As we lurch uncertainly into the age of crisis, facing our second global food price spike in three years, more must be done to build resilience and manage the climatic and economic risks looming on the horizon.
As the global food system becomes increasingly volatile and unstable, the risk of a slide into a zero-sum world of resource nationalism – a contest that women and men living in poverty would be guaranteed to lose – becomes more real. Alternatively, the world could move decisively towards a more just, resilient, and sustainable globalization – but only if it tips decisively towards international co-operation rather than competition.
Today’s international system – fragmented, ad hoc, low on legitimacy, and high on gaps and friction between governments and institutions – is not yet up to the task of co-ordinating and delivering this outcome. Reform can begin today, with a number of immediate measures to reduce risks, improve co-ordination, and build trust, setting into motion a process of evolution towards a new system of governance that can both mitigate against and manage the shocks coming down the line.
During the 2008 food price crisis, co-operation was nowhere to be seen. Governments were unable to agree on the causes of the price rises, let alone how to respond. Food reserves had been allowed to collapse to historic lows. Existing international institutions and forums were rendered impotent as more than 30 countries imposed export bans in a negative-sum game of beggar-thy-neighbour policy making.124
Now with food prices back at a new all-time high, a range of urgent actions is needed.
1. Manage trade to manage risk
Build a system of multilateral food reserves
One of the reasons that food prices hit such highs in 2008 is that markets were trading so thinly: because reserves were at all-time lows, changes in supply and demand were borne entirely by the price mechanism. Panic buying by governments on international markets, as import-dependent countries seek to build up national stocks, could all too easily worsen the very volatility that it is trying to defend against. Instead of acting unilaterally, governments should work collectively to establish regional food reserves and strategic cross-border trading systems with each other – an approach that creates resilience against volatility while reducing the risk of governments competing against each other.
Increase market transparency
The tendency of governments to panic buy and horde is in large part a consequence of poor market information: market participants have very little reliable information on the levels of stocks held by governments or private sector traders. Mandating the FAO, for example, to collect and disseminate aggregated data on stocks, reserves and anticipated supply and demand would help markets to function better.
Co-ordinate to tackle export restrictions
Current global rules on food export restrictions are at best modest. Prima facie, such restrictions are banned under the GATT and the WTO Agreement on Agriculture, but in practice vaguely worded and untested exemption clauses allow countries to impose them whenever they like. Revising international trade rules will take time, however, and given the recent resurgence in the use of export restrictions – for example, Russia’s ban on wheat exports in summer 2010 – urgent action is needed. Major food exporters ought to publicly commit to refrain from imposing sudden export restrictions, and also commit to exempting humanitarian aid from any such restrictions. This option is already on the agenda for France’s G8 and G20 chairmanship in 2011, and should be a top priority for member states.
Dismantle support for biofuels
Support measures for biofuel programmes currently cost about $20bn a year, and this is set to more than double by 2020.125 Dismantling support measures such as blending and consumption mandates, subsidies, tax breaks, and import tariffs would be good for taxpayers and great for food security.
Stop trade-distorting agricultural subsidies
As obscene as biofuel subsidies are, they pale in comparison with the vast sums of money spent in rich countries to support their agricultural sectors. Where these measures distort trade – by restricting market access or by incentivizing over-production and dumping – they directly undermine the development of resilient agricultural sectors in poor countries. Far from reducing the importance of OECD agricultural liberalization, soaring food prices make it more important than ever. At the same time, poor countries need the freedom to determine the extent and pace of their own agricultural market opening.
2. Reform food aid
The measures outlined above will help the international community build resilience and mitigate against and manage future crises. But crises will still happen, particularly as climate change continues to gather pace. Without reforms to the way in which food aid is raised and delivered, the strain on the humanitarian system risks becoming unbearable.
The provision of adequate, obligatory, and predictable funding in advance would free humanitarian agencies from frantic fundraising and allow them to be far better prepared. Adequate resources must be available in advance to cover emergency responses, rather than the current system of passing around the hat once a crisis is under way. The international community must move to a system of 100 per cent funding for humanitarian emergencies, via upfront ‘assessed contributions’.126 Other mechanisms to insulate funding from food price rises through hedging or insurance should also be developed. Funding could even move onto a basis of calories rather than dollars – to match precise nutritional needs and to insulate it from price movements.
Breaking the stranglehold of the farm and shipping lobbies on the food aid system would massively increase efficiency and allow agencies the flexibility to pursue more appropriate relief strategies such as cash and voucher distributions, or local purchasing, such as the WFP’s Purchase for Progress (see Box 8).127
Box 8: Building resilience and improving food aid in Ethiopia
In a region recently plagued by drought, sacks of maize stuffed to bursting and piled to the ceiling of a warehouse in Shashemene, Ethiopia, are a welcome sight. But what the blue World Food Programme logo on the sacks doesn’t tell you – and which makes this stock of white corn even more remarkable – is where it comes from.
This corn was grown right here. By small farmers in the West Arsi Zone. The World Food Programme’s Purchase for Progress Pilot Programme (P4P) was designed to source food aid in local markets in order to provide livelihood opportunities for poor farmers, while addressing the immediate food needs of hungry people. WFP plans to buy up to 126 tonnes of food from Ethiopian farmers over the next five years – to feed Ethiopians.
WFP sources some of this food from a union of ‘grain banks’ supported by Oxfam in West Arsi. A grain bank is owned and managed by its members, who pay a small fee to join. Following the harvest, banks buy grain from the members at a fair price, holding onto some of it for emergencies and selling the rest at the best rates they can get, including to WFP. Members can divide the profits among themselves or reinvest in the bank. The banks allow farmers to pool their resources to access better market opportunities, and to build up safety buffers for when times are hard.
‘We have a stock in our bank and our members are not starving like other people,’ said the bank’s storekeeper at the time. ‘Our experience in the past three years has shown us we can make progress in our lives.’
Finally, in an age of crisis, it is essential that humanitarian operations must go beyond traditional reactive approaches and integrate longer-term programming and disaster risk reduction approaches to rebuild people’s assets and address chronic vulnerability. In essence, donors and humanitarian agencies must get better at staying the course, rather than packing up and shipping out once the immediate crisis has receded.
3. Regulate commodity speculation
A precautionary approach to speculation in food commodities is needed. Governments can curb excessive speculation while still enabling the legitimate risk-mitigation and price-discovery role of futures markets. Options include requiring increased transparency to allow regulators to monitor speculators and limit their activities if necessary. Price limits can reduce short-term volatility, and position limits can prevent excessive bets on price movements. Limits could be set initially at modest levels and gradually tightened, allowing regulators to monitor for any adverse consequences such as poor liquidity.
Following on progress in the USA, proposals to regulate trading in commodity derivatives are on the agenda of the G20 in 2011, as well as the EU.
4. Operationalize and capitalize a new global climate fund
Adaptation is an urgent priority in developing countries, but the resources needed – Oxfam estimates $100bn a year by 2020 – are scant. Moreover, the institutional framework for delivering climate finance is a spaghetti bowl of multilateral and bilateral channels, massively increasing transaction costs for developing countries trying to access the meagre funds available. This has to change – the new global climate fund agreed at the international climate talks in Cancun in 2010 must be up and running as soon as possible. Agreement on a set of innovative mechanisms to raise money for the fund, such as a financial transactions tax or levies on international aviation and shipping, remains a critical priority and is on the agenda of the G20 in 2011.