If you want to reduce crime, you have to make sure there are enough cops on the beat. Something similar can be said for market regulation. We can’t expect markets to work if we don’t invest resources into making sure government agencies have the right regulatory tools at their disposal and have adequate resources to effectively implement and enforce the rules. A Better Markets study estimates the quantifiable cost of the financial services industry triggered Great Recession at $12.8 trillion. Now the publicly bailed out industry and its Congressional allies want to take cops off the market beat. Tomorrow, the House Committee on Agriculture is holding a public hearing entitled The Future of the CFTC: Market Perspectives, featuring a panel of CEOs who have opposed most attempts to regulate the unregulated parts of the markets and supported CFTC budgets that are inadequate for enforcing the rules.
The U.S. Congress last authorized the work of the Commodity Futures Trading Commission (CFTC) as part of the 2008 Farm Bill. Senators Debbie Stabenow and Thad Cochrane, Chairwoman and Ranking Member of the U.S. Senate Committee on Agriculture, requested comment for the 2013 reauthorization of the CFTC. We responded in a May 1 letter, outlining seven ways in which the CFTC should be reauthorized to improve regulation of the $300 trillion of derivatives contracts over which the CFTC has authority.
Large commodity farmers in the U.S. have done well in the past few years, with major crops reaching record prices. According to the USDA, net farm income in 2010 was up more than 20 percent from 2009, and 2011 and 2012 almost double 2009’s numbers. All this good news was reflected in the festive atmosphere at the Commodity Classic 2013, the annual meeting for the National Corn Growers Association, the American Soybean Association, National Association of Wheat Growers and the National Sorghum Producers held at the Gaylord Palms Resort and Convention Center just outside Orlando, Florida in early March.
In a bland, cavernous meeting room occupied by 1,699 commodity farmers, and me, the Secretary of Agriculture Tom Vilsack told us that U.S. agriculture has produced record exports over the last four years. Down the hall Bayer Crop Sciences supplied free popcorn, Koch Agronomic Services and Monsanto provided free box lunches at the trade show, and DuPont Crop Protection offered complimentary shoulder and foot messages in a little room just off to the side of the main entrance.
With all this celebration, and Disneyworld just down the road, it is easy to overlook some of the less festive news which emerged from the workshops and “learning sessions” at the conference. These included predictions of lower prices and incomes, “horror stories” coming out of the U.S. south about herbicide-resistant weeds that were described by herbicide sales representatives as “extremely aggressive,” and the need for farmers to have weather insurance in the face of climate change and increasing extreme weather events. The highly capitalized operations and model of industrial agriculture that are highlighted at the conference seem to be showing some serious cracks.
The 16th round of negotiations for the Trans-Pacific Partnership (TPP) began this week in Singapore. That trade deal has the potential to become the biggest regional free-trade agreement in history, both because of the size of the economies participating in the negotiations and because it holds open the possibility for other countries to quietly “dock in” to the existing agreement at some point in the future. What started as an agreement among Brunei Darussalam, Chile, New Zealand and Singapore in 2005 has expanded to include trade talks with Australia, Canada, Malaysia, Mexico, Peru, the United States and Vietnam. Japan and Thailand are considering entering into the negotiations, and others are waiting in the wings.
And yet, despite the potential of this agreement to shape (and in very real ways override) a vast range of public policies, there has been very little public debate on the TPP to date. Governments have refused to release negotiating texts. Media attention on agriculture and the TPP has focused on New Zealand’s insistence on access to U.S. dairy markets and Japan’s concerns over rice imports.
While important, that debate is much too narrow. The TPP is not only about lowering tariffs. It has the potential to greatly expand protections for investors over those for consumers and farmers, and severely restrict governments’ ability to use public policy to reshape food systems. The fundamental causes of recent protests across the globe over food prices, the rising market power of a handful of global food and agriculture corporations, as well as the dual specters of rising hunger and obesity around the world, point to the need to transform the world’s food systems, not to lock the current dysfunction situation in place.
IATP has always argued that trade agreements need to respect and promote human rights, not drive a process of globalization that privileges commercial interests and tramples on public interests. In a new paper on land grabs, we reaffirm that position.
“Land grabs” are large-scale purchases or leases of agricultural or forested land on terms that violate the rights of the people who live on or near that land. The problem has commanded enormous public policy and media attention for the last few years. In our paper, IATP sets some context for the land grabs phenomenon. We focus on two forces that have contributed significantly to the problem:
The situation is compounded by climate change and the resulting destabilization of weather patterns, which in turn has made agricultural production less predictable. Climate change has made domestic food supplies less certain and exports, too. The United States, still a huge source of grains for international markets, lost 40 percent of a record large number of acres planted with corn to drought in 2012.
The sense of food insecurity has driven some of the richer net-food importers—countries such as Saudi Arabia and Kuwait—to invest in growing food abroad for import to their domestic markets. That is one driver of land grabs.
After the disastrous financial collapse in 2008, the commodity and financial market regulatory reform process on both sides of the Atlantic has been a series of promising but halting steps, all too often two steps forward and one step back. This week the EU Parliament decided not to take that one step back, when it withdrew a resolution to object to standards for the centralized clearing of over-the-counter (OTC) financial and commodity derivatives contracts. Such a centralized system is essential for effective market regulation. Joost Mulder, of the Brussels-based NGO Finance Watch, said, “the decision to withdraw the resolution is a victory for the real economy.”
The new standards will make transparent pricing and other information previously hidden in the privately negotiated, but market-dominant, OTC contracts and will prevent a repeat of the 2008-09 cascades of counterparty defaults. According to the standards, Centralized Clearing Platforms (CCP) authorized by the European Market Infrastructure Regulation (EMIR), would ensure that the counterparties to an OTC contract are credit worthy and able to cover their losses. Lack of centralized clearing of OTC trades (called swaps) was a major factor in the financial industry crisis of 2008-09, which triggered taxpayer bailouts of the industry and a real economy crisis on both sides of the Atlantic, wreaking price havoc in agriculture and energy markets.
Last year international food markets suffered their third price spike in five years. The trigger was a terrible drought in the United States—a major agricultural producer and exporter. An unstable climate met low levels of international grain reserves, while U.S. ethanol gobbled up maize supplies. The resulting high and volatile prices struck yet another blow at the world’s already fragile food systems.
This is exactly the scenario we warned of a year ago when we published Resolving the Food Crisis, a comprehensive assessment of the international community’s response to the global food price crisis.
High and volatile food prices in international markets will continue until structural reforms to trade, finance and agriculture are put in place to address the real drivers of the food crisis. It’s time for meaningful limits on financial speculation, reformed mandates for biofuels made from food crops, a system of internationally coordinated public food reserves and strong regulation on land investments. Donors should continue to invest in developing country agriculture, respecting their commitment to recipient country leadership. If the private sector engages, it, too, must respect the rights of the people it engages with.
Here is our review of progress on these issues in 2012:
Funding for agricultural development: Instead of renewing their 2009 L’Aquila commitment to invest significant aid money in agriculture, the G-8 group of powerful nations rolled out the “New Alliance for Food Security and Nutrition.” Most of the funding comes from private sector partners like Monsanto and Yara, a global fertilizer company. The aid comes with strings: To qualify, governments must “refine policies in order to improve investment opportunities.”
In 2010, journalist Frederick Kaufman wrote in Harper’s Magazine about how Wall Street speculators wreaked havoc with wheat markets and, in turn, helped drive the 2008-09 food price crisis. Now, he’s out with a new book titled Bet the Farm: How Food Stopped Being Food that goes into depth on how the increasing financialization of food effects farmers, consumers and global hunger. Research for the book brought Kaufman to farms, food science research labs, agribusiness giants, the United Nations and the Chicago Mercantile exchange. Bet the Farm is an accessible, sharp critique of how our food system has become increasingly captured by the big banks and giant food and agribusiness companies. Kaufman graciously accepted our invitation to answer five questions about the new book.
You write about the remarkable growth of the pizza industry, not only here but around the world. How has that impacted the agricultural economy?
When a four year old in our project was asked recently where carrots come from, he pretty well nailed it: “The ground, and farmers water them and pick them and give them to people and bunnies too, and stores.” We couldn’t have said it better ourselves.
So amidst all the gloom and doom about childhood obesity, there is reason for hope. One bright light on the path to healthier kids is Farm to Childcare (F2CC). By connecting kids with local farm fresh foods, F2CC initiatives support farmers who produce healthy choices like fruits and vegetables while helping our youngest eaters get off to a good start.
IATP launched our new Farm to Childcare pilot in Minnesota last summer. With our childcare partner, New Horizon Academy, we designed a set of practical, on-the-ground strategies to try out new approaches in childcare settings: menu innovations featuring local foods, age-appropriate curriculum, parent outreach and a rigorous evaluation program. Now we’re pleased to share some of what we did and what we’re learning. Here’s the scoop:
On January 19, Deutsche Bank (DB) issued “Questions and Answers on investments in agricultural commodities”. The DB stated that after an internal examination, it was resuming investments in agricultural derivatives contracts that it had suspended since March 2011. Nongovernmental organizations had successfully pressured the DB and a few other European banks to “stop gambling on hunger” due to the banks’ concern about risk to their reputations. The World Development Movement had organized an October 2011 letter signed by 450 economists to the Group of 20 (G-20) demanding an end to bank speculation on agricultural contracts, so the DB was an early adopter of the investment moratorium.
The derivatives contracts include both the regulated futures and options contracts that farmers and food manufacturers use to protect against price decreases and increases respectively, and the unregulated over-the-counter (OTC) contracts. The DB’s internal investigation, bolstered by non-cited studies of unnamed agricultural economists, found “there is little empirical evidence to support the notion that the growth of agricultural based financial products has caused price increases or volatility.”
It’s ironic that agriculture, an activity that is fundamental to sustaining large societies, has come to present so many risks to public and environmental health. As farms have grown larger, more productive, fewer in number, and more specialized over the last century, they’ve come to produce some less than desirable byproducts, just like any other major industry. But farming isn’t just another industry; it’s based on ecological principles and natural systems, which, if managed carefully, can be used to promote rather than harm health. A recently published study out of Iowa State University suggests that smart diversification and re-integration of plant and animal systems on the farm can pave the way to a healthier, more balanced agriculture.