Free markets can still feed the world

Robert Zoellick

Nicolas Sarkozy, France’s president, has rightly identified food price volatility as a priority for his country as it chairs the Group of 20 leading economies this year.

Figures released on Wednesday by the UN’s Food and Agricultural Organisation show that costs for a range of basic commodities have now surpassed their peaks of 2008. With foodaccounting for a large and volatile share of tight family budgets in the poorest countries, rising prices are re-emerging as a threat to global growth and social stability.

When prices of staples soar, the poor bear the brunt. Without global action, people in poor countries will be deprived of adequate and nutritious food, with tragic consequences for individuals and for the future prosperity of their countries. The G20 should agree to put food first – because food is the essence of life, and because practical action by the G20 could help make a real difference to hundreds of millions of people.

The overarching goal should be to ensure that the most vulnerable people and countries are no longer denied access to nutritious food. The G20 can achieve this, providing we take the following practical and interconnected steps.

Increase public access to information on the quality and quantity of grain stocks. Better information reassures markets and helps calm panic-induced price spikes. Multilateral institutions could help identify ways to improve transparency.

Improve long-range weather forecasting and monitoring, especially in Africa. Accurate long-range weather forecasting is taken for granted by farmers and purchasers in the developed world; in poor countries where yields depend on rainfall, poor crop projections amplify price swings. Better weather forecasting would enable people to plan ahead, and help anticipate needs for assistance. The World Meteorological Organisation and the World Bank are already helping, but more is needed.

Deepen our understanding of the relationship between international prices and local prices in poor countries. Factors such as transport costs, crop types and exchange rates can mean that local prices are delinked from international prices: in Cambodia, rice prices were on a par with international prices in mid-2009, but while local prices have since risen by a quarter, international prices are now 15 per cent lower. Work could target first those commodities and countries most at risk from volatility.

Establish small regional humanitarian reserves in disaster-prone, infrastructure-poor areas. Large stocks can be costly, degrade easily and impede producers. But in places where food crises are likely to recur and transport links are weak such as the Horn of Africa, small, pre-positioned strategic reserves would get food to the hungry fast, probably at lower cost. The World Food Programme (WFP) could manage this system.

Agree on a code of conduct to exempt humanitarian food aid from export bans. Export restrictions make food price volatility worse. Ideally, countries would not impose any export bans; in 2011 they should at least agree that food for humanitarian purposes be allowed to move freely.

Ensure effective social safety nets.It is vital that we protect the most vulnerable populations, such as pregnant and lactating women and children under two. We need to connect agriculture and nutrition, and help countries target those most in need at reasonable cost.

Give countries access to fast-disbursing support as an alternative to export bans or price fixing. To help countries avoid policies that harm their own farmers and neighbours, we need to provide reliable, fast alternatives customised to local needs.

The World Bank has created a crisis response window under the International Development Association (IDA), its $49bn fund for the poorest countries, and launched a rapid-response Food Security Fund, but we could also explore credit lines or loans with repayment suspension and extension during price shocks.

Develop a robust menu of other risk management products. In some cases, the most useful tools might be weather insurance or a rainfall index; in others, it could be a hedge on energy prices to keep transport and input costs low.

Help smallholder farmers become a bigger part of the solution to food security. Eighty-six per cent of staples in poor areas come from local sources, so support for country-led efforts to bolster smallholder agriculture is critical. One concrete step would be for the G20 to help farmers benefit from tenders from humanitarian purchasers such as the WFP. This may require flexibility to allow development benefits such as building local markets to be taken into account in sourcing decisions. South Sudan could offer a timely pilot.

The answer to food price volatility is not to prosecute or block markets, but to use them better. By empowering the poor, the G20 can take practical steps towards ensuring the availability of nutritious food. Mr Sarkozy has shown leadership in putting this issue on the G20 agenda; the G20 must now act to put food first.

By:  By Robert Zoellick ( World Bank President)

Source: The Financial Times

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