Friday, February 18, 2011

ECONOMY - The G20 goes to agriculture

Known for his obsession with culinary perfection, France has decided to make food a priority of the meeting of G20 finance ministers held in Paris on 18 and 19 February. Largest producer of cereals in Western Europe, this country wants to fight against soaring global food prices by improving market transparency.

Among the solutions presented, are the limiting positions [purchases or sales] taken by some traders on the futures markets, the regulation of trade conducted outside formal markets and publication of the profile of investors. "We must regulate this market, otherwise it is the law of the jungle, the fittest," said Nicolas Sarkozy last month.

Ministers from member states of the G20 - which brings together key developed and developing countries - are also thinking about how to improve transparency in agricultural markets, including the publication of information on global supply and improving mechanisms for crop forecasting. Many governments, however, are hardly enthusiastic.

Major agricultural powers like the United States, Canada and Brazil opposed any increased regulation, while some financial centers, such as the United Kingdom, fear a drop in transactions. "The regulation [of contracts] in commodities is not the solution," said Amado Boudou, Argentine Economy Minister, after meeting with Brazilian Finance Minister Guido Mantega.

The solution lies in the increase production. " For its part, Washington is in favor of greater market transparency and the limitation of potential manipulation, via, inter alia, a more rigorous control of the positions of traders. But the U.S. government, the current rise in food prices was mainly due to the imbalance between supply and demand.

Even some French officials have begun to lower the tone. Christine Lagarde, finance minister, said in a recent interview that Paris would focus now more transparency than regulation. According to her, "we will fix a number of problems through better access to information." The debate about the speculation on agricultural markets has intensified with the rise in prices.

The food price index of the World Bank, which rose 15% between October 2010 and January 2011, is less than 3% to record level in 2008. According to this organization, the rising cost of food has tipped 44 million people in poverty since last June. For now, however, no study to establish a direct link between speculation and price hikes.

"Speculators are always an easy target but they did not cause the rise in food prices in the second half of 2010, said Paul Conway, vice president of U.S. giant Cargill grain. Plus you have different types of actors who use derivatives markets, the more they reflect the real value of agricultural commodities.

" But at a time when poverty and hunger threaten so many people in the world, some observers argue the contrary, it is time to tackle rising prices. "Given the serious implications of this on people's lives, take precautionary measures, even if we do not yet have a complete view of the problem," said Marita Wiggerthale, a specialist in agriculture and trade for the charity Oxfam.

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