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Financial Times: Tackle Export Bans To Ease Food Crisis
Listening to President Nicolas Sarkozy of France one can only fear for the G20 agenda for food security and commodities policy.
Vitriolic attacks on speculators seem to be at the centre of the discourse. But behind the rhetoric – which is mostly linked to domestic politics – lies an interesting agenda that could really help to mitigate the current spike in volatility and prices in agricultural commodities markets.
French anger at speculators hits G20 hopes - Feb-02EU to call for commodity derivatives curbs - Feb-02Indonesia battles rice shortfall - Feb-02Weather whips up commodity pressures - Feb-02Thais face rationing at supermarkets - Feb-02In depth: Global food crisis - Jan-27While most politicians focus on speculation, I strongly believe that the current spike in agricultural prices was exacerbated by policy – export bans – and lack of information, as no one really knows what the current level of stocks is.
France must tackle both problems during Mr Sarkozy’s chairmanship of the G20, which runs till November. They may seem rather dull problems when it is more headline-catching to demonise speculators. But addressing these problems would do a lot more to bring down prices or, at least, mitigate volatility than another call for a clampdown on speculation.
The restrictions in agricultural commodities exports are legal under global commerce rules, even for those countries, such as Ukraine, that are bound by their membership to the World Trade Organisation.
The General Agreement on Tariffs and Trade, the core treaty of the WTO, has since 1947 banned “prohibitions or restrictions” on exports of commodities. However, it permits them when “temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential” to the exporting country. To add to the confusion, the treaty fails to explain what it means by “temporarily” or what is a “critical shortage”, leaving countries ample room for manoeuvre.
France is likely to find strong support for its proposal to regulate export bans from fellow European countries and Japan, South Korea and the US. But Argentina, Brazil, India and China are reluctant to back them. At the end, Paris may have to settle for some form of gentleman’s agreement on export bans, with promises from large exporters not to abuse them.
The other area in which Paris needs to make progress is in the effective distribution of reliable information.
I am told that when Russia imposed its export ban, resulting in a spike in the prices of wheat and other agricultural commodities, President Sarkozy demanded information about the level of stocks. Of course, he was right in asking for that particular piece of data: if stocks are high, they will cushion the lack of sales from a major exporter. His advisers were at pains to explain that the current information about global stocks, production and demand was rather poor.
In reality, we know little about the current status of global physical agricultural commodities markets. Only the big trading houses – Cargill, Archer Daniel Midlands, Bunge, Louis Dreyfus, Glencore, Wilmar, Noble and Olam – have a proper understanding of the situation.
Governments are mostly in the dark. A senior Western official recently told me that his estimates of stocks of wheat, corn and soyabean in China – which are widely followed by the market – are nothing more than “informed guesses”.
The problem is that many countries see information about agricultural commodities markets, particularly the level of stocks, as state secrets. Don’t expect China and India to welcome Paris’ idea for more disclosure. Even so, the G20 could offer more money and resources to institutions such the Rome-based UN’ Food and Agriculture Organisation to provide better and more up-to-date data. For that, the FAO should stop relying on information largely provided by member governments and instead do its own estimates based on field work and satellite images.
Both proposals surely sound less sexy than the attacks on speculators, but if Paris is able to achieve some advances, it could make a great difference in coming years.
Posted By Adam Houston at 1:15pm on February 03, 2011
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