Bloomberg News

Agricultural Price Swings Damaging Economies, Sarkozy Says

June 16, 2011

(Adds food prices in third paragraph.)

June 16 (Bloomberg) -- Agricultural futures markets need global regulation because price swings are damaging producers and consumers, French President Nicolas Sarkozy said, a week before G-20 ministers meet to discuss global food supply.

France, which heads the Group of 20 nations this year, will propose a market-information system similar to what already exists in oil, Sarkozy told a conference of farm groups in Paris today. The G-20 members account for 70 percent of agricultural land and 80 percent of world food trade, he said. Their farm ministers meet in Paris on June 22.

Global food prices monitored by the United Nations rose to a record in February and the World Bank estimates the increase contributed to 44 million people falling into poverty in the past year. Rising costs are stoking inflation worldwide, spurring central banks from China to the euro region to increase interest rates, potentially curbing economic expansion.

“We have to regulate the financial futures markets for agricultural commodities,” Sarkozy told the conference. “If we wait, we’ll do nothing. And we can’t permit ourselves the luxury of not doing anything.”

The Standard & Poor’s Agriculture Index of eight raw materials rose 60 percent in the past 12 months, led by corn, cotton, wheat and coffee. The compares with a 32 percent advance in the S&P GSCI index of 24 commodities and a 15 percent gain in the MSCI All-Country World Index of equities.

‘Volatility Insupportable’

“This price volatility has become insupportable,” Sarkozy told representatives from about 120 farm groups at today’s meeting. “Name me one other profession where every year, one can lose more than 30 percent of their revenue.”

The last time food prices surged, from 2007 to 2009, more than 60 food riots occurred worldwide, according to the U.S. State Department. Corn gained 75 percent in the past 12 months, wheat 54 percent and rice 28 percent.

“Price volatility is also insupportable for consumers,” the French president said. “The food crisis of 2007-08, the cause of food riots, is the dramatic illustration of the consequences of the fluctuations.”

Farming needs more investment, particularly in research, and global governance is needed because “the world agricultural markets are the least transparent of all,” the president said. Growth in farm output slowed to less than 1.5 percent a year from 3 percent between 1960 and 1990, he said.

Global Population

The world population is forecast to climb to 9.2 billion in 2050 from an estimated 6.9 billion in 2010, requiring a 70 percent jump in agricultural production, according to the Rome- based Food and Agriculture Organization.

“Agronomy has to again become the driving force to ensure the necessary growth of world food production,” Sarkozy said. “Obviously, public aid isn’t sufficient. We have to encourage private investment in agriculture.”

The so-called Green Revolution that started in the 1950s and spread in the 1960s introduced more productive wheat, corn and rice varieties. That raised cereal yields and food production, saving an estimated 1 billion people from famine and jump-starting Asian economies, according to the FAO.

“We want to launch a new system of market information for agriculture, as it was done about 10 years ago for oil,” Sarkozy said. “This new system should allow us to increase international cooperation on the subject of food security.”

‘Damaging Decisions’

The FAO could host the database and there needs to be an international forum to discuss responses to crises, which “will help avoid unilateral and damaging decisions,” Sarkozy said.

Russia, once the world’s second-biggest wheat exporter, banned grain exports last year after its worst drought in a half century and Ukraine imposed quotas on overseas sales.

Financial regulation to improve the working of the futures markets must be extended to agricultural commodities, according to the president.

“What we have done for the oil futures markets, is there one reason, one argument, to refuse to do it for the agricultural commodity futures markets?” Sarkozy asked at the conference.

In Chicago, trading volumes are equal to 46 times annual U.S. wheat production and 24 times the country’s corn harvest, according to the French president.

“And people tell me there is no speculation,” Sarkozy said. “On the commodity markets in Chicago, 85 percent of buy positions are held by purely financial players, whose business has no link with the traded goods.”

“Our world has lost the notion of value, the notion of reality,” Sarkozy said. “This sort of capitalism has nothing to do with our values. The capitalism we want is a capitalism of production, not a purely financial capitalism.”

--Editors: Claudia Carpenter, John Deane

To contact the reporters on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net;

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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