Food Price Spike Due to Drought Could Trigger Riots in Poorer Countries Like in 2008

World Powers Eye Emergency Food Meeting; Action Doubted

August 15, 2012

Reuters - Leading members of the Group of 20 nations are prepared to trigger an emergency meeting to address soaring grain prices caused by the worst U.S. drought in more than half a century and poor crops from the Black Sea bread basket.

France, the United States and G20 president Mexico will hold a conference call at the end of August to consider whether an emergency international meeting is required, aiming to avoid a repetition of the food price spike that triggered riots in poorer countries in 2008.

Yet even as the third grain surge in four years stirs new fears about food supply and inflation, many say the world's powers are no better prepared to rein in runaway prices. Apart from a global grain database, which has yet to be launched, and the Rapid Response Forum that authorities are considering convening for the first time, the G20 has few tools.

Instead, it must intervene through influence, perhaps urging the United States to relax its ethanol policy in response to the crisis - difficult only months before a presidential election that may be won or lost in Midwest farm states - or urging Russia not to impose an export ban, as it did two years ago.

"Beyond words, expect little from the G20 on rising food prices," said Simon Evenett, a former World Bank official who is now professor of international trade and economic development, University of St. Gallen, Switzerland.

He described the G20's record on trade as "feeble."

"With a string of broken promises on protectionism, no serious enforcement, monitoring well after the horse has bolted, and a tendency to pull their punches, any G20 promises on food trade won't be taken seriously - by the G20 themselves or by anyone else."

The group is hindered by the widely differing views of its diverse members, split between big consumers and producers.

A senior Brazilian government official said that only a major food crisis would raise pressure on the G20 to call for intervention in physical commodity markets, something countries such as the United States and Canada typically oppose.

"If we do have a meeting, I don't think we can have anything more than a recommendation coming out of it," said the official who declined to be named because he was not allowed to speak publicly. "The forum has no powers to impose certain policies or decisions on its members."

Benchmark Chicago corn rose to an all-time high on Friday after the U.S. Department of Agriculture cut its production estimate 17 percent.

The United States uses 40 percent of its corn crop to produce ethanol, drawing criticism for using food for fuel when hunger is widespread in some poorer countries.

"They (G20) might talk about the U.S. ethanol mandate requirements, but I don't see them making any massive responses at the moment. They don't have a lot of tools at their disposal," said analyst Muktadir Ur Rahman Of Capital Economics.

The U.N.'s food agency stepped up pressure on the United States on Friday to change its biofuel policies, arguing it was more important to grow crops for food rather than fuel.

The U.N. Food and Agriculture Organisation's food index jumped 6 percent in July to higher than in 2008 and the FAO warned against the kind of export bans, tariffs and buying binges that worsened the surge four years ago.

EU BIOFUELS VERSUS FOOD

The European Commission has also faced extensive criticism of its biofuel policy for using land otherwise devoted to food crops. Scientists have also argued that the policy fails to achieve its environmental goals.

A French agriculture ministry official said countries on the conference the call would decide whether to convene the first meeting of the Rapid Response Forum. The body was created last year to promote early discussion among decision-makers about abnormal market conditions, with the aim of avoiding unilateral action.

"If the situation requires it, a meeting of the Rapid Response Forum could be called as soon as the start of September," the official said, adding that the forum could hold its discussions in person or by a conference call.

A Commission spokesman said its agriculture department was "following the situation on a daily basis" and that the Commission would be involved should the G20's Rapid Response Forum decide to meet.

"Silos are full. There are absolutely no shortages in Europe," he added.

Joseph Glauber, chief economist at the U.S. Department of Agriculture, echoed this view.

"The good news is that global wheat and rice stocks are more plentiful than in 2007/08, but less corn and soybean meal means more wheat feeding (to livestock)," he said.

Glauber said there had been "discussions" about possibly convening a Forum meeting at the same time as a regularly planned gathering in October.

BIOFUEL PRESSURE RISES

Charity Oxfam is among the groups campaigning for ministers to agree on beginning to abolish mandates and targets for biofuel production both in the EU and in the United States.

"In 2011, 11 intergovernmental agencies produced a report to the G20 where it unequivocally said there was a link between increasing biofuels production and food price rises and recommended quite clearly that biofuels mandates and targets should be scrapped," said Hannah Stoddart, head of economic justice at Oxfam Great Britain.

France, the United States and Mexico will discuss a report on agricultural prices requested by France last month and compiled by the Agricultural Market Information System (AMIS). This system, created last year under France's presidency of the G20, is designed to share information on crop prices with a view to averting a repetition of the 2008 food crisis.

France currently presides over both the forum and the AMIS system, which is based at the FAO in Rome. The United States will take the reins in October.

"France ... and the United States remain attentive to any new fact that could justify a meeting of the Rapid Response Forum," French Agricultural Minister Stephane Le Foll said in a statement on Monday.

The forum has no power to impose binding decisions on member states, but it is hoped that discussion can discourage countries from taking unilateral action.

Russia banned grain exports for almost a year after a severe drought two years ago. Weather problems this year have fueled speculation it could resort to export curbs again. However, French officials have said that Russia has given reassuring indicators in contacts through the AMIS system.

"The aim is to talk about the situation and avoid measures like export embargoes, which would be damaging for everyone," the French official said.