Speculation, Price Swings Threaten Security of Food Supply, Ministers Says

Speculation and price swings in agricultural markets may threaten food security, 48 farm ministers meeting in Berlin said a month after a United Nations gauge of global costs reached a record.

There is a risk of more food riots unless the surge in prices is contained, including through trading regulations, French Agriculture Minister Bruno Le Maire told reporters during the meeting Jan. 22. France chairs the Group of 20 this year, a group created in 1999 to stabilize global financial markets.

“Food markets may not be the object of gamblers,” German Agriculture Minister Ilse Aigner said at a press conference during the meeting. “Food and agricultural commodities are not like anything else. Sometimes it’s about pure survival.”

World food prices in total rose 25 percent last year and countries probably spent at least $1 trillion on imports, with the poorest nations paying as much as 20 percent more than in 2009, according to the United Nations. Governments from Beijing to Belgrade are boosting imports, limiting sales or releasing stockpiles to curb inflation and riots in Algeria and Tunisia this month were in part caused by food costs.

The 48 agriculture ministers meeting in Berlin, including representatives from Brazil, Russia and Japan, said they were “concerned that excessive price volatility and speculation on international agricultural markets might constitute a threat to food security,” according to a joint statement handed out to reporters on Jan. 22.

Trading Positions

France, in its role as head of the G-20, will propose to regulate the “financial-agricultural” markets, Le Maire said. Germany’s Aigner said limits on prices and the scale of trading positions should be among measures considered.

Wheat traded in Chicago, a global benchmark, rose 65 percent in the last 12 months, while corn jumped 79 percent and soybeans advanced 50 percent. Prices gained after crops were ruined by Russia’s worst drought in at least a half century, flooding in Canada and parched fields in Kazakhstan, Europe and South America.

More disclosure on agricultural-commodity trading would help “eliminate those who conduct these transactions only to speculate and make short-term profits, without really having the goods being traded,” said Dacian Ciolos, the European Union’s agriculture commissioner.

The officials called on the G-20 leaders to “improve market transparency” and to “fight the abuse and manipulation of prices” in agriculture.

Agricultural Commodities

“We don’t want to accept this speculation on agricultural commodities, which undoubtedly enriches a lot of people but which impoverishes the rest of the planet,” Le Maire said. “We determinately reject speculation that leads to the ruin of farmers and an unstable situation in emerging countries.”

Surging food prices in 2008 sparked protests and riots in more than 30 countries, including Egypt and Haiti.

“It’s an unbearable situation for a number of developing countries who can’t handle the increase of agricultural commodity prices and find themselves confronted with the risk of food riots,” Le Maire said. “We’ll see them again in 2011 or 2012 if we fail to quickly take the necessary measures.”

Price swings in agriculture have been driven by increased investor interest over the last two years, Le Maire said.

“The reality is that today in these financial-agricultural markets, more than fifteen times the global cereal production is trading,” he said. “That is asking for speculation.”

World Population

Food production will have to rise 70 percent by 2050 as the world population expands to 9.1 billion people from about 6.8 billion people in 2010, according to the UN’s Food and Agriculture Organization in Rome.

Public and private investment in agriculture needs to be increased, the ministers gathered in Berlin said. Food security needs “an integrated and sustainable approach,” they said.

Twenty-two countries from Angola to Haiti were in a “protracted” food crisis because of natural disasters, wars and flawed governance, the UN said in October.

Ukraine’s Agriculture Minister Mykola Prysyazhnyuk said the World Bank and other institutions should create a global grain reserve to smooth out price swings.

The London-based International Grains Council, an inter- governmental group, has changed its forecast for world grain stocks since it first monthly forecast 2010-2011 ending stocks in April.

The latest forecast, published Jan. 20, is for a production shortfall of 61.6 million metric tons of grain in the year through June. That would amount to almost two weeks of global grain consumption. The council’s first forecast was for a shortfall of 8 million tons.

“No one in this room is capable of telling me exactly the world stocks of wheat, soybeans or corn, even though this information would allow for stabilizing of prices,” Le Maire told the ministers Jan. 22. “It’s not normal that in a market as important as agriculture, there’s so little information.”

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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