheless crucially depend on the response of the private sector, which at the moment is merely "invited" to participate. The ministers have also launched an international voluntary network of agricultural production monitoring based on modern techniques of geoinformation. This will allow the provision of more accurate crop forecast data.

International policy coordination is a basic requirement for food security. In this respect, the emphasis of the document on the need to enhance the process of sharing views and plans for immediate action by senior agriculture policy officials is well placed. The document also recognizes the central role of international trade in improving food security and highlights the need for a stable, predictable, distortion-free, and transparent trade system. Quite encouragingly, fulfilling the mandate of the Doha Development Round, bringing it to a "successful, ambitious, comprehensive, and balanced" conclusion, is viewed as central to that end. The emphasis is also placed on the need to reduce the significant barriers still affecting international trade in agriculture. On the issue of biofuels the progress is very cautious though, in view of the confrontational debate on this hot issue. The document recognizes "the need to further analyze all factors that influence the relationship between biofuels production and (i) food availability, (ii) response of agriculture to price increase and volatility, (iii) sustainability of agriculture production, and further analyze potential policy responses."

On reducing the effects of price volatility for the most vulnerable, the document recognizes the importance of reinforcing a number of instruments, such as a risk-management toolbox aimed at reducing household vulnerability to economic and climatic shocks, and agricultural insurance and contracts to improve the risk management of price variability. This strategy will be complemented by a program piloted by the IFC (World Bank Group) to allow small and medium-sized agricultural producers, on the one side, and buyers, on the other side, to hedge against excessive agricultural price swings. The ministers also endorse the proposal for a targeted emergency humanitarian food reserve system. The question of the actual implementation of this policy is left open for further analysis to be conducted by the World Food program (WFP) and other international organizations.

The bottom line is that the Ministerial Declaration of June 2011 represents a welcome step ahead in the right direction. Much still remains to be done in the near future by all organizations involved if the problem to protect the poorest people of the world against hunger is to be tackled quickly and effectively.

Comments (0)

Leave a Comment