There was a real surge in maize prices in 2006, with an increase of 53%, illustrating once again the extreme volatility of agricultural markets. This phenomenon, which originated in America, is the result of a combination of several factors:
> The estimation of reserves in the United States – the largest producer in the world – has recently been lowered: they are now only 6.4% of the country’s consumption, compared to nearly 20% in 2005!
> The United States Department of Agriculture has, at the same time, made public its final production forecasts and confirms a rise in production of more than 5%.
> Finally, the growing demand for ethanol in the United States means that the quantity of maize destined for human consumption and for animal feed is shrinking even more, and is pushing prices to unprecedented levels.
Although some specialists are banking on an excellent harvest in the United States in 2007 to curb the fluctuation in prices, more and more consider that maize will become too expensive for poor consumers and will drive all food prices up. One of these is the JP Morgan bank, which predicts an increase of 61% in maize prices in 2007!
However, the rise in the price of maize, and in food products in general, could cause urban riots, like those we are seeing today in Mexico, in DCs that depend on imports of maize, such as Indonesia, Egypt and Nigeria.
The Mexican government has in fact taken radical measures to tackle the shortage of maize by establishing a price control and the lifting of entry barriers, in order to encourage imports and the development of safety stocks.
This situation reveals the specificities of the agricultural sector and its strategic stakes. In fact it outlines:
> the fundamental role of anticipations and behaviours of the key players involved in agricultural markets (States, producers, investors…), both of which cause strong price fluctuations.
> the inability of current tools, the standard economic agricultural models, to make accurate forecasts.
It is therefore urgent to initiate world governance for agriculture, and to build decision-making and market management tools, so that national and international decision-makers can anticipate any changes in situation. This is WOAgri’s objective, by creating the NAR (New Agricultural Regulations) model and the NAR Agency.
> The NAR model will be more reliable in modelling the behaviour of key players when faced with risk and the maximum level of dependence on other countries beyond which supply security is affected.
> The NAR Agency will guide and advise decision-makers on the agricultural sector and its stakes, and will improve the functioning of markets while at the same time respecting the free play of competition.