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.
Personal Accounts

The failure of Stabex does not render regulating
agricultural prices impossible!

Dominique Lasserre,
Advisor, momagri

Under the title “The impossible regulation of agricultural prices”, MoneyWeek recently published an article based on the failure of Stabex - the European compensatory finance scheme to stabilize earnings of producing countries that was established in 1975 and terminated in 1990. The analysis made by momagri is quite different. Incidentally, neither the G20 Agriculture Ministers Meeting nor organizations such as momagri that advocate the regulation of agricultural markets have, by the way, called for the duplication of such system.

Agricultural price regulation cannot be reduced to the Stabex model!

Stabex was established to meet the needs of the 1970’s, in a world far different from today’s world. Not only have we moved to a different century but to another scale as well: We are now in a globalized and deregulated world that is weighted down by various budget, currency and demographic crises…

All observers agree in acknowledging the risks of chaos, bubble, turmoil, and financial crash… The qualifiers are piling up to call political leaders to task before the worst happens. As far as agriculture is concerned, the worst consists of starvation in the poorer countries, social unrest in developing countries and social conflicts as well as foreign dependence in industrialized nations.

Today, it is no longer a matter of compensating the losses of agricultural export earnings, especially since the reference price would then be the global market price, which is a dumping price without any real connection with production prices.

It is rather an issue of defining the rules that stabilize prices within a broad or narrow price tunnel, according the extent of development of the geographical zones in question. Stabilizing prices does not mean managing them either, but mitigating price spikes and drops that are unsustainable for consumers as well as for producers.

The regulation of international trade and agricultural price volatility can take different approaches than those adopted by the Stabex. For while insuring climate hazards or revenues could represent topics for a more global examination of tools to fight price volatility, these insurances were never considered to have a pivotal role.

Regulating agricultural prices is possible, but is it limited to increasing agricultural supply and regulating financial operations?

AIncreasing agricultural production capacity is admittedly a necessary but inadequate precondition to meet the challenge of the growing world population and food needs: We need agricultural prices that are sufficiently rewarding and stable to encourage farmers’ production. Price instability is a disincentive. Indeed, price volatility can no longer be solely explained by the simple equation of “supply and demand”.

While officials have rediscovered the Gregory King’s Law, according to which a small fluctuation in supply can significantly impact prices, they must still adopt the notions that:
    - There will always be some imbalance between the globally rigid demand for agricultural products and the fluctuating supply that is difficult to fine-tune. Consequently, a one to two percent mismatch between supply and demand can generate upward or downward price variations of 200 to 300 percent!

    - A segment of agricultural price volatility is generated by financial markets and players’ irrational expectations.
Regulating excessive speculation in financial markets has become an essential but insufficient measure to prevent the distorting practices of financialized agriculture on global food security.

Let’s remember that in the May 19, 2011 Financial Times, an article underlined the link between “players’ psychology and agricultural price volatility”, thus expressing the fact that agricultural commodity markets have become trend forecasting and psychological attitude markets.

In a recent article1, Bertrand Munier also emphasized that we no longer are in a configuration of “quantity versus quantity and supply against demand, but of expected supply against expected demand. Yet, expectations by either party are not perfect […] As a result, investors’ behaviors, far from stabilizing markets, are on the contrary increasing volatility.

Agricultural markets are therefore complex trend forecasting markets in which players’ attitudes are playing a definite role. This is why it is essential to command analysis tools that include these various factors and to promote greater stability of financial and physical agricultural markets through adequate regulation. This is the very approach initiated by the think tank momagri.

Our world is at the end of a system,” wrote Jacques Attali in his latest book “Tomorrow, Who Will Govern the World?” And this end of a system is all the more dangerous that financial, economic, budget and agricultural crises… are all related and cannot be resolved by a single nation… thus the need for governance and regulation.

It is not a matter of copying the pages of past history (not the Stabex nor deregulation!) but of writing new pages…

1 Please see Bertrand Munier’s April 18, 2011 article “Spontaneous instability of agricultural commodity markets”, http://www.momagri.org/UK/personal-accounts/Spontaneous-instability-on-agricultural-commodities-markets_886.html
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Paris, 24 February 2017