Greater Food Market Stability Needed, Says FAO

GLOBAL - Speaking on the current food situation, the FAO Assistant-Director General says there is no food crisis but that greater market stability is needed.
calendar icon 7 September 2010
clock icon 5 minute read

Food commodities markets will remain more volatile in years ahead and the international community will need to develop appropriate ways of dealing with that, a top FAO official said today.

Responding to questions concerning the current turbulence on international food markets, Hafez Ghanem, Assistant Director-General for Economic and Social Development, said the G20 could take the lead in devising measures to ensure greater market stability over the medium and long term.

In an interview published on the FAO home page, Mr Ghanem was asked whether the world was headed for a repeat of the 2007-2008 World Food Crisis.

He said: "The market fundamentals are sound and very different from 2007-2008. Despite the shortfall in Russia's wheat production, this year's cereal harvest was the third highest on record and stocks are high. Under these conditions we don't believe that we are headed for a new food crisis, but we will continue monitoring the situation closely.

"So as regards the overall supply and demand situation, there's no cause to worry. The picture could, however, change if there is another shock to supply, for example due to more bad weather, or if government policies lead to increased anxiety in the market, provoking panic buying."

Q. So what we're seeing now is market volatility and turbulence, not a crisis?

A. As I said the elements for a crisis do not appear to be there. But in the years ahead we’ll probably be seeing more of the turbulence we’re experiencing now because markets are set to become more volatile in the medium term for at least three reasons: a) the growing importance as a cereal producer of the Black Sea region, where yields fluctuate greatly from one season to the next; b) the expected increase of extreme weather events linked to climate change; and c) the growing importance of non-commercial actors in commodities markets.

Q. What should the international community's response be?

A. Given the importance of food markets in fighting hunger and ensuring economic stability FAO feels that the international community, perhaps under the leadership of the G20, should start looking at ways of dealing with higher volatility. That would include discussion of improved regulation of markets, of ensuring greater market transparency, and of establishing an appropriate level of emergency stocks. We also need to find ways of assuring a fluid and efficient international trade in food products.

Q. What is the role of speculation in the present turbulence?

A. The situation we see today was not created by speculators but was caused by a drought in Russia. Speculation can magnify the impact of real shocks but cannot create such shocks. Non-commercial actors are bringing much-needed liquidity into food commodities markets and that is welcome.

But while any idea of limiting their role would be counter-productive, we should perhaps be looking at ways of tightening the regulatory framework in futures markets in order to limit any adverse impacts from speculation while at the same time enhancing the transparency of such markets.

Q. How does FAO view Russia's export ban on wheat, which was recently extended to 2011.

A. As a general rule export bans are to be avoided as they create market instability. They increase food prices for poor importing countries while also hurting producers in the country imposing the ban since they are not able to benefit from higher international prices.

Q. If there is no crisis, why has FAO decided to hold an emergency session of its Inter-Governmental Group on Grains?

A. This is not an emergency meeting. The purpose of the meeting will be to present members with the latest supply and demand balance, Members will be asked to describe the situation in their own countries, particularly as regards the policies they have put in place to cope with emergencies since the crisis of 2007-2008.

In the current situation, there is a lot of uncertainty about the evolving supply and demand situation and the measures different countries are taking to limit price variability. The meeting will bring policy-makers and experts together to exchange information and discuss the current situation face to face. Better information means more market transparency and that should mean less volatility. Also discussed will be the question of what countries should do in the medium term to enhance their preparedness for future episodes of volatility.

The IGG on Grains and the IGG on Rice, which will be meeting on September 24 in Rome, represents a forum for intergovernmental consultation and exchange on trends in production, consumption, trade, stocks and prices of wheat and coarse grains, including regular appraisal of the world grain situation and short term outlook.

Q. What should countries be doing to strengthen global food security?

A. Aside from the specific issues I mentioned earlier, the key to long-term food security lies in investing in the agricultural sector in developing countries so they can produce the extra food needed for a world population expected to reach more than nine billion in 2050.

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