G20 Wants to Take Greater Global Control Over Rising Food Prices

G20 to Tackle Food Prices as Countries Reassure

January 7, 2011

Reuters - The world's biggest economies are working to find ways to bring down soaring food prices, a G20 official said on Friday, as top exporter Thailand vowed to keep rice supply steady and avert a repeat of the 2008 food crisis.

Global food prices hit a record high last month, outstripping the levels that sparked riots in several countries in 2008, and key grains could rise further, the United Nations' food agency said this week.

Policymakers are concerned that, if unchecked, rising food prices could stoke inflation, protectionism and unrest.

High food prices and unemployment were blamed for a second day of rioting in Algeria Friday with police deployed around mosques and authorities suspending football matches.

Rhee Chang-yong, who represents South Korea at the G20, said working-group talks were under way aimed at improving global cooperation to resolve food security problems.

"France is emphasizing food security. As a former host country of G20, we would like to deal with the price volatility problem thoroughly," Rhee said.

French President Nicolas Sarkozy has asked the World Bank to conduct urgent research on the impact of food prices, a source familiar with the matter said.

French Prime Minister Francois Fillon said this week that one of France's priorities at the G20, where it holds the rotating presidency, was to find a collective response to "excessive volatility" in prices of food and energy.

One concern is that high food prices could hit consumer spending in fast-growing emerging countries that are leading the revival of the global economy.

CEREAL PRICES UP IN 2010

Last year, wheat futures prices rose 47 percent, buoyed by bad weather including drought in Russia and its Black Sea neighbors. U.S. corn rose more than 50 percent and U.S. soybeans jumped 34 percent.

The U.N. Food and Agriculture Organization said in a report Wednesday that sugar and meat prices were at their highest since its records began in 1990. For wheat, rice, corn and other cereals, prices were at their highest since the 2008 crisis.

During that crisis, riots broke out in countries from Egypt to Haiti. Import prices jumped, forcing many countries' trade balances into a deep and costly deficit, and several governments in Asia imposed export restrictions on rice.

The U.N.'s World Food Program (WFP), which was feeding some 100 million people last year, noted that cereals including rice had not hit 2008 price peaks, but that sugar and cooking oil were pushing up the food index.

"We're ready to step up assistance specifically to countries that are vulnerable to these high prices, especially focusing also on risks to children," WFP spokeswoman Emilia Casella told a news briefing in Geneva.

She said a fairly good harvest in a number of African countries in the past year had helped, and that reserves were higher than in the 2008 crisis while fuel prices, which affect fertilizer and the transport of food, were lower.

Robert Prior-Wandesforde, an economist at Credit Suisse in Singapore, said food commodity prices were unlikely to rise much further, barring weather catastrophes.

"The estimated global and exporting countries' stock-to-use ratios of both wheat and rice are considerably higher today than in 2007-08, making shortages and drastic export bans unlikely," he said in a report.

But the London-based venture capital firm Emergent Asset Management, which holds swathes of land across southern Africa, still sees much more mileage in food prices.

"The world is still in denial about food prices," its chief investment officer, David Murran, told Reuters.

"If you look at demographics, if you look at production, if you look at the impact of climate change, then we are only at the beginning of this."

CHILIS, RICE AND ONIONS

Many countries, including Brazil, India and China, have seen food inflation jump to double digit levels. Inflation rates accelerated across Latin America in December as costs spiked for food, increasing pressure on policymakers to raise interest rates. Prices rose sharply for Mexican tortillas and Chilean beef last month, while Brazilian bean costs surged over 2010.

China has imposed price controls to try to ensure stable prices for consumers. On Friday, Ethiopia announced similar measures.

Thailand, the world's biggest rice exporter, sought to reassure the market, with Commerce Minister Porntiva Nakasai telling reporters it would maintain 2011 exports at 9 to 9.5 million tonnes after shipping 9 million in 2010.

The Philippines, the world's biggest buyer of rice, said it would cut its 2011 imports by at least half, compared with record purchases in 2010, further easing concerns of a tight rice market this year.

Still, the head of the National Food Authority, which oversees rice imports, said it might increase its buffer stock to cover a minimum 40 days of demand, from 30 now.

A senior food official in Bangladesh said it was worried about food security and had imported 250,000 tonnes of rice from Vietnam.

In Indonesia, which has the world's fourth-largest population, a fivefold rise in the price of chillies in the past year has helped drive overall inflation to near 7 percent.

Farmers are operating around-the-clock patrols to protect their chili plants and President Susilo Bambang Yudhoyono has urged households to plant chillies in their gardens.

In India, where onion prices have triggered protests in the past, prices have jumped after weather damaged the crop and officials have opened talks with Pakistan about resuming imports.

Sarkozy Takes G20 Case to Obama as Food Prices Soar

January 7, 2011

Reuters - French President Nicolas Sarkozy takes his campaign for greater global food price and currency stability to Washington next week when he seeks Barack Obama's support for France's goals as head of the Group of 20 powers.

Soaring food prices and riots in places like Algeria offer Sarkozy ammunition to press for more coordination between G20 governments to combat wild swings in vital commodity prices as well as exchange rates versus the long-dominant U.S. dollar.

The French president wants to use his run at the G20 helm in 2011 to start, if not finish, reforms of the monetary system at a time when many countries are tempted to let their currency drop to promote exports and growth after the worst downturn since World War Two, even if that can be at each others' expense.

Paris is also pressing for international efforts to impose greater transparency in commodity markets trading and pricing, and for tougher regulation of trading in commodity derivatives along the lines pursued for other investment derivatives in the wake of the financial markets crisis that preceded the economic downturn of 2008-2009, and the government debt crisis now.

"As we sense it, more multilateralism is the best answer to the increased instability in the world," a Sarkozy adviser said of a meeting happening on Monday in Washington, where Sarkozy will be accompanied by wife and ex-model Carla Bruni-Sarkozy as well as his finance and defense ministers.

"We want to broach this thinking with the Americans and see if they are willing to join in such an approach, whereafter we can produce more precise proposals," said the advisor, who spoke to reporters on condition of anonymity.

South Korea, which has just handed the rotating presidency of the G20 to France, said on Friday working-level meetings had already begun on food price rises that have revived fears of a repeat of the 2008 food crisis.

The problem is moving up the political agenda in Asia, where China has recently sold corn, sugar, rice and other commodities out of state reserves to cool prices.

In North Africa, hundreds of youths clashed with police over food prices and chronic unemployment in several cities this week, including in the capital.

Some of the concrete ideas being considered for G20 talks include: obliging commodity investors to trade through exchanges rather than less transparent over-the-counter transactions and pressing for better sharing of data and crop forecasting.

French Prime Minister Francois Fillon underlined the point this week when he told a conference in Paris one of France's top G20 priorities was to find a collective response to "excessive volatility" in commodity prices, notably for food and energy.

DOLLAR DEBATE

The French president who played a key role in cooordinating a European response in the earlier stages of the financial crisis in his own part of the world, is also keen to make some headway as G20 presidency on his long-held view that the time has come to wean the world off decades of dollar-dependence.

"For us this is not about reducing the dollar's role. We want the dollar to continue to play a major role but exchange rate forces are inexorably set to change, which brings with it phases of major financial tension and great instability," said the Sarkozy adviser.

With the rise of the likes of G20 members China and Brazil, Sarkozy is seeking to rally the group as a whole to the idea of a more diversified monetary system after decades where the U.S. dollar has served as the world's reserve currency and a major unit of international trade settlement.

"We want to encourage the international development of other currencies, such as the yuan," said the adviser.

Brazil has been blazing a trail to curb speculation and a rise in its own currency. Its central bank announced further measures this week that increases banks' reserve requirements when betting that the real will strengthen against the dollar.

Obama is expected to visit France in May for a meeting of the G8, which includes the wealthy Western countries of the G20 economic forum plus Russia, but is shifting toward a focus more centered on foreign policy discussion since the G20 became the forum of preference for fighting the global economic crisis.

White House National Security Council spokesman Mike Hammer said Sarkozy and Obama would also confer on that front during their Monday meeting in Washington.

"As close allies, the presidents will also review the situations in Afghanistan, Lebanon, Iran, Ivory Coast, Sudan and Middle East Peace efforts," said Hammer. "They will also discuss counterterrorism cooperation."

Record High Food Prices Stoke Fears for Economy

January 6, 2011

Reuters - Record high food prices are moving to the top of policymaker agendas, driven by fears it could stoke inflation, protectionism and unrest and dent consumer demand in key emerging economies.

The United Nations' food agency (FAO) said on Wednesday that food prices hit a record high last month, above 2008 levels when riots broke out in countries as far afield as Egypt, Cameroon and Haiti.

In Asia, official data and analyst estimates both pointed to inflationary pressures. Chilli prices have increased fivefold in Thailand in the last year and Indonesia's president called for households to plant food in their own gardens.

President Susilo Yudhoyono Bambang told a cabinet meeting people should be "creative" in planting, with Trade Minister Mari Pangestu leading the way in planting at home.

"I have 200 chilli plants in flowerpots," Pangestu told a briefing on Thursday. "The agriculture ministry is informing farmers how to take care of the plant and also encouraging consumers to plant chilli in their own yards."

Surging food prices have often provoked unrest in urban areas of poor countries, where food makes up a high proportion of household purchases.

Analysts say African and Caribbean economies dependent on food exports could be particularly hard hit, helping stoke unrest and potentially pushing governments toward imposing export bans and expropriating foreign-owned farmland.

If Asian and other emerging consumers have to spend more of their income on food, other purchases will fall -- and that could be bad news for a global economy that has placed much of its hopes for recovery on consumption in developing economies.

World Bank President Robert Zoellick urged governments in a newspaper opinion column to avoid protectionist measures as food prices rose and called upon the Group of 20 leading economies to take steps to make sure the poor get adequate food supplies.

French President Nicolas Sarkozy has asked the World Bank to conduct urgent research on the impact of food prices ahead of G20 meetings later this year, a source familiar with the matter said.

INDIAN INTEREST RATE PRESSURE

Food price protests were seen a factor in the ousting of Indonesia's long-term autocrat Suharto in 1998, and anger over a farmland purchased by South Korean firm Daewoo at a time of rising prices was in part blamed for a 2009 coup in Madagascar.

India's food price inflation rose to a one-year high of more than 18 percent in the year to the end of December, data on Thursday showed. That, along with rising fuel prices, is the main reason analysts expect the central bank to raise rates this month.

The Indian government has used a range of measures for years to ensure stable food prices, but since last year has boosted the release of national stocks of grains and has pledged to continue duty-free imports of crude vegetable oils.

In China, several cities have implemented direct controls to limit food price increases and the central government has vowed to eliminate speculation in the country's commodities markets.

The cost of food rose 11.7 percent in the year to November, while non-food items were up just 1.9 percent. But, reflecting concerns that inflation is creeping beyond food to the wider economy, consumer goods prices and housing costs showed clear jumps.

Fu Bingtao, an economist with the Agricultural Bank of China in Beijing, said in a report the price of grains, the country's most important food, would rise in 2011 by 10 percent, adding to an 11.7 percent rise in 2010.

"Speculative trading and hoarding of specific agricultural products may continue," he said.

The FAO said sugar and meat were at their highest since its records began in 1990. Prices were at their highest since 2008 crisis levels for wheat, rice, corn and other cereals.

Benchmark prices solely in Asia for rice suggested a different picture.

The region's staple food now stands at $535 per tone -- less than half its 2008 levels of more than $1,000 a tone that prompted several governments at the time to impose curbs on exports to protect their domestic markets.

ASIAN POLICY DILEMMA

But most experts expect upwards price pressure to continue, particularly if countries slap on export bans and further squeeze supply, and short-term investors again buy into agricultural commodities as they did in 2008.

Last year, wheat futures prices rose 47 percent, buoyed by a series of weather events including drought in Russia and its Black Sea neighbors. U.S. corn rose more than 50 percent and U.S. soybeans jumped 34 percent.

Alongside bad weather in Australia, Europe, North America and Argentina, rising Asian demand is at the heart of the spike. China, for example, is expected to buy 60 percent of globally traded soybeans in 2011/12, double its purchase of four years ago.

Dry, hot weather has hit soy and corn crops in Argentina, a leading exporter, fueling a rally in U.S. grains futures in recent weeks on supply fears. After an uneasy start, climate conditions have improved in neighboring Brazil, the world's No. 2 soy provider.

Higher interest rates do little to ease pressure on food prices. Demand is inelastic because people have to eat, but current price pressures are largely supply-led, so tighter monetary policy would not directly help.

The danger, however, is that food inflation spreads to the wider economy.

"I think there's an urgent need to be more pre-emptive in tightening monetary policy to prevent some of these inflation pressures from erupting," Neumann said. Some central banks had taken some action but more needed to be done.

South Korea, like other Asian countries that run trade and current account surpluses, could give more room to its currency to rise to offset rising import costs on food.

But higher interest rates or the likelihood of a rising currency would just encourage a flood of portfolio capital from investors spurning sluggish growth in developed economies. And rising currency could hurt exports, the major pillar of many economies.

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