Nicolas Sarkozy made no secret of his aim to use France’s presidency of the G20 as a platform to address food price volatility with tough measures, including regulating speculation on agricultural commodity futures markets. As the first-ever meeting of the G20 agriculture ministers got underway on June 22, he was optimistic about their efforts: “In adopting this plan you will change not only the lives of a billion farmers but the course of capitalism itself so capitalism once again contributes to the development and well-being of people.”
But the agriculture ministers, despite having a number of extensive policy options to address volatility, opted for a “light” touch rather than changing the course of capitalism. The Action Plan on Food Price Volatility and Agriculture adopted by the ministers includes several marginal measures, none of which tackles market regulation. The centrepiece of the plan is the Agricultural Market Information System (AMIS).
AMIS is based on a similar initiative for oil markets — the Joint Organisations Data Initiative (JODI) adopted in 2002. The idea behind these schemes is that more is better. Gathering more information on commodity productivity and market transactions will help to reduce market uncertainty, and contribute to a better functioning, less volatile market. This approach to food price volatility — to work with the market — was clearly much more palatable to the agriculture ministers than using a “heavy” hand and regulating agricultural commodity markets, an issue that they avoided by pushing it onto the plate of the G20 finance ministers.
In its quest to increase the transparency of agricultural information, the AMIS will immediately face a series of hurdles, both organizational and political. For instance, in its early years, the JODI was plagued with organizational and coordinating difficulties that contributed to a time lag before it was fully functioning. More problematic, however, is whether significant “players” will participate. It is unclear whether some large agricultural countries, namely India and China, have the capacity and/or willingness to share information on their production and stocks of food. It is also uncertain whether the private sector, which controls 70−90 percent of the world’s grain trade (no one is sure exactly how much), will accept the G20’s “invitation” to provide data that the initiative seeks. These firms have a long history of operating in secrecy, to protect their market share and “market intelligence.”
There is little evidence that these transparency schemes have reduced speculation or market volatility. Even the JODI, with nearly 10 years under its belt, has had an uncertain impact on oil markets. In its recent report on price formation in financialized commodity markets, the UN Conference on Trade and Development noted that 20 percent of the price of oil is still the result of speculation.
And the transparency route has been tried with respect to agriculture, with weak results. Over 100 years ago in 1906, the International Institute of Agriculture (IIA) was established to collect and provide public access to world agricultural market data. The aim was to ensure that speculators weren’t the only ones with access to agricultural market information, but speculators did keep the bulk of the information to themselves. By the1920s to 1930s, the United States stepped in to regulate speculative activity in agricultural commodities.
For an initiative such as the AMIS to be effective and truly transparent, everyone has to share data. Again, a historical perspective on this point is instructive. In 1907, the chief architect of the IIA, David Lubin, wrote a letter to the Russian minister of finance asking him to share his country’s crop reports:
If the Governments of the world will not come together on an official and authoritative report giving the summary of the world, then we must rest satisfied to permit the private crop-reporting agencies to assume this task, and in doing so we must understand that there is no binding force to compel these private agencies to give out the exact import of the data they receive.
That line could well have been written at the G20 agriculture ministers’ meeting last week. In fact, it practically was. The Guardian reported that China and India are reluctant to release data under this initiative, and that “The action plan encourages the private sector to come forward with this information, but there is no compulsion on big traders like Cargill and Bunge to release data and they may be less than forthcoming on grounds of commercial sensitivity.”
Of course, the other route to deal with food price volatility is regulation of commodity markets. But we seem to have also forgotten that history lesson. The regulations that were instituted in the United States in the first part of the twentieth century, such as reporting requirements and positions limits, were relaxed over the course of the past 20 years, in a period of stable commodity prices.
Now that agricultural commodity market volatility is back on the agenda, it is odd that the response of the global community is to opt first for more market transparency, rather than for regulation. It is especially strange given regulation was adopted when it was realized that more market transparency was insufficient to prevent volatility. Providing more information to make markets function better is hardly changing the course of capitalism. Re-regulation might do more to move us in that direction.
Another version of this commentary appeared on The Triple Crisis Blog and on the Munk School of Global Affairs website.