Resolving the food crisis: The need for decisive action

Global leaders squandered 2012, but prospects for resolving the food crisis in 2013 seem better.

File photograph of drought-damaged corn stalks at the McIntosh family farm in Missouri Valley in Iowa
A devastating drought in the United States last year badly hurt corn yields [Reuters]

What progress has been made in the last year in addressing the underlying causes of the global food crisis? Far too little. Now, following the third food price spike in five years, we need clear and decisive action to address the real drivers of high and volatile food prices: biofuels expansion, financial speculation, low levels of public food reserves, weak investment in developing country agriculture, and a changing climate.

One year ago, we published “Resolving the Food Crisis“, a comprehensive assessment of the international community’s response to the global food price crisis. We found many signs of progress – increased funding for agricultural development, renewed attention to small-scale producers, and to women, growing awareness of climate change. But we also identified troubling failures to address either the proximate or structural causes of the food crisis.

“We see neither the necessary urgency nor the willingness to change the policies that contributed to the recent crisis,” we concluded a year ago, noting that global food security was “as fragile as ever”. We warned that another price spike was likely unless the real drivers of food price volatility were addressed.

For the most part those drivers remain untouched. World leaders largely wasted 2012, though we see some promising opportunities and signs of change in the year ahead. What follows is our assessment on the progress made over the last year.

Donor funding for agricultural development

In our report, we applauded the new commitment to public support for Agricultural and Rural Development (ARD) by the World Bank and, notably, by the G-8 group of powerful nations, made in L’Aquila, Italy, in 2009. That G-8 commitment of $22 billion over three years reversed two decades of aid policies that neglected developing country agriculture. But we warned of the dangerous drift toward partnerships with the private sector involving multinational firms that moved away from donors’ commitment to promote recipient country ownership of development programmes.

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Feeding global hunger

The L’Aquila three-year commitment was up in May 2012. Instead of renewed commitments, donors retreated to a geographically narrow, private-sector-led aid programme. G-8 leaders launched the “New Alliance for Food Security and Nutrition”, which committed to raising 50 million people out of poverty in Africa in ten years mainly by mobilising funds from private companies, including Monsanto and Yara, a global fertiliser company. To qualify to join the alliance, African governments must, “refine policies in order to improve investment opportunities”. Far from recipient country ownership, the New Alliance instead reverts to donor-imposed conditionalities that give foreign firms greater access to Africa’s markets.

The G-8 failed to build on one of its more successful and promising initiatives in 2012. The Global Agriculture and Food Security Program (GAFSP), through its public-sector “window”, has developed transparent decision-making structures to support country-led agricultural development plans that prioritise small-scale farmers, women, and the promotion of sustainable practices in the pursuit of food security. Public sector funding for GAFSP is now weak and may not be adequate to support approved projects. Yet GAFSP’s so-called “private-sector window”, which has none of the laudable safeguards of the public sector funds, is now wide open for multinational corporations’ engagement.

Reducing biofuels expansion

In the last year, we saw movement to reform policies that encourage the continued conversion of food, and feed crops to fuel but no slowing of the biofuel boom. At the end of 2011, the United States ended two of the principal support programmes, the tariff on imported ethanol and the blender tax credit that subsidised corn ethanol use. These were positive reforms, but the Renewable Fuel Standard (RFS) mandate remains in place. This and other minimum use mandates in Northern countries are now the primary policy instruments encouraging continued biofuel expansion.

The European Union took the promising step of proposing to reduce from 10 percent to 5 percent the amount of transportation fuel that can be sourced from food/feed crops. Yet this is not a hard cap, it allows some continued expansion, and it contains many loopholes.

In the United States, the RFS came under close scrutiny with the 2012 drought, which devastated corn crops. Short supplies coupled with the biofuels mandate exacerbated the direct competition for US corn between food/feed uses and corn-based ethanol. Instead of relaxing the mandate, the US government deepened its commitment to corn ethanol. The Environmental Protection Agency denied a widely supported request to waive the RFS mandate for the year and even proposed to expand the use of ethanol in automobile fuels from 10 percent to 15 percent.

Curbing financial speculation on agricultural commodities

The evidence continues to mount that deregulated financial speculation on agricultural commodities is an important driver of food price volatility. Both the United States and the European Union introduced important regulations to bring over-the-counter (OTC) trading onto regulated exchanges and to impose stricter “position limits” on the scale and scope of any one trader’s holdings. But 2012 was also a year of heavy lobbying by the financial industry, resulting in delays and weakening of approved reforms.

In the United States the regulation to get OTC swaps reported on regulated exchanges has been delayed at least until June 2013. And no action has been taken to require adequate collateral margins for OTC swaps, which encourages risky trading. Despite clear evidence that computer-generated “high-frequency trading” (HFT) disrupts rather than facilitates price discovery in commodity markets, neither the Commodity Futures Trading Commission (CFTC) nor foreign regulators have implemented rules to curtail the practice. US courts halted the CFTC rule on position limits in September after a suit by financial service firms. The CFTC is appealing the ruling.

In Europe, regulations are also delayed. The Market in Financial Instruments Directive is unlikely to be implemented in EU member states before 2015. In December, the banks won a delay until 2019 of a rule requiring stronger capital reserves against defaults. But a Financial Transaction Tax is being implemented in 11 countries, a bold and important step to raise needed revenues while reducing incentives for financial speculation.

Building food reserves

Low levels of publicly held food reserves leave markets vulnerable to supply shocks, and little has been done internationally to address the problem. Stocks of all commodities remain at historically low levels, making prices very sensitive to harvests. When drought hit the United States, prices shot up in response. The price spike was less prolonged than other recent spikes, mostly because a record high numbers of acres were planted, and perfect weather in Brazil ensured a record harvest there. In West Africa, the push to create a regional emergency food reserve – the only concrete action on reserves agreed by G-20 agriculture ministers in 2011 – continues, slowly but with purpose. The largest rice consuming countries, including China, India and Indonesia, continue to operate domestic food stocks. Networks of local reserves are also emerging, across Africa in particular.

The G-20’s new Agricultural Marketing Information System (AMIS) arguably dampened the impulse for net-food importing countries to engage in panic buying as prices started to rise in 2012. The exchange of information among the world’s principal producers, consumers and exporters of food grains that AMIS permits is useful. But there is a fundamental problem in leaving decisions over when and how to respond to supply shortfalls to the G-20 alone. Net-food importing countries have to depend upon the political (and commercial) negotiations among G-20 governments – closed and secret negotiations. Publicly held, transparent and politically independent food reserves would help restore the confidence still lacking in international food markets.

Halting land grabs

The alarming recent trend of large-scale land acquisitions by foreigners in developing countries continues apace, according to an April 2012 study [PDF] and online database from the Land Matrix Partnership. The report highlights the worrying trends: African countries account for more than 70 percent of the land acquisitions, weak states are targeted for investment, there is rarely prior and informed consent by residents, small-scale producers are regularly displaced, little employment is generated, biofuel production is a significant reason for many investments, and only rarely is food produced for the domestic market.

Global efforts to slow and regulate such acquisitions made important progress in 2012. The UN Committee on World Food Security (CFS) showed admirable speed in developing the so-called Voluntary Guidelines on Land Tenure (VGs). These were adopted by member states in May 2012, setting a clear standard for the governance of land and other food-producing resources. In October, governments agreed on a process for consultations around the world under CFS auspices to build on the VGs to better govern large-scale land acquisitions. The World Bank rejected Oxfam’s call for the Bank to support a moratorium on such deals. But Tanzania took unilateral action, restricting the allowable size of foreign land acquisitions.

High and volatile commodities prices are expected to keep foreign investors and sovereign wealth funds interested in buying land (and the water it holds) abroad. Continued international monitoring is important, as are recipient-country actions to enforce the Voluntary Guidelines (making them law as appropriate) and restrict large-scale foreign land acquisitions, and actions by the countries where investors are based, ensuring the funds respect the VGs as well.

Addressing climate change

In 2012, storms kept coming like lions, but the year ended with a whimper from governments, with the climate talks in December in Doha achieving little meaningful progress. The talks achieved a second commitment period for the Kyoto Protocol, but the commitments are weak, major countries are not participating, and the prospect of concerted international action on climate change remains distant. The so-called “Doha Climate Gateway” is the supposed path for a new climate treaty to come into force by 2020. Decisions to officially incorporate agriculture into the negotiations stalled. Governments look set to continue their debate on whether, how and which countries should mitigate emissions from agriculture and where to find the money for those programmes. Yet adaptation to current and anticipated climate change and funding that adaptation is the urgent priority for developing countries. On a positive note, Doha gave the green light on developing a mechanism to address “loss and damage” resulting from gradual slow onset impacts of climate change such as temperature rise that will devastate climate sensitive sectors such as agriculture.

Prospects for change in 2013

It is clear that high and volatile food prices will remain a problem until structural reforms to trade, finance and agriculture systems are put in place. This year we could see meaningful limits on financial speculation, if legislators can resist lobbying by financial interests. We could see a reconsideration of mandates for biofuels made from food crops, even in the United States, where the inflexibility of the RFS has many in Congress calling for an overhaul of the mandate. With or without the support of the international community, countries will continue to build food reserves to dampen price volatility and protect domestic food security.

Governments have plenty of opportunity to take action in 2013. The World Trade Organisation will meet in December in Bali, under new leadership. The UN’s trade organisation, UNCTAD, has a renewed mandate and will get a new Secretary-General. The European Union and the United States will finalise new farm legislation. The G-8 is planning a June follow-up in London to last year’s Hunger Summit. The G-20 will meet in Russia, one of the world’s largest and least predictable wheat growers.

The UN’s Committee on World Food Security remains a source of hope. The CFS is formally recognised as the international body responsible for coordinating responses to the food crisis. CFS action on land tenure and responsible agriculture investment opened the door for meaningful reform to regulate land grabs and promote the right to food. Its October meeting will address two of the critical issues we identified: biofuels and investment in smallholder agriculture. It also has a mandate to consider public food reserves policies.

With bold action on climate change, biofuels and speculation, capable leadership at the WTO and UNCTAD, a renewal of public sector funding through GAFSP, and a firm commitment to the CFS as the lead organisation for multilateral cooperation on hunger, so much is possible. For the sake of global food security let us hope governments rise to the challenge.

Timothy A Wise is the Director of the Research and Policy Program at the Global Development and Environment Institute (GDAE) at Tufts University.

Sophia Murphy is a senior advisor at the Institute for Agriculture and Trade Policy.