US corn futures recorded their steepest fall in 15 years last week, on the back of USDA figures that showed American farmers have sown unexpectedly large areas despite wet weather writes NFU chief economist Phil Bicknell.
For the NFU, this was a further reminder of the fierce volatility in agricultural markets - one of the key themes discussed at the recent G20 agriculture meeting in Paris.
That was an historic moment, with all the influential ministers of agriculture in the world in the same room. Between them they accounted for 82% of the world production of cereals and 80% of global food trade. We have to be pleased that this gathering took place, and hope it will be the first of many.
However, I couldn’t help wondering if the summit was called to address high prices as much as it was to address price volatility of food and agricultural commodities.
The reality is that long-term global food security needs agricultural commodity prices to be at a level that stimulates investment by producers. We are, after all, in business too.
Two clear outcomes emerged from the G20, the importance of increasing production and productivity to meet rising demand and the creation of an ‘Agricultural Market Information System’, or AMIS.
The NFU supports both; however, European leaders overseeing the next reform of the CAP must realise that they have to create an ‘enabling’ environment for farmers to respond to market signals.
It seems that parallel conversations are going on, with Brussels talking of broad-brush ‘green’ restrictions, ‘bonuses’ for small farmers and caps on large farms. None of these will bring farmers closer to the market place.
The overarching priority for farming in the 21st century will be to increase production for each unit of input factor. The funding for agricultural research and development must be targeted towards optimising efficiency and productivity in a world pressured by climate change.
This means investing in regions such as the UK where agricultural production is less likely to be at risk of severe climatic events and varieties and breeds which are resistant to climatic events such as droughts.
Creating a more transparent system of stocks, production and demand will help markets respond better and may even head off the ‘crises’ which generate the extreme price volatility that has characterised agricultural markets since 2007.
Various international organisations already gather information, but invariably there is a time lag, and the data tends to tell us where we’ve come from, rather than where we’re going to. It is not clear how AMIS could build up the speed of such data collection to feed into a rapid response forum. There may always remain doubt over the accuracy of some data sources given the diverse agricultural production base of the G20. Nonetheless, efforts must be welcomed.
Ahead of the G20, a number of reactionary policy measures were suggested as methods of addressing volatility.
However, given that short-term policy decisions have exaggerated volatility in some commodity markets, it is notable that the meeting of agriculture ministers stopped short of such options.
The NFU recognises that the issues discussed by the G20 remain complex and warrant further high-level debate. This inaugural meeting has provided a framework for further discussion and identified some positive action points.
Some may criticise the G20 for sidestepping some of the more contentious issues, but it’s considered approach points to taking deliberate action on volatility rather than addressing short term price concerns.
No comments have been made.