An international conference on agricultural prices was held on December 15 and 16, 2008, in the premises of the French Ministry of Economy, Finance and Employment in Paris. An initiative of the Fondation pour l’Agriculture et la Ruralité dans le Monde (FARM)––the Foundation for World Agriculture and Rural Life––the event was also sponsored by the Conseil Stratégique de l’Agriculture et de l’Agro-industrie Durables (CSAAD) 1, the Institut de la Gestion Publique et du Développement Economique (IGPDE) 2, and PLURIAGRI 3.
In a context of financial and food crises as well as agricultural market volatility, the conference focused on the medium-term outlook for global agricultural prices and their implications for farmers in the Northern and Southern hemispheres, as well as public and private policies to be implemented to meet these challenges.
The seminar was structured around two main themes: determining factors and perspectives of global agricultural prices on one hand, and, on the other, the consequences of the price hyper-volatility on agricultural policies. Each theme was dealt with in respect to developed and emerging nations, particularly African countries.
High level officials participated in the debates: Michel Barnier (French Minister of Agriculture, Fisheries and Rural Affairs), Alain Joyandet (French Minister of State for Cooperation and Francophony), Christian de Boissieu (representing the CSAAD and the French Prime Minister’s Council of Economic Analysis), John Bensted-Smith (Director, Economic Analysis, Perspectives and Evaluation, General Directorate for Agriculture and Rural Affairs of the European Commission), Hafez Ghanem (Assistant Director-General, Economic and Social Development at the FAO), Xavier Beulin (President of the Federation of Oilseed Crop Producers or FOP), Joachim von Braun (Director of IFPRI, the International Food Policy Research Institute), Laurent Sedego (Burkina Faso Minister of Agriculture), and Aya Vashee (President of the International Federation of Farmers). Jacques Carles, Executive Vice President of momagri, represented our organization and participated in all the debates.
The excellent and informative presentations generated a quasi-unanimous awareness to the need of promoting an alternative approach to replace the ones currently prevailing (liberalism vs. interventionism) that can be summed up around the following two main topics.
Economic models are indispensable but flawed in their present form
All models and prospective studies presented during the seminar included positive estimates, that is to day agricultural commodity prices on linear and rising trends.
This is the case, for instance, of the FAPRI (Food and Agricultural Policy Research Institute) model, which estimates that prices of agricultural commodities––with the exception of sunflower seed oil––will stabilize at a level twice higher than the average for the years 1985-2005. Medium-term price forecast from the FAO follow an identical pattern, just as that of the European Commission, which estimates that prices will stabilize at a level below those anticipated by the FAPRI and by FAO.
The debates following the presentations were informative and animated. Following the example of Lionel Fontagné, Economist at the Centre d’Etudes, Prospectives et d’Informations Internationales (CEPII)––the French National Institute for Research on the International Economy––the debaters and several experts in attendance called attention to the various “imperfections”––the term is an euphemism––that taint the models presented4. Agriculture is a specific field, defined by a price structural volatility due to faulty expectations of players involved in current and term markets (farmers, investors and speculators), who generate a permanent out-of-sync correction between supply and demand.
Besides, and experts themselves bring these facts to light, the standard economic models––such as the OLEOSIM model developed jointly by the Institut National de Recherche Agronomique (INRA)––the French Public Agricultural Research Institute––and PLURIAGRI, only rationalize 10 to 15% of the price volatility recorded in 2007. The unexplained 90% are caused by players’ expectations that have, so far, never been incorporated in models. This state of affairs is confirmed by one of the latest studies from the Centre de Coopération Internationale en Recherche Agronomique our le Développement (CIRAD)––the Center for International Cooperation in Agricultural Research for Development––which states that grain price volatility is mostly rooted in endogenous factors relating to the very handling of agricultural markets (production structures and players’expectations).
While acknowledging the inadequacies of the OLEOSIM model and of most existing models, Alexandre Gohin, an INRA researcher, nonetheless reminded the audience that this model, however defective, was in fact innovative compared to what was available before. “We must consider where we started from…. research is making progress…” said the scientist, who added that incorporating in the models the expectations of the various players intervening in the markets––from farmers to stockers, from speculators to even governments––is an extremely complex task and compared it to the “Saint-Graal” search for agricultural economists.
This statement prompted us to disclose that momagri has been undertaking this “search” since 2006 and that we successfully got through the first phase this past March, when we included in the momagri model the various risks affecting agricultural markets (natural hazards, players’ expectations, speculation…) and foresaw a probable price turnaround in the very near future.
The requisite for regulation in international agricultural markets and for increased cooperation with emerging countries
Whereas a consensus was reached to admit that current decision-making tools were too flawed to obtain an accurate vision for the future, most speakers also stressed the need to implement a new type of agricultural policies: on one hand, regional policies that fit into an international cooperation approach––that is to say homogeneous and consenting––and, on the other hand, effective and non-biased regulating policies.
Indeed, international cooperation must serve as one of the engines to achieve global regulation, as indicated by Hafez Ghanem and Michel Barnier among others. At a time when the world is confronted to a global economic crisis and when many players speak of strengthening international cooperation, the French Minister noted that it would be opportune to profit from the current situation. In addition, Michel Barnier declared it was now time to gather around a conference table all agricultural players: national governments, international organizations (FAO, the United Nations), farmers’ associations, non-profit organizations, etc… The Minister even touched on the need to establish a group of agricultural experts, such as the existing organization in charge of climate change, the Groupe d’Experts Intergouvernemental sur l’Evolution du Climat (GIEC)––the International Panel on Climate Change (IPCC).
Today, regulation is no longer a bad word in agriculture. As mentioned by Xavier Beulin, it seems that if “transparence” and “regulation” were not fashionable five years ago, it is no longer the case now. Even IFPRI, a paragon of liberalism, promotes regulation. So does Philippe Chalmin, well known for his liberal positions, who insisted on the need to implement price stabilization policies in developing countries. In spite of their ideologies, these participants’ opinions prove that good sense regarding the regulation of agricultural markets now prevails.
We must now agree on the means to proceed and the appropriate management tools, stated Jacques Carles on several occasions during the roundtable that opposed him to Philippe Chalmin, Maximo Torero of IFPRI, Pierre Jacquet from the French Agency for Development (AFD), Xavier Beulin, and Pascal van Nieuwenhuise of the Quebec Ministry of Agriculture, Fisheries and Food. Because, if participants agreed on the need to implement agricultural policies, the issue of means and regulating modes was far from resolved and few concrete proposals were offered. In addition to Jacques Carles, who presented the ten founding principles of an international agricultural and food policy, only Pascal van Nieuwenhuise introduced a number of elements during his presentation of the regulation mechanisms implemented in Quebec to stabilize farmers’ income and secure supply.
A few months ago, economists and agricultural experts, who not only imparted a significant role to endogenous factors in agricultural commodity price volatility but also acknowledged their existence, were indeed a rarity. The occurrence of financial crisis and the food crisis is a global upheaval that yet deserves the credit to alert the international community to the fact that the improbable is probable, that markets are far from perfect and that uncertainty is a structural component of agricultural markets. We must therefore act and develop tools that will allow us to estimate these specific risks. It is an extremely difficult task that, as indicated by Alexandre Gohin, an INRA researcher, represents the “Saint-Graal” for economists. Yet, we at momagri, have been carrying out this work since early 2006 and have already achieved promising results, as shown by Jacques Carles during his address at the conference.
1 The role of the CSAAD, or Strategic Committee for Sustainable Agriculture and the Farming Industry, is to highlight agricultural policy decisions made by the French Minister of Agriculture, Fisheries and Rural Affairs. It also plays a part in the ministry’s strategy vigilance activities, in particular concerning the impact of social changes on agriculture, of the evolution of economic and agricultural policies in Europe and in the global environment.
2 The IGPDE, or Institute of Public Management and Economic Development, reports to the Ministry of Economy, Finance and Employment and to the Ministry of Budget, Public Accounts and Civil Service. Its national competence includes initial and advanced training for the two ministries’ personnel as well as for other ministries’ staff. It serves as a reference in terms of public administration, knowledge and practices.
3 PLURIAGRI is an association founded by French producers of grain, oilseed/protein crops and sugar beets and by the Crédit Agricole bank.
4 This criticism can be applied to all standard agricultural models, since each is based on identical hypotheses, namely that supply automatically adjusts to demand.