IATP International -- February 2011
February 16, 2011
Note from the editor
The recent rise in food prices, as well as political unrest in Algeria, Tunisia and elsewhere, have put food price volatility back in the news. This crisis, just as the last price spike in 2008, highlights some of the challenges that have affected farmers around the world for decades: inadequate investment in agriculture; increasing weather variability caused by climate change; and trade and finance rules that treat food as a market good, instead of a basic human right.
The price spike also shines a spotlight on some newer concerns, particularly the volatility induced by linking commodity prices together, both across countries and across sectors. Recent increases in petroleum prices, for example, operate at both a fundamental level by increasing input costs for farmers and on the markets, as energy and food prices are closely linked in speculative commodity markets.
In this issue of IATP International, we look at some of the emerging responses to rising food prices by the G20 and U.S. and EU governments. We also consider the failure of the Cancún climate talks and the way forward on agriculture and climate, both in the talks and on the ground.
Director, IATP International Programs
G20 meeting to debate food price volatility
Food is all over the news these days. Are we running out of food? Is Wall Street making too much money on food? What we know for sure is that there is a lot of uncertainty, and that uncertainty is driving volatile prices, which in turn is wreaking havoc on poor countries’ food import bills and on critically important investment decisions. Investing in agriculture requires patience and foresight—but how to foresee what climate change, water scarcity, rapidly climbing oil prices, and changing diets will bring in their wake?
That uncertainty has not escaped the attention of G20 governments. In June, France’s President Nicolas Sarkozy will host a meeting of G20 Agriculture Ministers to discuss food price volatility. On the agenda are: agricultural commodity price speculation (which is part of a G20 focus on commodity speculation more broadly); increased transparency among governments on what stocks they hold (how much and what kind of grain); insurance schemes for farmers to off-set the price risk volatility brings; and grain reserves.
It is encouraging that the French are willing to raise the question of grain reserves. IATP has been saying for some time now that grain reserves are an obvious, affordable and important part of the solution to the uncertainty that is fuelling exceptionally high levels of volatility in world markets. The French are proposing emergency stocks for the poorer countries and improved rules for the governance of the World Food Program’s acquisition of stocks (the U.S. government position is not helpful on this issue). More controversially, the French are also proposing stocks to reduce volatility, based on a voluntary Code of Conduct that would bind signatory countries to common rules for the governance of food reserves, including sharing information on the levels and quality of stocks in reserve, and, crucially, agreed rules on when and how stocks can be released.
It’s an ambitious agenda, even with only a voluntary code and an expectation that agreement will only be the first step in a long process. Still, it matters. For global markets, the G20 engages most of the key producer countries, and a number of the biggest consumers, too. When the G20 talks about development, they are mostly talking about other countries. When they talk about stabilizing global agricultural commodity prices, they are talking about their own policies right at home. We’re still waiting to hear whether NGOs will have a voice at the G20. Let’s hope so. We’re guessing President Sarkozy is going to need some help with this one. He deserves it.
You can read more about IATP’s work on food reserves at our Global Food Security web page.
Commodity market regulations under consideration in EU and U.S.
Aside from being on the G20 agenda, addressing excessive speculation is also on the agenda at the EU and U.S. national level. The European Commission has started a process to consider appropriate rules for financial markets. IATP responded to the EC’s request for comments on 148 questions posed by EC regulators in a consultation paper about the Markets in Financial Instruments Directive. The questions covered the regulation of both financial and commodity markets. Europe does not have the equivalent of a U.S. Commodity Futures Trading Commission (CFTC), although the government of France has proposedthat the EC create a commodity regulatory authority. IATP suggested to the Commission that the European Securities Market Authority, designed to coordinate the regulation of stocks and bonds, had neither the expertise nor adequate resources to coordinate the enforcement of market rules in the 27 European Union member states.
Meanwhile, in the United States, the CFTC has requested comments on a proposed interim rule to limit the percentage of contracts that any one entity can control during a trading period (position limits). If approved by a majority of the CFTC commissioners, CFTC enforcement of the rule will prevent excessive speculation in the commodity contracts to which the rule applies. The initial position limits will be based on the exchange traded data reported daily to the CFTC. As the huge volume of Over the Counter (non-exchange) trades are reported to the CFTC, a much larger trade database will form the basis for setting more precise limits, to be revised annually as the volume and value of all trades in a commodity contract change. The deadline for comment is March 28. The agency is working under a tight deadline. Under the authority of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC must approve 30 major rules by July 16, 2011.
You can follow IATP’s work to curb speculation at our Think Forward blog.
Moving beyond the failed Cancún climate deal
"History will be the judge of what has happened in Cancún." These are the last lines of the Bolivian Government’s press releaseat the close of the December UN Framework Convention on Climate Change Conference of the Parties. It is a deal that will be remembered by future generations as one that killed the climate treaty, unless we radically change course.
The compromise arrived at in Cancún was a coup for the United States. The U.S. came in with nothing to offer in terms of binding commitments to reduce its greenhouse gas emissions and yet managed to effectively get all countries to sign off on voluntary pledges for emissions reductions. The source of these pledges is the Copenhagen Accord that President Obama negotiated by cornering a few key countries in a back room in the last hours of the climate negotiations over a year ago at COP 15. Cancún, hence, was a tragic step backward in creating a legally binding international agreement that effectively gets us out of harm’s way. The current combined pledges lead us to a 4 degree warming of the planet—a level that will not sustain life on earth. Even a two degree warming would be disastrous for agriculture worldwide, as cropping cycles have already begun to be affected by significant weather events. Creating political momentum for binding and ambitious global reduction targets that are matched by domestic action is imperative--particularly in the U.S. and other industrialized countries where the largest amount of consumption takes place and who have a historical responsibility for creating global warming. Sadly, Bolivia was set up as the scapegoat at the meeting—portrayed as the only country standing in the way of multilateralism and progress on a climate deal. This scapegoating is nothing new. It has been used in the WTO, where governments, under great pressure by powerful countries like the United States and the EU, are too afraid to speak out or too keen to be seen as constructive actors in the geopolitical theater. And theater it was, as country after country applauded the president of the COP for her "open and transparent" process and successful outcome. Yet in reality, we all knew that the deal had been negotiated behind closed doors by a handful of countries.
For civil society organizations, Cancún is a wake-up call for serious reflection. Some of these discussions began in February at the World Social Forum in Dakar, Senegal. There, climate justice groups pledged to start a series of local, regional and national mobilizations that will culminate in international stop off points in a 15-month road map from Dakar to a second Cochabamba Summit, the G-20 meeting, the Durban COP, Port Alegre in the next WSF and onto the Rio+20 meeting next year. They demanded to set targets for a maximum one-degree temperature rise, to curb greenhouse gases by 50 percent by 2017 and allow no offsets (read: carbon trading and buying the right to pollute in industrialized countries through so-called green projects in the global South). Needless to say, these are ambitious but science-based targets on what is actually needed to curb and reduce devastating global warming for future generations.
The real work on helping to raise public consciousness and mobilize citizens towards urgent and just action from our governments on this 15-month journey begins now. Nothing short of the future of this planet is at stake.
You can read more about IATP’s work at our Agriculture and Climate website.
U.S. trade and food security agendas continue to clash
The U.S. trade agenda, which had been in limbo since the last Presidential election, seems to be picking up steam. In his recent State of the Union address, President Obama emphasized his commitment to double U.S. exports in the next five years as part of his plan to create jobs. The Obama administration is also pushing for congressional approval of the proposed U.S.-South Korea Free Trade Agreement, its first “21st century” trade accord, setting off a vigorous debate among unions, farm, environment and other civil-society organizations.
So far, the Obama 21st century trade agenda looks a lot like the old agenda, with a strong emphasis on opening markets with little concern for the impacts on workers, farmers and consumers. This approach clashes with the President’s Feed the Future initiative, which promotes ending global hunger by bolstering food production by small-scale farmers—especially women, through programs led by developing countries. Efforts to increase local food production in developing countries could be overwhelmed by floods of cheap imports. Plans to establish food reserves could be undercut by trade rules that restrict governments’ abilities to manage supplies. Programs to encourage consumption of healthy, locally grown foods, could collide with investor protections that fail to balance public and private interests.
Instead, trade and food security policy should focus on rebuilding broken food systems in the U.S. and developing countries. This does not mean abandoning trade or closing markets, but considering ways to ensure that trade complements, rather than substitutes for, local food production. President Obama released his proposed fiscal year 2012 budget on February 14. That budget (which includes deep cuts in many U.S. social programs) continues to reflect those contradictions, promoting modest increases in spending for trade promotion as well as food security and international development. The budget is the first round in what is likely to be a long and contentious debate in Congress. Let’s hope that the spending that does make it through supports, rather than undercuts, efforts to end global hunger.
For more, read our new paper, Making U.S. Trade Policy Serve Global Food Security Goals.
Women at the center of climate-friendly agriculture
Extreme weather events consistent with climate change are already playing havoc with the livelihoods and food security of much of the world’s poor. This is particularly true for arid and semi-arid areas of the global south. Yet, most proposals for agriculture being discussed at the U.N. global climate talks and elsewhere focus on new technological developments, like genetically engineered crops. But these approaches are based on still unproven claims and do not fully consider their impact on the natural world.
In a new paper, IATP’s Shiney Varghese examines proven agricultural practices that reduce greenhouse gas emissions and strengthen resilience to climate change through a case study of the Tamilnadu Women’s Collective in India. The collective, a federation of village-level women’s groups with over 150,000 members—the majority of which belong to the lowest caste—follow three principles for food security: 1.) empowerment of women; 2.) democratic local governance; and 3.) multifunctional agriculture.
Shiney will present her findings at the United Nations in New York on February 22 as part of a workshop, titled "Climate Adaptation Challenges from a Gender Perspective." The workshop is expected to contribute towards the fifty-fifth session of the U.N.'s Commission on the Status of Women. You can learn more about how the Tamilnadu Women’s Collective is using traditional knowledge and practices to increase food security and climate resilience by reading the full paper.
February 18-19: G20 Finance Ministers Meeting, Paris
February 22 to March 4: 55th Session of the UN Commission on the Status of Women, New York
February 28 to March 5: Rio+20 Intergovernmental Preparatory Meeting, New York
March 23-24: Meeting of Sous-Sherpas in preparation for June G20 Agriculture Ministers Summit
April 3-9: UNFCCC AWG-KP & AWG-LCA meeting, Bangkok
April 14-15: G20 Finance Ministers Meeting, Washington, DC
April 16-17: World Bank/IMF Spring Meetings, Washington, DC
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