CIIA’s Press release
December
6th, 2010
Reducing
the food price volatility is useful for food security
but
must be accompanied by development policies.
The blaze of grain prices this autumn was at the heart of the debate
organized by the CIIA on October 18th. If the Director for Agriculture of the OMC
defended the free trade to work for food security in the world, the purchasing
manager’s wheat Nutrixo group underlined the incurred risks, from lack of
transparency of the markets, by the food companies.
The blaze of grain prices in 2007-2008 caused many riots of the hunger.
The following year, the Heads of State of G20 met in
To develop tools, it is initially advisable to know why and about what
to act. 3 elements should be distinguished:
-
Sudden variations in prices (upwards or downwards) are
due to an economic tension between supply and demand to several causes (seasonal
offering, fast growing demand faced with an offer that requires time to materialize,
natural disasters…). These price changes
are even more brutal than the stocks are reduced whereas elasticity price
is low, as it is the case of agricultural commodities. The sharp rise is even
more unacceptable to consumers whom they rarely observe comparable decline. It
is accepted little by the producers who benefit only marginally and fear a disruption
of their markets.
-
Price volatility is
observed in the short term markets, with the corollary notion of risk calculated
by statistical analysis of past data. This volatility is measured by the
standard deviation with the trend. It can be increased through the dissemination
of insufficient or incorrect information. The assessment of its evolution
depends on the base period (it increased over the last two decades but not
since the last half-century). Producers can compensate by insurance-type tools
or hedging on futures markets. The qualification “excessive” volatility because
too much expensive for producers arises only from a socio-political consensus. Reducing volatility requires the use of smoothing
tools that involve inter-professional and/or public actions (regulation of
the physical and financial markets, creation of regulation funds) at a
national, regional or global level according to the characteristics of markets
and operators.
-
Uncertainty about price trends is similar to annual
weather forecasting. This uncertainty is perceived as synonymous with a very
strong volatility, especially with the interdependence of the markets. However,
the increasing of the exports of wheat from countries bordering the Black Sea that
record yields very dependent on erratic weather conditions could make very
random movements of the wheat price. The
ultimate tool for managing this uncertainty was already known by Pharaohs with
the stockpiling strategic reserve. But on global markets, stockpiling
strategic reserve raises many difficult issues to resolve in a single meeting
of G20: which products (rice, wheat, corn…), which volumes, which funding,
which agency management…
Strong volatility is a bit like uncertainty. It discourages investors
and can attract only speculators. Reducing
price volatility or, at least the
transparency of the conditions of pricing, is a requirement to start again the
investment of agricultural and food production. It will however not be
sufficient. It must be accompanied by ambitious policies of development to
fulfil simultaneously in long term renewable energy needs and food security requirements.
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