How the G-20 Can Prevent a Food Crisis

As France assumes the presidency of the G-20 this year, trouble is brewing in the commodities markets. During our country's leadership over the next nine months, we are determined to head off crisis before it strikes the world's poor, as high food and oil prices did just three years ago.

In 2008, the explosion in the price of commodities prompted hunger riots in several African countries. Preoccupied by the financial crisis, we didn't do anything to prevent such a situation from happening again. Two years of plentiful harvests in 2008 and 2009 were enough to conceal the problem. Today, however, the situation has once again become a cause for concern. Poor harvests last summer and an increase in climate variation have led to a significant increase in agricultural prices. Wheat, for example, increased from 140 euros per ton in July to more than 280 euros in February. The prices of barley and corn doubled. The Food Price Index established by the U.N. Food and Agriculture Organization (FAO) has reached its highest level since its creation in 1990. The same causes produce the same effects; we should expect a new food crisis to erupt if we don't take extremely swift action, especially because the number of countries that depend on the import of agricultural commodities has been continuously increasing since 1990.

The impact of the increase in commodity prices is already being felt: 44 million additional people have been pushed below the poverty threshold over the last few months. In Bangladesh, the average household expenditure on food has increased 60 percent since 2008. In certain vulnerable places such as Afghanistan, Pakistan, sub-Saharan Africa, and Haiti, there is a real danger that food riots will take place. Quite simply, we've been warned; we know what to expect. No one would forgive us if there were food riots again given that the warning bells started to ring, one by one, several months ago. That would be an economic mistake and a moral offense. We must take urgent action given the risk of global food shortages.

France has assumed this responsibility by including agricultural price volatility on the agenda of its G-20 presidency. We realized that agriculture was a strategic issue. We realized that we couldn't feed the world by allowing the continuance of a system in which price variations can reach 50 to 60 percent in a few months. Whether the trend is upward or downward, the increasing volatility of commodity prices is intolerable for producers everywhere in the world because they don't have any visibility regarding their investments. When the trend is upward, volatility is intolerable for the consumers who have to pay more for their food. The importing countries that have the means to pay more for their commodities can take the hit; the others have to deal with shortages and famine. In every instance, it's the poorest countries that are hardest hit: In developing economies, many people are both producers and consumers and thus suffer the effects of upward trends as well as downward trends in prices.

What causes this volatility?

First, the gap between supply and demand. Global agricultural production is now only increasing 1.5 percent per year, whereas it increased 3 percent per year between 1960 and 1990. Climate change has a direct impact on agricultural yields. As a result of the drought in Eastern Europe and the floods in Australia, global harvests have decreased, leading to panic on the markets. At the same time, global food demand is increasing. There will be 9 billion people in the world in 2050. To feed the world in that year, agricultural production will need to increase 70 percent. In view of the volatility of prices, can we demand that states and farmers make the necessary investments to achieve that?

Secondly, this physical reality is aggravated by increasing financial speculation with respect to agricultural commodities. Today, markets trade paper worth 15 times global cereal production. Eighty-five percent of those market positions are held by purely financial stakeholders whose activities have no real link to agriculture. This speculation is unacceptable. Everyone understands that agricultural prices can vary according to the basic principles and phenomena of climate. Yet it is incomprehensible that financial actors can speculate on global hunger in order to double prices in just a few months.

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