The U.N. Committee on Food Security is the foremost international and intergovernmental platform trying to address global food security and nutrition. To aid in this work, they created a High-level Panel of Experts (HLPE) on high food prices and food price volatility. I was fortunate enough to serve on a project team of the HLPE panel and our report was released this week.
Considering the HLPE was first constituted a year ago, got its first mandate from the October 2010 CFS meeting, met in December to decide how to proceed, and did not appoint a project team until March, the delivery of a report has been very quick. As one of the four members of the project team, working under the leadership of Benoit Daviron, of CIRAD in France, with Niama Nango Dembele with Michigan State University based in Bamako, Mali and Shahidur Rashid with the International Food Policy Research Institute (IFPRI) in D.C., I can confirm that it was, shall we say, and intensive effort.
The HLPE report explicitly considered high prices and price volatility, two issues that are often conflated. Though they are clearly linked, each raises a distinct set of issues, and they require a different set of policy responses. The report set up a framework with three scenarios of what is causing volatility: short-term (agriculture prices are always unstable because supply is inherently unpredictable and demand is relatively fixed), medium (cycles of investment cause surpluses, low prices and a loss of interest in the sector until surpluses disappear, prices spike, and investors get interested again); and, long-term (we are entering a period in which scarcity of natural resources coupled with large and growing demand will make much higher levels of price volatility the "new normal" for ag).
The report looks at international issues and domestic price volatility, and some of the evidence around the complicated mechanisms that link the two: price transmission. That is, to what extent do domestic prices in local markets reflect prices in international markets (typically set on commodity exchanges or at some of the major ports, such as New Orleans). This relationship is very important, but complicated.
My contribution was focused on the international side, from which a few overall comments emerge. First, there is genuine debate still on the role of excessive speculation; of course, lots of parties with a financial interest in blocking regulation are weighing in. But there are also substantive differences on how to frame the questions, and what to make of the evidence, as to whether the vastly increased activity on commodity futures markets (using new investment tools, as well) is a big problem, or just a new system that is taking time to settle in to place. Our report asked: How is all the new activity helping food security? And could find clear, positive contribution—speculation plays a part in the functioning of markets, but there is no added benefit from the deregulated system in place today, from a public interest perspective. The down-sides, however, are potentially enormous. So the report recommends a precautionary approach and significantly tighter regulation.
Second, there really is not any serious debate about either government support for industrial biofuel production or the arbitrary use of export restraints by the big commodity exporters: both directly fed into increased price volatility in 2008, and both are still real problems, creating uncertainty in markets where certainty is the objective (because people who are unsure whether they can afford food—let alone those who know they cannot—are obviously not food secure). But both are politically intractable and the countries that can afford to be more responsible refuse to accept new disciplines in either area.
Third, there is a glaring gap in multilateral governance around the use of food stocks. Without stocks, prices are inherently more volatile. Yet the U.S. (and some other countries) refusal to allow even a meaningful discussion of this subject in international policy arenas has blocked progress on this critically important question. Distracting talk of the history of buffer stocks is impeding a practical discussion of how to use existing stocks (most countries have some); how to use newer tools to make stocks more efficient; and how stocks can smooth supply as a short-term, but practical, response when trade fails. Ironically, it is very difficult to see how those countries—like the U.S., who believe trade is the answer to food security—will persuade others to come back to international markets if they refuse to accept the need for physical reserves, and not just promises of money to help poorer countries buy food when markets fail.
The report is one of three items that will inform the CFS debate on price volatility when it meets in October in Rome. The other two elements are the G-20 process (including the International Organization report written for the G-20 on price volatility and the G-20 Agricultural Ministers' Communiqé—see comments on that effort here), and a series of regional seminars on price volatility organized earlier this year by the Food and Agriculture Organization.
I hope you will read the report in full—there is much there, and it has been a real pleasure to work on. Our intention was to provide as open and honest an account of the situation as we could. The report will not please everyone, but I hope the HLPE will find it serves its intended purpose: to provide expert and non-partisan advice on an issue of critical importance to food security.