Tackling volatility?

We’ve never seen global food commodity markets in such tight and complex states, with the complexity and interrelationships of influences on the values of grains, milk, meat and horticulture. We’ve also rarely seen as much investor interest in food production assets.

Agriculture ministers of the G20 group of nations agreed last week at a two-day talkfest in idyllic springtime Paris to a set of measures to tackle volatility in food commodity prices. But the deal reached contained few elements that might inflame disagreement between key players in that club and claimed to “pave the way to greater international cooperation on sensitive agricultural issues”. We’ll see.

The parts of the actual agreement reached play it safe by dealing mostly with humanitarian issues. The G20 nations agreed to exclude humanitarian aid from ongoing export restrictions, and explore use of humanitarian food aid stocks.

Many harder issues have been deferred. The French President Nicolas Sarkozy – who star has faded badly at home - has used this platform as a hope to build his position as a statesman with a French election less than a year away. He’s been beating the food security drum for most of 2011, but has been most vocal about the influence of commodity trading speculators on food prices. Sarkozy blames speculators for causing the surging food prices - especially wheat, corn and soy - that have increased the exposure to the world’s population to poverty and driven unrest in many countries.

His government took a hard stance in the negotiations, claiming it wouldn’t sign a deal that didn’t take a tough line on speculators, by placing “position limits” on trading in food derivatives.

The G20 didn’t go near that. It has merely called finance ministers and Central Banks of G20 countries to better regulate and supervise agricultural financial markets. Proposals on these actions are due later this year, but bitter differences between countries exist here – just as they have surfaced within Europe when trying to agree an exit from Common Agricultural Policy.

The agreement swerved any forceful effort to reduce the distortions from biofuels policies, only going as far as to support further analysis on its influence on food production. Hardly breaking any new ground there!

Information and transparency is another theme of EU reforms that the G20 has also grabbed. The meeting wish list provides for the creation of a global agricultural markets information system (“AMIS”), which would “keep track of stocks and provide supply forecasts”. AMIS will initially cover wheat, corn, rice and soybeans, with others to be added later. There isn’t much urgency about this measure – appropriate given the challenge in making any such approach commercially relevant. AMIS managers will hold their first meeting in September 2011, and publish their first outlook in June 2012.

It’s a bit ironic now that the French want to be the driving force for liberating trade to take the world out of the current tight food supply situation. French agricultural and trade policies have for many years been at the heart of traditional European values that have kept trade walls high and helped protect its homeland farmers. Now it suits the French to free-up trade – quickly.

Don’t hold your breath waiting for any rapid change in the landscape driven by outcomes of this meeting. “No change” is a more realistic bet.