I'm in Rome to talk about volatility (my powerpoint here). More precisely, the volatility in agricultural commodity markets and what can be done to a) mitigate it and b) better cope with its consequences. The topic was part of one of three issues the first meeting of the revamped FAO Committee on World Food Security (CFS) has on its agenda. It will be one of the first topics to be addressed by the High Level Panel of Experts created as part of the revamped CFS structure. It's also an issue close to the French government's heart, as it made clear in the short speech given yesterday by France's Minister for Agriculture. France's President Sarkozy has committed to making agriculture a central part of the agenda for the G20 meeting that France will host next May.
It's great to see that the topic is preoccupying governments. It should be. Of course agriculture prices fluctuate and of course that fluctuation plays a number of very useful purposes in keeping markets on track. Volatility, however, especially unpredictable and extreme volatility, hurts producers, consumers and ultimately undermines investor confidence, starving the sector of much needed capital.
The problem should be tackled both at the source, by limiting the occasion for extreme volatility to occur, and where it hits home, in poor households especially, by providing safety nets and risk management tools. It has to be tackled comprehensively, too. Volatility has several distinct components that need to be considered jointly. There are the futures markets and speculative investors, a problem much discussed by IATP, on this blog and elsewhere. There is the question of grain reserves, the issue I came to Rome to talk about and also a hot topic for IATP writing. Then there is trade - do we have the right rules? What can governments do better?
Climate change is affecting the heart of any food system: the weather. We don't yet know all that it will mean for the future, but for the millions of people coping today with record-setting disasters, from Central America through South Asia with too many stops in between, it is clear that there is a new and particular urgency to addressing volatility quickly and effectively, with as few ideological fights about governments and markets and their respective roles as possible.
This year should see renewed attention from governments on understanding the causes and taking action to at least mitigate volatility. The background paper for the discussion written for the CFS was disappointing: it gave a useful and concise discussion of how climate change was increasing vulnerability to food insecurity but then turned into a very unpersuasive discussion about responses, mostly highlighting the failures of past reserves policies, and not very convincingly. Here's hoping the next iteration serves governments better. Perhaps by CFS 37 (i.e. in one year's time), we could hope to see some binding government decisions on the issues. Fingers crossed.
I'm writing from Rome, a beautiful city despite the cars. I'm attending the FAO's Committee on World Food Security, a once relatively sleepy piece of the sprawling UN system that last year was given a significant boost by a thorough revamp. Listening to the governments negotiate, agonizing over words (to launch or to discuss? To endorse or to notice? To act by the next session of the committee or at a future session of the committee?) I am mostly pulled back into memories of the days when a UN meeting was a regular part of my life.
But I am also struck by some differences.
There is the technology - someone now has the job of typing amendments into a computer, projected onto huge screens, so that everyone can see the text as it changes. There is the technique - maybe it was just a good day, but the working group report backs were exemplary. Short and on message. Not something I would have expected the system to be good at. But most revolutionary, really, is the presence of civil society organizations - the CSOs. CSOs are a part of the revamped committee, you see. So in the parsing of the sentences that goes into creating a government agreement, you see Via Campesina and FIAN and Oxfam asking for (and getting) the floor, just as the governments do. No governments first rule, no pre-agreed rules about which topics can be addressed. The CSOs spent days in advance discussing the agenda and drafting agreed language themselves.
Now let's see if all this change adds up to a Committee that can fulfill it's promise. This year will be too early to tell, but so far not bad. I'll know more when I get into the building this morning and find out what was decided after I left at 11pm last night.
The idea that engineered nanomaterials (involving the manipulation of materials at the molecular level) would be allowed in certified organic food production seems ludicrous on its face. Allowing nanotechnology would seemingly destroy the credibility of the organic label with consumers. Yet, the National Organic Standards Board Materials Committee issued a proposal for public comment recently requesting that the USDA's National Organic Program hold a symposium on whether nanotechnology in organic production is "possible, practical and legal."
In a comment to the National Organic Standards Board sent earlier this week, IATP's Steve Suppan takes issue with the assumption that federal regulators can effectively regulate engineered nanomaterials in food production—meaning, any kind of food production, organic or not. The nanotech industry has been reluctant to submit product data on the environmental, safety and health effects of nanomaterials in food production. Currently, there are no requirements that the industry submit such data before nanoproducts enter the market. And in fact, according to an explosive report from AOL News earlier this year, they already have already entered the marketplace without regulatory oversight.
Steve writes, "Food processing and agribusiness firms engaged in nanotechnology research, sometimes in cooperation with USDA's Agricultural Research Service, have not submitted to regulatory authorities the food and agri-nanotechnology data required to carry out risk assessment to develop standards. [...] USDA's National Organic Program, rather than joining FDA in assuming that food and agri-nanotechnology can be regulated under current authority, should adopt a presumptive prohibiltion on ENMs (engineered nanomaterials) in products that meet the organic standard."
You can read IATP's full comment to the NOSB here.
By nearly all accounts, agriculture prices worldwide have entered a new era of volatility. Earlier this year, wheat prices shot up an additional $3 a bushel over two months due in large part to concerns around a wheat export ban in Russia. This week, corn prices have risen dramatically due to a USDA report issued Friday, finding a less-than-predicted corn crop this year.
This era of extreme volatility dating back to the 2007-08 global food crisis has contributed to the nearly one billion people worldwide suffering from hunger. This week in Rome, the U.N.'s Food and Agriculture Organization (FAO) is hosting a five-day conference on efforts to address global food security. The meeting comes on the heels of an emergency meeting at the FAO last month focused on increased volatility in grain markets.
Of course, agriculture production has always experienced ups and downs due to a variety of factors—from the weather to pests, economics or war. Traditionally, one of the simplest tools to smooth out agriculture markets is to establish reserves: putting food aside in times of plenty to release in times of scarcity. This week, IATP published a series of short primers on: why we need food reserves, food reserves in practice, what's next on food reserves, and the WTO and food reserves. IATP's Sophia Murphy is attending the FAO meeting in Rome to speak on a panel focusing on volatility, where she'll be making the case for food reserves.
Some kind of food reserve is just common sense, right? Who could be against food reserves and efforts to stabilize agriculture prices? Who profits from volatility in agriculture markets?
Yesterday's press release from Cargill announcing that profits jumped 68 percent this quarter provides a clue. As Cargill CEO Greg Page stated, "Our results were led by the food ingredients and the commodity trading and processing segments, both of which experienced resurgence in volatility across agricultural commodity markets. The change put Cargill's global breadth, trading and risk management skills more acutely into play as we worked with customers to help them manage their price risk and raw material needs."
As agriculture commodity prices remain volatile, agribusiness companies like Cargill and ADM (up $388 million last quarter) with a global reach and diversified holdings throughout the food chain are uniquely positioned to benefit, and so far, they have.
The Obama administration continues to push for new investments to end global hunger. As part of that effort, Bloomberg news reports that the U.S. will urge other nations attending the upcoming G-20 Finance Ministers meeting and the World Bank/IMF meeting this week to contribute to the Global Agriculture and Food Security Program (GAFSP). GASFP was set up last year to channel funding requests for agricultural development. So far, the U.S., Canada, South Korea and Spain (along with the Gates Foundation) have contributed $880 million.
On the plus side, the fund is driven by host-country requests through partner agencies. Rather than setting up a cumbersome new set of rules and procedures, developing country governments can work with multilateral agencies like the International Fund for Agricultural Development, World Food Program and others, using their existing procedures. Some of those agencies, especially IFAD, have a long history of working with small-scale farmers and including women farmers. GAFSP’s steering committee includes donor and recipient governments, as well as representatives from Southern and Northern civil society organizations.
On the other hand, there is reason to be skeptical of a food security fund housed at the World Bank. Over the last 20 or so years, the bank’s structural adjustment programs required trade liberalization, privatization and cuts in public credit, technical assistance and other support to agriculture. In 2007, the World Bank’s own Internal Evaluation Group recognized that its under-investment in African agriculture, and its over-reliance on the private sector, had been a dismal failure. Since then, the bank has committed to mend its ways, but whether new programs housed at the bank can really contribute to food sovereignty—each country’s right to democratically determine its own path to achieve food security and the right to food—remains to be seen.
Obama is right that substantial new investment in agriculture is needed. But, as always, the devil is in the details. Over the last few years the FAO’s Committee on Food Security (CFS)—which meets next week in Rome (IATP's Sophia Murphy is attending and will report back)—has undergone a thorough reform process. It now includes active involvement by family farmers, urban poor, women, indigenous peoples and development organizations from the Nouth and Sorth. Can GASFP coordinate with the CFS to learn from experiences and priorities around the world? Will it support agro-ecological methods built on local knowledge and priorities or will it advance GMOs and other technological fixes? More money for sustainable agricultural development is necessary, but definitely not sufficient to end hunger.
In 2008, Monsanto launched a major public relations campaign to double crop yields in the U.S. by 2030. Recently, discussions in farm country have again picked up on this claim. It is worth examining the issues in depth.
Can it be done? Based on past history, it will be difficult. A recent USDA Economic Research Service bulletin (USDA/ERS) shows that agriculture productivity is growing at the yearly average rate of 1.58 percent which is a doubling in 44 years, not the 20 years proposed. And corn yields, which are the focus of the discussion, have a growth rate of 1.76 percent from 2004 to 2010, or a doubling rate of 40 years.
ERS projects about 175 bushels per acre (bu/A) in 2015, so yield would be about 205 bu/A by 2030. If harvested acreage stays constant (not a certainty) at around 80 million, production would be 16.4 billion bushels, a 31 percent increase over 2010. These data show that a yield doubling is highly unlikely, and is more likely a marketing ploy.
It is easy to dismiss such statements on yield as a way to promulgate more inputs, especially GMOs (genetically modified crops). There are major questions out there. Do GMOs really increase yield? Up to now, the answer depends on who you ask. Some—including some ERS reports—indicate no effect, others are counting on GMOs to really raise the yield.
A recent article in Farm Industry News based largely on interviews from Monsanto and Pioneer (DuPont), BASF and Syngenta scientists and development people, gives insight into what the industry is planning. Stacking, that is putting many GMO traits in a single variety, is claimed to be the wave of the future, especially for corn. The 8-trait SmartStax corn, developed by Dow and Monsanto, was available for 2009. Monsanto scientists are predicting that stacking 20 or more traits will be the norm. Massive breakthroughs in gene marking, real-time micro DNA analysis and computer programming are claimed to allow tailoring seeds to a specific climatic zone, bio-region or cropping strategy. Traits that are projected to be available include drought tolerance, nitrogen efficiency, herbicide tolerance (beyond Roundup) and insect resistance.
But recent findings indicate that the industry's gene stacking for yield and profits is going awry. This recent article from The New York Times documents the plummeting fortunes of the biotech giant Monsanto (shares have dropped from a high of $145 in mid-2008 to about $48 currently) largely because of the slow sales of SmartStax and the Roundup Ready 2 Yield soybeans. This is attributed to decreased yield coupled with overpricing, and a Department of Justice investigation into possible antitrust violations. But Monsanto's fortunes aside, this shows that predicting the success of biotech technology on yield is uncertain at best.
If it works, drought tolerance might be the biggest trait to increase production as it will permit corn to be grown in drier regions such as Kansas, the Dakotas and western Nebraska where now only sorghum and wheat can be grown without irrigation. If corn can be grown profitably, cattle may well leave the range and wheat acreage will drop.
Herbicide tolerance, which arguably has not increased yields but has increased profits, will move to newer chemicals as well as proven products. Several genes for tolerance to herbicides may be stacked in one variety. Will this bring about new herbicide resistant weed issues? Only time will tell.
Several new modes of action for insect resistance are also being studied and refuge-in-a-bag products are now being evaluated by EPA. Will these lead to true yield enhancement? Or just more acres per farm?
Several major issues must be addressed as the corporate world pushes for yield doubling. Some are discussed in recent Iowa Farmer Today. The issues may seem obvious, but it is good to see them discussed in a mainline farm weekly. Gene Lucht, who authored the report, poses the following questions:
I have not emphasized the issues of increased fertilizer use as well as irrigation water that would undoubtedly come with increased yields. Finally, there are the inherent environmental problems such as increased erosion, probably more localized flooding, and loss of wildlife habitat and biodiversity. But these are side issues to the industry: The important one is the push by the biotech industry to control the agenda of many universities, local governments, and state and federal governments. As public funding for "public" universities declines, corporate influence is becoming more dominant.
It will be interesting to see if crop (especially corn) yield increases continue at roughly their present pace, especially since climate change appears to be lowering projected yields worldwide. However, the use of so many resources on one crop must be questioned, even if it is currently the dominate grain crop. I question the need for this overemphasis, when so many other agriculture research needs exist. The unintended consequences of our current path must be examined.
The Obama administration has pledged to double exports by 2015. The administration will have trouble reaching that goal for agriculture if it continues following the lead of the big meat companies and ignore health issues raised by top U.S. trading partners.
The largest U.S. meat companies, and now Agriculture Secretary Tom Vilsack, continue to disappoint by downplaying the now indisputable science linking antibiotic overuse in livestock to worsening epidemics of antibiotic-resistant infections in people.
In case you missed it, Vilsack kicked off the recent debate when he told the National Cattleman's Beef Association that the USDA thought America's livestock producers already use antibiotics "judiciously."
Of course, Vilsack is a lawyer and not a doctor who treats life-threatening infections in people. If you listen to the latter, you get a different picture.
The New York Times notes that Center for Disease Control Director Thomas Frieden—a physician—wrote to Congress last July about “compelling evidence” of a “clear link between antibiotic use in animals and antibiotic resistance in humans.” Much of that evidence shows that antibiotic overuse on farms helps create reservoirs of antibiotic resistant superbugs that can cause food poisoning in people when they eat the meat from those animals.
Minneapolis infectious disease expert Dr. James Johnson, also quoted by the Times, notes "the evidence is unambiguously clear. Most of the E. coli resistance in humans can be traced to food-animal sources.”
The best estimates still available are that over 70 percent of all antimicrobials used in the country are given to healthy animals—not because they're sick, but for growth promotion and other avoidable uses. Many of these antibiotics are also common human drugs, like tetracyclines or erythromycins.
What's this have to do with the success of meat industry exports? Well, many U.S. trade partners have banned—or are threatening to ban—U.S. meat imports because of our overuse of antibiotics, and the food safety risks it helps to create. In 2008-09, for example, Russia refused pork imports from U.S. plants—including those owned by Tyson and Smithfield—due to traces of tetracycline and oxytetracycline in tested pork. Russia previously banned U.S. poultry because of tetracycline residues. This was a blow because in many years Russia has been the largest importer of U.S. chicken—a multi-billion dollar industry.
So, it seems like Secretary Vilsack and the big meat industry players have something of a shared delusion going on. They may want to continue believing that current overuses of antibiotics are "judicious." But if U.S. trade partners listen our nation's physicians, instead of our big meat companies, doubling agriculture exports may be yet another shared delusion.
One of the most dramatic effects of deregulated trade has been an increase in agriculture dumping. In agriculture, dumping takes place when an agribusiness firm exports a crop—say, corn—at a price that is below what it costs the farmer to produce it. Dumping gives agribusiness an advantage in the importing country's market—and often puts that country's farmers out of business, making that country more dependent on imports for its food supply. Trade rules at the World Trade Organization (WTO) and regional trade agreements like the North American Free Trade Agreement (NAFTA) limit what countries can do to protect their farmers from dumping, including policy tools like tariffs or certain types of subsidies.
A few years ago, IATP published a report looking at dumping by U.S.-based agribusiness on world markets for five major crops: corn, soybeans, wheat, rice and cotton. We found a sharp increase in dumping following the enactment of the WTO's Agreement on Agriculture and the 1996 Farm Bill—which stripped away the last remnants of supply-management programs and encouraged U.S. farmers to over-produce.
Earlier this year, Tim Wise at the Tufts University's Global Development and Environment Institute released a new report looking even deeper into the damaging effects of dumping. In this case, the effects of dumping eight U.S.-produced agricultural products on Mexican agriculture after the passage of NAFTA. The numbers are astounding. Prices paid to Mexican farmers were depressed nearly $1 billion a year from 1997–2005 due to dumping. You can find more details at GDAE's website.
Or, check out the video interview we did with Tim at a major meeting of Mexican farm groups last month.
After a lull in public attention over the last couple of years, rising food prices are back in the spotlight. A spike in prices triggered in part by the Russian export ban, and a deadly food price riot in Mozambique have rekindled the debate on global food security. The UN Food and Agriculture Organization (FAO) convened a special meeting on global grain prices last Friday, concluding that measures are needed to increase market information and transparency in agricultural trades. Olivier de Schutter, the UN special rapporteur on the right to food, released a new report on the need to address speculation on commodity markets. He called for regulation and the establishment of food reserves, along with a renewed focus on agroecological methods to increase food production in developing countries.
The last food crisis in 2007-08 highlighted some of the underlying problems of the broken global food system: decades of neglect of investment in agriculture; the foolhardiness of relying on trade for food security; and the vulnerability to wild swings in prices caused by deregulated speculation on commodities. World leaders have made some important new commitments to increase spending and attention to agriculture. And there have been some important first steps toward a new approach in the United States.
The recent financial reform legislation increases transparency and puts new limits on commodity speculation. The Obama administration’s Feed the Future initiative and bills under consideration in Congress would increase spending on agricultural development, emphasizing production by small-scale farmers, especially women farmers. The Global Food Security bill sparked a vigorous debate on the kind of research needed to strengthen local food production. Family-farm, faith, environmental and social justice organizations slammed the initial emphasis on GMOs, insisting on agroecological approaches that protect and build upon local knowledge and reduce dependence on imported inputs. Compromise language now broadens the approach to include research on technologies appropriate to local ecological and social conditions, including ecological agriculture, conventional breeding, and genetically modified technology. Of course, how this will all eventually play out on the ground in developing countries is what really matters.
In addition to how food is produced, it is also vital to ensure that people have access to it when and where they need it. Feed the Future and the Global Food Security Act are silent on the question of food reserves. They do provide for some increases in local and regional procurement of food aid. The USAID budget for local food aid expanded to over $280 million last year. This is a breakthrough in U.S. food aid programs, which up to now have overwhelmingly supported in-kind shipments of food purchased in the United States, transported by U.S. shipping companies, and distributed by U.S. agencies and NGOs. Several GAO reports have documented how much more in-kind food aid costs than locally procured food.
The USAID humanitarian assistance program is an important step. Unfortunately, it is still dwarfed by the in-kind food aid programs which continue at about $2 billion a year. There is no doubt that food aid saves lives in times of disaster, and that droughts and flooding and the consequent crop failures could become even more frequent as global warming destabilizes production. There will clearly be times when it makes sense to ship U.S. food to respond to a crisis. But the current approach to food aid skips any assessment of whether it would be cheaper or faster to buy food locally or regionally in developing countries. And it is unlinked from the root causes of food crises, including the vital importance of local production of food in markets controlled by local people. The default is in-kind aid because that’s what we’ve always done. Never mind the fact that the U.S. no longer holds public food reserves. Or that nearly all other countries providing food aid made the transition to local and regional procurement years ago.
These first steps towards increased investment in agriculture and experiments with locally procured food aid matter. They just aren’t nearly enough.
By Karen Hansen-Kuhn
Agriculture prices have always experienced their ups and downs. But in recent years, those ups and downs have become more sharp and extreme. And the result has been deadly to many of those around the world facing hunger.
Tomorrow the UN Food and Agriculture Organization will hold a special meeting to examine extreme volatility in global grain prices. The meeting was brought on by the recent spike in the price of wheat and concerns that the the world will once again experience escalating food prices - similar to what happened in 2007-2008.
Historically, one of the key tools that communities and governments have used to temper the inevitable swings in agriculture supply has been reserves. Food reserves set aside food in times of plenty and release food in times of scarcity.
Unfortunately, a several decade push toward market deregulation has discouraged the use of reserves. But the recent extreme highs and lows in agriculture prices have spurred a resurgent of interest - not only at the international level, but at the regional and local level too. In our press release today, we call on the FAO to consider the establishment of food reserves. And we issued a new report by Sophia Murphy on how the international trade rules treat food reserves.
Special UN Food and
Agriculture meeting should put food reserves on the table
Reserves could help stabilize
increasingly volatile agriculture markets
Minneapolis/Geneva – When the UN Food and Agriculture
Organization (FAO) holds a special meeting on increasing volatility in
agriculture prices on Friday in Rome, governments should consider the
establishment of food reserves to help stabilize the marketplace, according to
the Institute for Agriculture and Trade Policy (IATP).
Food reserves, which set aside food in times of plenty and
release food in times of scarcity, can be established at the local, regional,
national or international level. Traditionally, food reserves have helped to
stabilize prices for both consumers and farmers. But a several-decade push for
market deregulation has discouraged the use of food reserves in recent years.
IATP released a new report today, “Trade
and Food Reserves” by Sophia Murphy, examining how international
trade agreements treat food reserves. The report found that while World Trade
Organization rules actually give countries plenty of flexibility to establish
food reserves, trade rules do create obstacles to the public policies that
would be needed for them to function effectively.
“Trade and food reserves should be seen as complementary
tools for tackling the inherent instability in agriculture markets,” said
Murphy. “The pendulum has swung too far toward a deregulated market, which has
hurt both farmers and the world’s hungry. In this age of climate change, it is
time to establish reserves as an insurance policy against market disruptions,
like those we’ve seen this year in wheat.”
The FAO special meeting will examine recent spikes in food
prices, primarily wheat, in an attempt to avoid a repeat of the 2007-08 food
price crisis that led to a sharp increase in global hunger. The FAO Committee
on Food Security will meet in October 2010 to further discuss food price
volatility. Experts agree that many of the ingredients for another crisis are
still in place, despite efforts to address unregulated speculation in global
commodity markets and some of the other causes of volatility.
Food reserves are receiving increasing support from
governments internationally. At the G-8 meeting in Italy last year, some 30
governments and a wide range of intergovernmental organizations recommended
that a system of stockholding be explored. The Comprehensive Framework for
Action, a joint UN-system (including the WTO, World Bank and IMF) response to
the global food crisis, also includes reserves as a policy tool recommendation.
And a series of intergovernmental efforts to explore food reserves includes
ASEAN (Association of Southeast Asian Nations) and the four BRIC countries (Brazil,
Russia, India and China).
Earlier this year, IATP joined 60 civil society
organizations from around the world calling on the
UN to take action on food reserves. Last year, IATP’s paper “Strategic Grain
Reserves in an Era of Volatility” reviewed why governments have
historically used reserves as a tool to manage volatility. IATP has co-hosted
two meetings, in Washington, D.C. and Brussels, on the role of food reserves in
tackling the food crisis. You can find background on the meetings and
publications at IATP’s
Food Security web page.