Rob Bailey
Research Director, Energy, Environment and Resources

The G20 has taken important steps towards dealing with food price volatility. However real progress remains hampered by sectoral interests and a lack of funds.

The second major global food price crisis in four years is underway. The last, in 2008, pushed the number of hungry people worldwide over 1 billion for the first time. Over 60 countries saw protests of which many were violent. The current crisis is already estimated by the World Bank to have increased the poverty headcount by 44 million, and has been identified by commentators as a contributing factor to the first Arab uprisings.

France has placed food prices at the top of the G20 agenda, and things kicked off this week with the first ever meeting of the group's agriculture ministers in Paris. There were few surprises in what emerged, with encouraging progress in some areas, and predictably little in others. A benchmark against which to judge the declaration was provided by 10 prominent international organisations ('IOs') including the World Bank, IMF and key UN agencies, with a report to the G20 making recommendations for how to deal with volatile food prices.

Agricultural investment

A major concern, in the face of spiralling demand, is flatlining agricultural productivity which leads to higher prices and tighter markets. As a way to boost productivity, investing in developing country agriculture, where hunger and poverty are concentrated, offers the most potential. Here the G20 took on board much of what was suggested, calling for a focus on smallholder farmers, investment in technologies appropriate to their needs, and the creation of an 'enabling environment' - infrastructure, irrigation, credit facilities, information systems, training etc. This all requires public financing, and despite a call from the IOs for an increase in aid and public investment, this is precisely what was missing.

Market transparency

Timely and reliable information on food markets is extremely limited. This creates a climate of uncertainty among market participants, resulting in perverse behaviours that exacerbate price swings, such as panic buying and hording. The G20 endorsed a proposal from the IOs to create an Agricultural Market Information System to collate and disseminate data on food production, consumption and stocks. But they gave no assurances as to what information they would provide, and it is no secret that many governments are reluctant to provide information on stocks. Another big question surrounds the participation of the private sector: the big grain traders, which hold significant food stocks, are only invited to participate on a voluntary basis.

The other markets that need to be brought into the light are those for derivatives, where information is if anything more scarce but large inflows of financial capital may be distorting prices and contributing to volatility. The agriculture ministers correctly left this for finance ministers to deal with.

Policy coherence

Some of the IOs' most ambitious proposals were saved for the member countries' policies themselves. Among them a reduction in rich country agricultural protectionism, the removal of biofuel mandates and subsidies, and the establishment of rules for how to deal with export bans. The precipitous imposition of export restrictions by over 30 countries in 2008 brought the international system to breaking point. Despite this, language recognising that export bans are problematic vanished from earlier drafts of the declaration. An important concession, that exports for emergency food aid would be exempted from such measures in the future, was however salvaged.

Few will be surprised that ministers ignored recommendations to liberalise their agricultural sectors, but there will be some disappointment among the IOs and international NGOs that the call to dismantle biofuels support received similar treatment: ministers instead asked for more research into the impacts of biofuels on food security, much as the G8 did at the height of the last crisis.

Despite having made some important progress towards dealing with food price volatility, ultimately governments remain constrained by domestic lobbies and interest groups.