Leaked Report Urges G-20 Action on Food Price Volatility

11 May 2011

A leaked report by top international food security experts urges the Group of 20 leading economies to tackle food price volatility by reforming biofuel policies, curbing the use of agricultural export restrictions, and rebuilding emergency food reserves.
Senior agriculture ministry officials from G-20 governments are meeting in Paris on 11-12 May to hammer out an action plan based on the experts' recommendations.

Absent from the expert report was a World Food Programme proposal on an emergency reserve system. The new text does, however, provide new advice on biofuel policy and an Agricultural Market Information System (AMIS).

The report, a collaborative effort between ten international organisations working on food, such as the UN Food and Agriculture Organization and the Organization for Economic Cooperation and Development, has changed little since its previous draft version, though some described the analysis as more "nuanced."

Representatives from civil society groups are expected to air their concerns in a 45 minute meeting on Thursday with the G-20 agriculture ‘sherpas' who have been nominated by agriculture ministers to attend the meeting. These representatives will draft an action plan that agriculture ministers from the G20 will agree to at their first ever meeting on 22-23 June.

Doha agreement, constraints on export restrictions targeted

The document recommends that the G-20 lead efforts to concluse the Doha Round as a step towards improved trade policy and less price volatility. Sources close to the report told Bridges that any discussion of a "Plan B" for Doha has been off the table in the group's discussions. Both the experts advising the group and the representatives of governments have refrained from discussing any alternatives to Doha while attempts to resuscitate it continue.

As in previous drafts, the experts call for a clearer definition of a "critical food shortage," and other conditions that allow WTO members to limit exports under international trade law. They also urge a focus on the particular needs of least developed and net food importing countries. At the WTO, a recent proposal by net-food importing developing countries called for some strictures on the use of export restrictions to be part of a Doha Round accord.

Export restrictions may once again come under the spotlight since the Financial Times reported that Glencore, a Swiss agricultural commodity firm, made bets that Russian wheat prices would surge ahead of a ban in 2010 on sales to buyers abroad. Representatives of the firm had publicly called for such a ban.

A delegate from a G-20 country in Geneva told Bridges that some states with export interests seemed reluctant to accept the notion of limiting the ability of countries to block exports. At least two members of the G-20, Russia and Argentina, have instituted export restricting measures such as taxes or bans in the past year.


Noting that biofuel policies may have played a role in sustaining high prices for corn, with spillover effects into other commodities, the authors urged G20 members to be flexible when providing incentives for fuels derived from food crops.

Those participating in the inter-agency meetings saw familiar wrangling on approaches to solutions, for example, with the OECD viewing government intervention cautiously and the FAO finding possibly constructive roles for it.

The report's recommendations on biofuels say that ideally, governments would eliminate trade restrictions on biofuels and their feedstock, as well as blending mandates and subsidies. With an eye to political palatability, however, the report instead suggests that mandates be ‘automatically' relaxed or eliminated based on changes in an observable measure such as prices or short term inventory forecasts. Given that such changes might prove costly for biofuel producers and prompt demands for compensation from their governments, the experts suggest a variety of options such as promises to buy output from producers in times of crisis.

In their most radical departure from the status quo, the experts, many of them economists, envision an open market in renewable fuels, food stocks and food-feed commodities as alternatives. Stressing the need to ensure economically, socially and environmentally sustainable use of resources, they foresee an expanded role for ‘second-generation' and newer types of biofuels, which do not come from food crops.

Emergency reserves

The agencies preparing the report had requested a detailed proposal from the World Food Programme for a "cost-effective system of small, strategically positioned emergency food reserves by the end of 2011." Sources report that the WFP was unable to deliver this in a timely manner. The Programme did, however, hold consultations with academics, representatives of other international agencies and civil society to hash out what such reserves would look like.

The interagency report cites the huge costs and potential inefficiencies of international physical or virtual reserves as reasons to not endorse their impelmentation. However, the report doesn't suggest that individual countries be prohibited from building such reserves.

An observer participating in the WFP consultations said that the Programme's proposal was reaching beyond mere food aid. Describing the proposal as "pre-positioned food aid plus," meaning that it could do more than simply provide emergency stocks held in anticipation of need in a given  country, the source believed that the mechanism would allow national governments to smooth import flows in times of disruptions and price spikes on international markets. According to the source, the proposal would use a combination of physical and virtual in-country stocks to "overcome break downs in international markets" lasting from 30 to 90 days.

Since much of the funding for the WFP's working is earmarked for aid to specific countries or for a given crop, some observers have pointed to situations where the agency's ability to respond to distress calls has been limited. They argue that a system of reserves, even at the national level, would allow the WFP a greater degree of flexibility in preventing extreme hunger. Critics reportedly fear that such a system could potentially expand the role of the WFP and create an implicit international food reserve. To date, no such proposal has made it into formal circulation amongst the G-20.

The WFP is expected to present a revised proposal directly to the G-20 ahead of the agriculture ministers meeting in June but after consulting with other international organisations.

ICTSD reporting; ‘Glencore reveals bet on grain price rise.' FINANCIAL TIMES. April 24 2011.

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