Just over a year ago, a sharp rise in maize prices, triggered by the worst drought in the last 50 years in the US Midwest, sent shock waves through the international food markets raising fears that food prices would spiral out of control as they had in 2007-8, 2010-11 and 2012. Fortunately, this did not happen and food prices leveled out around September 2012.
The outlook for international food markets finally looks brighter today, at least for consumers. The FAO Food Price Index has fallen for the last five months and cereal prices are around 20 percent lower than in August 2012 thanks to a better supply outlook and healthier stock levels.
FAO is forecasting an 8 percent increase in world cereal production this year. Higher production allows for rebuilding of stocks, which had fallen to historically low levels. An expected 13 percent increase in world cereal closing stocks should drive up the global stock-to-use ratio to 23.3 percent, the highest since 2003. If the expected increases in stock-to-use ratios are confirmed, then the markets will have greater resilience to any shocks and price volatility should be restrained
It is also important to recognize the role of global governance in this positive development, by increasing transparency, market information and helping control factors that had led to price spikes before. The Agricultural Market Information System (AMIS) played an important role in making this happen. Set up by the G20 in 2011 with a multi-agency secretariat hosted by FAO, AMIS provided timely and reliable information, increasing transparency in the international food market and assuring better coordination between the main players to reduce market instability and unilateral action.
The United Nations System also granted the issue high priority. The UN Secretary-General's High-Level Task Force on Global Food Security repeatedly and energetically called for calm and coordination, contributing to contain price increases.
The reformed Committee on World Food Security -- that will session starting Monday October 7 -- has proven its value as the most inclusive forum to discuss food security and, in a landmark achievement, endorsed last year the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security.
Among many other initiatives, last October FAO hosted a ministerial summit to discuss food prices, co-organized with the Government of France who played a leading role in establishing AMIS.
In 2007-8, increased use of maize for biofuel production was pressuring food prices, excessive speculation on futures markets accentuated price volatility and panic buying and export restrictions led to prices spinning out of control.
But, in 2012, these elements were generally controlled and good sense prevailed in markets. The importance of linkages between food and energy markets has been recognized and the costly biofuel policies implicated in pushing up food prices in recent years are being questioned in a number of countries, including the USA.
In another change, widespread public outrage over excessive speculation with food prices led many banks to review their positions and made some of them publically renounce that practice. In fact, today, speculation on futures markets seems to have diminished and played little role in recent price volatility. It could, however, re-emerge depending on financial and monetary conditions, so we need to ensure that these markets are transparent and suitably regulated. Different ways to avoid excessive price volatility and to guarantee availability of food are also being discussed, with the setting up food reserves as an option.
Does the current situation mean that our food price problems are over? No.
International prices are still higher than their historical trend -- higher than the peak in 2008, for example. On the other hand, regardless of price levels, excessive price volatility presents additional challenges, especially for small-scale farmers in developing countries with restricted access to financial mechanisms to contain the impacts of low or negative returns.
The G20 Leaders' Declaration at the St Petersburg Summit was right to recognize that the agricultural market situation still needs close attention.
It is important to recall that the rise in food prices that started in 2006 came after three decades of falling prices that brought the agricultural sector in many poor and developing countries to its knees. High prices offers an opportunity to rebuild the livelihoods of small-scale producers, however, this is not happening yet. And, if high food prices are the new normal, then governments need to adapt to this situation by increasing resilience of the poorer populations and by strengthening social protection programs, including cash transfers.
Discussions of all these issues are usually prompted by new episodes of soaring food prices and take place against a background of turmoil in international markets. In such circumstances there can be little time for strategic thinking. When the situation calls for immediate, expedient policy actions, the choices made are often those that generate quick results and have relatively low short-term costs. These solutions can, however, have undesirable side effects and unexpected costs in the longer term
The current period of relative calm on international markets gives an opportunity to reflect on a more considered assessment of how the international community can best respond to food price volatility and work together to make sure that food prices, higher or lower, do not have a negative impact on food security.
Agriculture ministers from around the world will be meeting again in FAO on 7 October to do just that.