Why do we have the food price volatility?

amis-fao-logo Various elements are contributing to the problematic. First of all, the lack of investment in agriculture in the last decades. In the last 30 years, the investments in agriculture have been reduced by 43%, but at the same time, the production of Soya to feed the animals has grown by 67 % in the last 10 years. We have also an increase of the population: we are now 7 billion and will be 9 billion in 2050. 80 million of new mouths to feed in addition every year is a data that we have to keep in mind. We have the impact of climate change, with extreme events such draughts, floods etc reducing the production. We have also the production of crops for biofuels, and here we see the link with the energy policies of the countries. We have investors entering with large sums in the food commodity markets, and they are accentuating the food price volatility.

How to solve the problem of food price volatility?

The first think coming in mind is to setting up internationally held food stock to intervene on markets to stabilize prices when it goes up. FAO considers that it would be too expensive to put in place, and discouraging the private sector to be active when the price goes up. It discourage also the price competition. FAO considers that the biofuels production should not be subsidies, and should be produced on marginal lands, and near the consumers. FAO supports the multilateral negotiations under the WTO and the elimination of trade distorting subsidies in rich countries. Countries should also avoid export restrictions in time of crisis. We need better information on trade and production, to avoid panics on the markets and irrational decisions. Reason why it was decided to create AMIS, the Agricultural Market Information System. We can also apply safety nets at national and regional levels. We can have emergency food reserves that can help the most vulnerable. It can be distributed to poor consumers cash or food vouchers. The Governments can protect themselves from high food price by the system call options which would give them the right to buy food at a set price even months ahead, regardless of how the market has moved in the meantime. Concessional financing facilities such as those provided by IMF could help the countries to reimburse.

And the most important, stability in food market depends of the increase of investment in agriculture, particularly in developing countries where 98% of the hungry  people are and where the food production need to double by 2050. Investment in infrastructure, marketing systems, extension and communication services, education, research and development can increase the food supply. The level of investment required is USD 83 billion per year.

The FAO-OECD Agricultural outlook 2011-2020 released in June 2011 stated that prices of cereals could continue to grow by 20% in the 10 coming years and meat by 30%.And the agricultural production will grow slowly in the next 10 years. At the contrary, food consumption is expanding in emerging countries, in eastern Europe, in Asia, in Latin America. The production of the fishery sector will grow by 1,3%/year. By 2015, aquaculture is projected to surpass capture fisheries for human consumption, and in 2020, should represent 45% of the total fishery production.

What are the decisions which have been taken at the G20 Agriculture Meeting in June 2011 to help to solve the problem of food price volatility?

The successful outcome of the G20 meeting of Ministers for Agriculture, which took place in Paris on 23 June 2011, was that an agreement was reached on an action plan covering five areas:

  1. Agricultural production and productivity
  2. Market information and transparency
  3. International policy coordination
  4. Reducing the effects of price volatility for the most vulnerable
  5. Financial regulation.

Particularly significant for FAO is the decision by the Ministers to create an Agricultural Market Information System (AMIS) housed in FAO.  The objective is to increase market information to enhance transparency and thus reduce the scope for speculation and also provide policy measures with a better information base for their decisions.

What is AMIS and how it is working?

The G20 meeting of the Ministers of Agriculture held in June 2011 in Paris discussed price volatility in food and agricultural markets, and defined an Action Plan. They recognized the importance to have timely, accurate and transparent information and agreed on the need to improve the quality, reliability, accuracy, timeliness and comparability of data on agricultural markets. They decided to launch theAgricultural Market Information System (AMIS) in order to encourage major players in the agri-food markets to share data, to enhance existing information systems, to promote greater shared understanding of food price developments. The AMIS will involve G20 countries in the early stage and invite other main grain and oilseeds producing, exporting and importing countries, representatives from major commodity exchange markets and the private sector. The AMIS is housed at the FAO with a Secretariat including other international organizations. In view of its long experience and expertise, the International Grains Council (IGC) is cooperating in the development of this initiative. The G20 Ministers called upon international organizations to create links between AMIS and existing global, regional or national Early Warning Systems for food security and vulnerability such as the FAO-GIEWS.

The Program of work for the establishment of AMIS as approved by the G20 Ministers is the following:

– September 2011: Discuss the “terms of reference” for AMIS, identify data collection methods and identify training and capacity building for those countries that are not capable of providing the information.

– January to March 2012: Develop comprehensive food market indicators.

– March 2012: Collect data through electronic questionnaires on an AMIS collaborative website, where participating countries will directly input the data.

– April to May 2012: Prepare and make available an AMIS manual on best practices and methodologies.

June 2012: Publish first enhanced global market outlook and situation and make plans for monthly monitoring and dissemination thereafter.

On 15-16 September 2011, FAO held its first meeting on AMIS which will cover four major crops (wheat, rice, maize, soya), and on the Early Warning Forum. The Secretariat of AMIS, hosted by FAO, will be supported by the WB, OECD, WFP, IFAD, WTO, and IFPRI to constitute a market information group. Made-up of high-level figures responsible for the agricultural policies of the main producing, exporting and importing countries, the Early Warning Forum meets once a year and whenever necessary in time of crisis. Its objective is to promote the early exchange of key information between the political decision makers and to provide a place to discuss and collaborate on the prevention and response to market crises, with the view to take appropriate actions would problems on agricultural markets happen.

In November 2011, was produced the first, interim report introduces AMIS to a wide audience. It presents the rationale and process leading to the establishment of AMIS and illustrates the types of outputs that AMIS intends to provide in the coming months and years. The report can be consulted on the following link: AMIS Special Report – Introducing the Agricultural Market Information System

In December 2011 has been held in FAO a meeting of experts from international organizations to work towards defining and developing a set of indicators to measure abnormal market conditions, alert process and AMIS Outputs.

In February 2012 has been held the first meeting aims to review procedures and tools that individual country members use for drawing national supply and demand balances for AMIS commodities and establish the bases for an agreed methodology. Additional information on the following link: Meeting of the Global Food Market Information Group

The FAO specialist of AMIS is Mr. Abdolreza Abbassian:

Tel: 00 39 06 57053264

Email: [email protected]