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Editorial |
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Food security and the performance
of agricultural markets
by Jacques Carles, Executive Vice President, momagri
and Bastien Gibert, Advisor, momagri
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Introduction
The system we evolved which relied on faith that world markets in physical foodstuffs plus world financial markets for diversifying risks would provide a reasonable protection against volatility did not work […]. Fundamentally we are moving towards a world where Malthusian type pressures are increasing, and it's a problem.
Paul Krugman, Brussels, March 2010
Food security and its correlation to the performance of agricultural markets is a multifaceted issue due to the combination of at least five hurdles:
- Food security is an ambiguous, transversal and variable concept.
The concept of food security has been substantially altered since WWII and progressively enriched by macroeconomic, microeconomic, qualitative and then nutritional aspects. Today, it is an ambiguous and dynamic notion that maintains complex relationships with international trade, the political and social regimes in place, as well as many subjective factors that must be assessed and measured.
- The policies choices made in this area are resulting of multiple decision-making processes that are often steeped in a set ideology (interventionism vs. liberalism).
For several centuries, decision-makers and experts were not able to reach a balanced consensus on the debate regarding the needed opening of borders to trade and investment, to maximize food security for their people. The history of economics is punctuated by various biases concerning all forms of mercantilism, then by physiocrats' and Adam Smith's free-trade ideas, and more recently by the supporters of the Washington Consensus, even though Malthus' message was always involved and is now getting a new lease on life.
- The radical transformation of our economies and their foundations following the recent economic, financial and food crises.
Twenty years after the fall of the Berlin Wall and the "victory" of the liberal capitalist system over communism, this current anniversary year has a bitter aftertaste. For the first time since that event, capitalism as an ideological, economic and political foundation of our societies has failed. Two key facts are illustrative. First, the market is not an end in itself, but only the means to organize trade. Second, far from being perfec––and maybe even faulty––these means must be regulated. This new post-crises paradigm goes hand in hand with the international community's brainstorming on the new governance system to be promoted in a way to maximize its sustainability and stability.
- The shared attitudes regarding resulting risks and threats are sharpened in a context of growing dismantling of regulatory and intervention mechanisms.
The world geo-economic and geopolitical environment has been deeply altered during the past 50 years because of growing uncertainty. It is impossible to forecast the successive dates of crises that could occur concerning the situation of the economic, social and political system, whether we are considering nature's disasters, market turmoil or strategic and geopolitical crises. Furthermore, it would be difficult to bring about concrete and effective solutions, due to the regulatory mechanisms dismantling movement that has been observed since the mid-90s, especially regarding European agriculture.
- Since 2007, the recent and growing questioning by the international community, and most of the world nations, about the above-mentioned four hurdles.
Until the recent financial and food crisis, there existed a relative dichotomy in the way international decision-makers––especially in developed countries––were considering policies to fight food insecurity and search for economic effectiveness. In addition, it was commonly believed that pursuing one (efficiency) would allow reaching the other (food security). The 2008 crisis has shattered this belief and shown that all nations––developed as well as developing countries–– were not only affected, but also poorly equipped to bring about concrete and coordinated solutions.
This paper's objective is to delve further into the issue of food security with regard to the specific performance of agricultural markets, and more generally to the new post-crises paradigm that surfaced in the past few months.
The first part of the document goes back to the ambiguous and changing notion of food security––both the consequence and the cause of poverty––resulting from a combination of multiple scenarios and suffering from the lack of global monitoring ex ante indicators.
The second part focuses on the strategic scope of food security; from the current paradoxical situation where farmers are the first ones to suffer from hunger, to the lack of synchronized international strategy, and including the growing threats involving global food security.
The third part comes back to the complex ties that tie food security with agricultural trade liberalization and agricultural market financialization, through commodity price volatility.
The fourth and last part assesses the required preconditions to be met to efficiently guide global food security––an economic model to better grasp the performance of agricultural market, databases and indicators to better assess these markets' risks, as well as governance and regulatory principles adapted to the new post-crises challenges.
Conclusion
The effectiveness of structural policies implemented to fight food insecurity cannot be separated from the condition of international agricultural markets and farmers in the various regions of the world. Without being the sole explanatory factors, the growing liberalization of agricultural trade in a context of regulatory mechanism dismantling, and the growing agricultural price volatility recorded since the early 2000's, have played a role in the rising global food insecurity. Ironically, food insecurity started to increase in the aftermath of the 1995 declaration of the Millennium Development Goals, and has not stopped rising since.
The issue is global, systemic, and not limited to developing countries. So, following the example of the resurgence of international cooperation observed during the financial crisis, a stronger international cooperation on renewed bases is essential to stem rising food insecurity.
Reasonably containing price and rate volatility––so crucial for food security and economic efficiency––will not be achieved in a single day or by a single country action, no matter how powerful.
These 21st century requirements are calling for a new vision on the complex economic system we have entered into. The 1945 view––as generous as it was for the times and as successful as it proved to be during the past 50 years––deserves to be renewed. The international institutions that were established then may have exhausted what they may have contributed to yesterday's world. Tomorrow's world undoubtedly demands a new arrangement in agreement with food security and the genuine economic effectiveness needs that must be urgently met.
With this view in mind, the think tank momagri advocates the creation of a World Organization for Agriculture. It would not serve as an additional international institution, but as a cooperation and decision-making platform on agriculture gathering all required expertise to deal with future issues––the FAO for food security, the WTO for trade, the World Bank for economic development and the IMF for financial and monetary concerns.
Since it was established, the think tank momagri has been working in this perspective and developed an economic simulation model––never before seen in terms of risk modeling and financialization of agriculture––as well as a rating agency to assess the situation of agricultural markets and food security. These projects are showing different degrees of progress.
Specific advanced analyses will be conducted in preparation for the G20 Summit and were the subject of a preview presentation at the 2nd Dakar Agricole Forum held in Senegal on April 18 and 19. |
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Advocating for
agricultural market
regulation and global
food governance | |
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