How the G-20 Can Prevent a Food Crisis

During the French presidency of the G-20, one of our top priorities is to tackle alarming price hikes in the commodity markets. Here's how we can get the job done.

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.

Given this twofold food and economic challenge, what are France's proposals?

First, we propose that the G-20 prioritize a reinvestment in global agriculture, a move that will have an exponential effect in fighting poverty in developing countries. In this regard, official development assistance in agriculture plays a key role. Yet over the last two decades, the percentage of aid devoted to agriculture fell from 15 percent to less than 5 percent. We must reverse this trend and uphold commitments made by the international community at the 2009 L'Aquila summit: to promote the development of agricultural autonomy in the least advanced countries and share our research and technological advances in agriculture with them.

Our second proposal is to expand market regulation. Let's be clear: Regulating the market in this area does not mean fighting the market. Regulating the market means improving the way it operates so that wealth is more fairly shared. It doesn't mean returning to a managed economy; it means restoring order when the market becomes erratic.

Specifically, we recommend working on four areas:

First, we will push for improved market transparency. We must be more aware of production, consumption and agricultural stocks. Let's not forgot that opacity and the lack of information are what create fertile ground for speculation.

Second, we need to improve international coordination. We must be able to respond more effectively to market crises. Responding effectively means responding together, not everyone in their own corner. This is the best way to face emergencies and avoiding market overreactions.

Next, we propose regulating the commodity derivatives market using the model of the Dodd-Franck Act adopted in the United States. Instruments exist, such as setting position limits, recording and standardizing contacts, and punishing market abuses. Why not put them in place for all global agricultural markets?

Finally, our fellow G-20 countries should commit to providing support for the most vulnerable countries with respect to commodity price volatility. Together with the U.N. World Food Program, we want to establish pre-positioned emergency stocks in the areas that need them most. We also want to define risk coverage instruments for the most vulnerable countries. And finally, we propose doing away with export restrictions when they apply to emergency food aid for poor countries.

The solutions we propose are both ambitious and achievable. They are ambitious because they provide answers that are on a par with the challenges, and they are realistic because they provide the international action with concrete means to swiftly remedy the situation.

The forum for all these proposals to resolve the issue of volatility in agricultural prices will be the G-20 summit held in November. Meanwhile, the G-20's development working group will also work on implementing the development plan agreed upon in Seoul last year. For my part, I will bring together all the G-20 agricultural ministers for the very first time on June 22 and 23. France wanted to deal with this topic during its G-20 presidency because agriculture has once again become a strategic issue for the entire planet.

Yet though the G-20 will provide political momentum at the highest level, it cannot take the place of the work and expertise of other existing international organizations when it comes to food issues. That's why the G-20 will work closely with the main actors in this area: the United Nations, the FAO, the World Bank, the OECD, and the World Food Program.

President Nicolas Sarkozy also wants us to work with all countries on building an international consensus. Efforts must therefore extend beyond the G-20 and into other actors in the international community.

We had an economic responsibility to master the financial markets in 2008. We have a moral responsibility to ensure global food security in 2011. We drew lessons from the financial crisis to avoid a global collapse of the financial system. In this same spirit of responsibility, we must act today to save ourselves from urgently having to manage a food crisis with uncontrollable geopolitical consequences. We know what the problems are, and solutions are available. We can't say we didn't know.



Proceed With Caution

The perils of trusting the United Nations.

As the world's sole superpower and its largest economy, the United States is heavily engaged in the prevailing global economic and diplomatic debates by default. There is no responsible scenario in which America could simply fold up shop and disengage entirely from the world -- whether with our allies or our enemies. The U.S. presence in the world is the unavoidable reality. Yet understandably, it has spawned a debate over what manner and to what benefit the United States should participate in international organizations -- most notably, the United Nations.

The American people, particularly at a time of great domestic turmoil, are skeptical about what positive role an international organization like the U.N. might play in their country's strategic self-interest. As the largest contributor to the U.N. budget and the largest funder of U.N. peacekeeping missions, the United States has historically invested a great deal of time, resources, and lives to the cause of advancing peace and diplomacy through this organization. As a consequence of that involvement, we take risks that can actually diminish our diplomatic power or find it abused. Smart leadership is required to avoid the pitfalls of either believing too much in the power of multilateral engagement or being oblivious as to its often detrimental impact.

The United Nations has historically been a forum for thoughtful debate and interaction. But this has not made it immune from a host of international bad actors seeking to use it as a platform to bestow international legitimacy on their often tyrannical and repressive regimes; Iranian President Mahmoud Ahmadinejad and Venezuelan President Hugh Chávez are two prime examples. These two individuals have repeatedly co-opted the international spotlight to claim fidelity to open and honest dialogue even as they persecute opposition figures at home and commit violent acts against their own people -- all while proffering wild, unsubstantiated allegations against others.

To regain the legitimacy and integrity of multilateral organizations such as the United Nations, the United States and its allies have a responsibility not to tacitly endorse with silence those more contemptible proclamations. Nowhere is that more important than when it involves the fragile Middle East peace process. For some -- Ahmadinejad being a prime example -- the U.N. has become the favored arena to slander America's strongest ally in the Middle East, Israel. Generally, the U.S. delegation and other allies have acted appropriately and denounced the more appalling remarks. But under Barack Obama's administration, our allegiance with Israel has been shaken in no small part because of the manner in which that relationship has been handled in the halls of the U.N.

Most recently, the White House waited for days before agreeing to veto a Security Council resolution denouncing Israeli settlement activities. The resolution was supported by the Palestinian Authority, which claimed it would act as a pressure point in the on-again, off-again negotiations with Israel. Such a resolution, Palestinian leaders must have reasoned, would confer legitimacy on their grievances against the Jewish state by getting the United States to concede their point-of-view. After peculiar hand-wringing that only further strained our alliance with Israel and gave encouragement to that country's antagonists, Obama's representatives at the U.N. finally chose to stand with our ally. This was a classic example in which the U.S. position and role in the global diplomatic arena was subject to abuse by others.

Throughout its history, the U.N. has assumed its greatest authority when the United States has been willing to provide economic, diplomatic, and military assets. Otherwise, the U.N. should stick to the basics of bringing countries together to discuss grievances. Let the most congenial and the most strident among the international community espouse their thoughts, beliefs, and concerns -- but at no time should the auspices of this international organization bestow legitimacy upon those viewpoints. Nor should the U.N. be allowed to act as a super-authority on the world stage. The power of diplomacy -- particularly for the United States -- rests in preserving our role as an effective partner in the resolution of disputes. Too much reliance on an organization like the United Nations, no matter the nobility of the cause, may lead to American diplomatic efforts becoming nothing more than expressed outrage.

The American people are naturally skeptical of ceding authority to some international body. We fought a revolution so that decisions affecting our lives on both a macro and micro level were made by duly elected members from our own communities. If we are respectful of our history and values, we should not expect that by going to the U.N. or any other international organization, America can necessarily alleviate its grievances and those of our allies, either through peaceful means or by force. This understanding of multilateralism is a compromise that protects our sovereignty while upholding realistic aspirations to see a respectful dialogue among competing nations and ideas.

Occasionally, multilateral engagement gets this balance right. The G-20 group of countries, due to its narrower focus on economics, allows for a certain level of realpolitik not often found in the United Nations. A common allegiance to certain fiscal and financial realities often drives greater cooperation.

Ultimately, the United States can and should engage in international organizations, provided we do not deceive ourselves or others into a false sense that these entities have independent authority to override the sovereignty of individual nations. If a nation seeks to use the U.N. or other organizations to justify actions or ideas that are antithetical to our values and principles, we must not be reticent or shy about denouncing them. Otherwise, our involvement in the multilateral arena, coupled with our silence, will inadvertently bestow legitimacy on those actions and ideas that are abhorrent to U.S. national identity. And worst of all, American taxpayers will have paid for the microphone.