Price Volatility and Food Crises

02/11/2011 11:51 am ET | Updated May 25, 2011

Must history always repeat itself? We are on the verge of what could turn out to be another major food crisis. In January, the UN Food and Agriculture Organization's Food Price Index reached its highest level ever.

Higher prices and volatility will continue in the coming years if we fail to tackle the structural causes of imbalance in the international agricultural system. Yet, we continue to react to circumstances and thus to engage in crisis management.

Today there are still close to one billion hungry people. Feeding the world's rapidly growing population will require a 70 percent increase in agricultural production worldwide and a 100 percent increase in developing countries in the next 40 years.

What are the conditions needed to break the continuous cycle of crisis management and ensure an adequate world food supply?

First is the issue of investment: the share of agriculture in official development assistance now stands at around 5 percent, significantly lower than its 1980 level of 19 percent. It should amount to 44 billion dollars per year and return to its initial level, which helped avert famine in Asia and Latin America in the 1970s. Low-income food-deficit countries spend about 5 percent of their budgets on agriculture, when this should be at least 10 percent. Finally, domestic and foreign private investments of around 140 billion dollars per year should amount to 200 billion dollars. For the sake of comparison, global military expenditures amount to 1 500 billion dollars per year.

Then there is the issue of international trade in agricultural commodities which is neither free nor fair. The OECD countries protect their agriculture with support estimated at 365 billion dollars per year, and subsidies and tariff protection in favour of biofuels divert some 120 million tonnes of cereals from human consumption to the transport sector. Finally, there is the subject of speculation, which is exacerbated by the liberalization of agricultural futures markets in a context of economic and financial crisis. These new conditions have converted hedging instruments into speculative financial products replacing other less profitable forms of investment.

In an uncertain climatic context marked by floods and droughts, we need to be in a position to finance small water control works, local storage facilities and rural roads, as well as fishing ports and slaughterhouses. Only then will it be possible to secure food production and enhance the productivity and competitiveness of small farmers, thus lowering consumer prices and increasing the income of rural populations who make up 70 percent of the world's poor.

We must also reach a consensus on the very lengthy negotiations of the World Trade Organization and put an end to market distortions and restrictive trade practices that aggravate the imbalances between supply and demand.

Finally, there is a pressing need for new measures of transparency and regulation to deal with speculation on agricultural commodity futures markets.

Implementation of such policies at the global level requires that developed countries respect their commitments, notably those made at the G8 Summits of Gleneagles and L'Aquila, as well as at the G20 Summit in Pittsburgh. Developing countries, for their part, must increase their national budget allocations to agriculture.

Crisis management is essential, but prevention is better. Without long-term structural decisions and the necessary political will and financial resources for their implementation, food insecurity will persist with a succession of crises hitting the poorest populations hardest. This will generate political instability within countries and threaten world peace and security.

The speeches and promises made at major international meetings, if not acted upon responsibly, will only fuel a growing sense of frustration and revolt as the planet's population grows from today's 6.9 billion to 9.1 billion by 2050.