A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
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Lessons drawn from the Seminar on
“Tackling price volatility For Food Security and Development”

by momagri Editorial Board

Since 2008 and the food crisis that affected many developing countries, experts have been pondering the causes of the price volatility of agricultural commodities and striving to find solutions to curb its negative consequences. Consequently, political leaders are considering the possible paths to regulate agricultural markets, as corroborated by French President Nicolas Sarkozy in an address delivered at the end of 2010 in the Allier département, when he listed the three major issues at the heart of the upcoming G20 Summit: The regulation of agricultural commodity markets, market transparency and the feasible creation of a world agricultural organization.

It is in this context that the seminar on “Tackling price volatility for food security and development” was held in Paris this past December 1.

Organized by France’s Group of Research and Exchange on Agricultural Market Regulation (GREMA) and initiated by the French Interministerial Group on Food Security (GISA) and three Ministries––Foreign Affairs, Agriculture and Economy––the meeting was attended by many specialists in issues of agricultural price fluctuations and commodity market regulation.

The objectives? To analyze the causes and consequences of agricultural price volatility, identify the means to curb its negative effects, specify the conditions that justify market intervention and get a better grasp of the global consequences of trade liberalization and agricultural market financialization.

The Outcome? The first steps towards a consensus were formed around several key issues such as the “harmful” consequences of price volatility, the possible price stabilization and the need for greater market transparency. However, yet unresolved but crucial questions were raised, questions that momagri’s endeavors to answer. Momagri especially commends the French authorities’ commitment to organize, jointly with several panels of experts, a seminar on the relevance of agricultural market regulation, a subject matter in total conformity with the research we are conducting and with our recommendations. Beyond the different analyses presented during the discussions, which lessons we we can draw from the seminar in our current environment?

Consensuses are slowly emerging and are questioning the economic thinking that prevailed during the past few years.

In spite of still lingering controversies, a majority of experts––including Peter Timmer, Emeritus Professor of Economics at Harvard University, who also spoke at the June 4 and 5, 2009 workshop on the momagri model––is gathering around a first consensus: The high price volatility of agricultural commodities is harmful for all concerned players (producers, consumers and transformers).

In fact, it was accepted that price volatility of agricultural commodities could lead to serious economic and social crises, as was the case in 2007/08 when the citizens and farmers in poor countries were severely hit by soaring prices. The price hike first affected low-income consumers, for whom a significant budget share is earmarked for food purchases. Then, farmers were affected to the extent that they were expecting better prices for their crops but were faced with the resulting price collapse. The situation generated a generalized climate of uncertainty and of social marginalization, thus aggravating poverty and fostering riots in countries with a high ratio of impoverished people.

This is why “tackling agricultural price volatility is crucial to help many farmers out of the poverty trap,” stated Françoise Gérard, an economist with the International Center for Agricultural Research for Development (CIRAD).

The experts also agreed on the fact that addressing the consequences of price volatility without tackling its causes is “costly, insufficient and ineffective in the long term.1

A second consensus then developed to recognize that the idea––still accepted by the WTO––that market globalization and liberalization eventually stabilize prices is not corroborated by facts. Why? Because of the specific nature of agricultural markets that incidentally led political leaders in the post-war years to implement agricultural policies intended to remedy the pernicious consequences of price volatility. “History repeats itself,” says the common saying, once again borne out by the fact that we are currently rediscovering the need to intervene to stabilize agricultural markets.

The experts are thus starting to agree on the fact that agricultural price stability is “desirable” and must be achieved through various regulatory tools.

The third consensus addresses the urgent need to improve market transparency and strengthen, for instance, the role of international arbitrage houses. On this specific issue, the United States and the European Union are working towards a shared objective, namely to rein in speculative operations on agricultural commodity markets.

The year 2011 will be a test year regarding the movements observed since 2008, which will either increase in number or will be administered by the first control measures implemented by the American Government2.

In conclusion and as confirmed by the experts attending the seminar, wanting to stabilize prices is not unobtainable but wholly achievable, provided that we know how. These are the issues at stake to be resolved, especially in the framework of the G20 Summit where France holds the rotating presidency this year.

Several Key issues still remain unsolved. We are only at the start of a lengthy thinking process regarding “How to proceed”.

For price volatility of agricultural commodities to become manageable one day, we still must agree on what is to be undertaken. And we have not even begun to address the issue. Various ideologies are in direct opposition regarding the feasibility of potential measures and their “collateral effects”.

The study conducted by the GREMA in coordination with the CIRAD, the GRET and the IRAM and presented by Françoise Gérard during the conference, presented the opportunity to recall the regulatory theories and conditions justifying national intervention on international agricultural markets. An inventory of existing measures to prevent the consequences of price volatility therefore showed that there are as many implemented tools as the number of concerned countries. Such preliminary presentation generated questions that must be urgently answered.

How can we stabilize prices? The task is a complex one, even if certain observers recognize that doing nothing could be more dangerous and value destructive in the long term.

Price stabilization can be researched through a range of instruments and policies that include the specificities of each nation.

Several frameworks are being considered, particularly that concerning a bottom price and a ceiling price3, which would both allow to set reference thresholds for different types of intervention. Fluctuations within a tunnel price would be the results of “data provided by markets.” Beyond these thresholds set by “bottom and ceiling prices”, diverse types of intervention would be activated on physical and/or financial markets as well as with agricultural producers and/or consumers.

In fact, one of the issues raised during the seminar was “What level of price fluctuation can be determined as excessive?”

For its part, momagri considers that a certain level of price fluctuation is necessary and normal. The whole issue lies in defining the level that endangers producers (lower prices) or has an effect on consumers (higher prices).

The opponents to any state direct governmental intervention on markets indicate that governments must not replace private sector players. But is this the objective? Surely not since it consists in preventing market failures.

The recent announcement by the Mexican Government regarding purchases of futures contracts on the Chicago CBOT financial markets to protect its population from corn price hikes, compromises the myth according which any governmental intervention would be either impossible or detrimental.

Must governmental stockpiling be used as a means to prevent price volatility? According to some experts, the experiences carried out showed us “the limited impact and high cost of such measure”, in spite of, truth be told, the inadequate data on stockpiling throughout the world.

For momagri, we must not consider the concept of stockpiling by itself, but within a set of measures that complete each other. The cost and effectiveness of stockpiling must be assessed only in such a global context.

How can we address the issue of exchange rates in the debate on agricultural commodity price volatility? The topic is back on the agenda with the discussions on the “currency war” held a few weeks before at the Seoul G20 Summit on November 11 and 12, 2010.

In this respect, momagri recently published a study which, among other deductions, concludes by stating that key rates set by central banks and exchange rates have become major variables of agricultural competitiveness, due to the combination of three new factors:
    • The increased indebtedness by farmers and governments,
    • The growing liberalization of agricultural markets,
    • And their rising financialization.

Some taboo subjects raised during the seminar

- Since agricultural markets do not self-regulate, they cannot control price volatility, which legitimates governmental intervention.

- Along these same lines, we must urgently correct the failures of financial markets so that they can fully perform.

- The term regulation does not necessarily carry the same implication at the national, regional or international level.

- One of the means to regulate agricultural markets stands at the level of international trade control through tariffs.

In conclusion and considering the complexity of the subject matters and sensitivity regarding the issues at stake, one can understand the relevance to have governments and representatives of international organizations meet at the same table to decide on international recommendations and means to regulate agricultural markets and preserve food security worldwide.

This is the highest priority of our movement that advocates a world organization for agriculture, whose key purpose seems to be gathering increasing support.

1 There still remains a step to be taken regarding the link between destabilization caused by price volatility, the political independence of governments and the stability of international relations. According to momagri forecast analyses, such link is still under-estimated, while it is precisely the basic political reason for governmental intervention.
2 Please see momagri May 31, 2010 “The American Senate wants to monitor speculation in agricultural markets” www.momagri.org/UK/points-of-view/The-U-S-Senate-wants-to-monitor-speculation-in-agricultural-markets_691.html
3 A concept fully upheld by momagri
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Paris, 17 June 2019