THE BLOG
10/03/2014 12:28 pm ET Updated Dec 03, 2014

Food Prices: Always Too High or Too Low

This year's bumper wheat crop has helped push food prices to a four-year low, according to FAO's Food Price Index.

This is a welcome development, but we must not waste it through complacency.

The governance arrangements of international agricultural commodity markets are ripe for an overhaul to reflect not only the changes in markets, consumption patterns and technologies of the past 40 years, but also to actively engage in the challenges of the future, when we will need sustainably greater food production to reduce global hunger and malnutrition.

Without a well-governed market, "the price is the always too high or too low" for the world's great staple raw materials, as John Maynard Keynes wrote in the 1930s. Today's formal and informal rules for international commodity markets are largely relics of efforts made almost half a century ago and have for the most part faded away in practice.

It is high time to consider what the priorities of a global policy and development agenda for commodities should be, especially as the international community is on the brink of defining its Sustainable Development Goals for the post-2015 era.

On next Monday October 6, Ministers will meet at FAO Headquarters in Rome to focus on the broad and multifaceted subject of how international commodity markets are and could be governed.

Policy makers must constantly consider the possible collateral damage that any change triggers while also aspiring to create as inclusive a regime as possible.

Recent efforts to mitigate or control excessively volatile food prices have borne fruit. G-20 members agreed in 2010 to create the Agricultural Market Information System, or AMIS, which offers both comprehensive information on actual market trends and a forum for immediate policy coordination. AMIS has already played an effective role in preventing the 2012 food-price spike from expanding into a crisis.

Volatile food prices -- such as the near tripling of maize prices between 2005 and 2008 or the roller coaster ride of wheat prices in 2008 -- have wrought havoc in recent years, especially on the world's poorest populations, who often spend as much as 80 percent of their income on food.

Beyond the wrenching effects on livelihoods, such volatility also makes it harder for farmers to make long-term investments -- purchasing machinery, improving soil fertility, installing appropriate storage facilities -- that are crucial to improve productivity.

The debate should now broaden its scope and grapple with emerging trends. Non-staple commodities -- like cocoa, coffee, cotton and sugar -- mainstays for millions of smallholders, need to be considered, as does the growing use of biofuels.

More than a billion people earn their livelihoods from commodity production and export, and two-thirds of developing countries rely on primary commodity exports for more than half their export earnings. Crucially, the voices and interests of family farmers and smallholders need to be part of a new governance architecture.

Their marginalization was not necessarily deliberate but rather an unplanned and unwelcome effect of other changes, including the emergence of modern and global value chains in which family farmers and smallholders did not fit.

Indeed, it is time to review the governance of commodity markets precisely because many of its current institutions were set up to broker and manage the international agreements forged in the 1970s.

Those agreements, designed to involve constant dialogue with national commodity marketing boards which in turn were responsible for dialogue with farmers, eventually collapsed. Moreover, structural adjustment programs pushed many developing countries into dismantling the marketing boards, presuming that the private sector could better carry out their functions. But this didn't happen.

As a result, the emergence of global value chains, wherein seed, supplies, agrochemicals, processing and distribution tend to be highly concentrated, have marginalized actual commodity producers. Power is with the commodity buyers, not the sellers, and consumers have not benefited as they still have to cope with a seesaw in prices.

There have been steps to address the changing scenarios. AMIS is one example. Last year in Bali, international trade negotiations agreed on a compromise allowing food stockholding for food security purposes. That compromise -- reflecting a rift not between exporters and importers but over a developmental goal -- only represents a temporary solution, so a longer-term decision has to be made.

Governments and their stakeholders need to think harder about whether innovations like the timely information alerts provided by AMIS are enough, or whether the world needs stronger, more inclusive governance for agricultural commodities that can contribute to broader, longer-term international goals, development and the well-being of producers.

FAO is a neutral forum that countries can use to discuss the governance of international agricultural commodity markets using the quest for food security as a driving force, in line with the post-2015 sustainable development agenda that is emerging.