France Focuses on Food at G20 summit

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France Focuses on Food

President Puts Issue of Rising Prices at Top of G-20 Agenda

LONDON—Long known as a country obsessed with culinary perfection, France is making food a top priority as President Nicolas Sarkozy takes the helm of the Group of 20 meeting this week.

Key to the agenda in France, Western Europe's largest grains producer, is addressing rising world food prices by improving transparency in commodities markets. Proposals include limiting the size of positions dealers can take, regulating off-exchange trading and publishing data on the type of investors in the market.

Ministers of the G-20 industrialized and developing nations are also considering ways to make agricultural markets more transparent, including publishing more information on international supplies and improving forecasting mechanisms.

Agricultural powers such as the U.S., Canada and Brazil have signaled their opposition to greater regulation, while financial hubs like the U.K. fear losing lucrative trading.

"Regulation of commodities is not the answer," said Argentine Economy Minister Amado Boudou after discussions with Brazilian Finance Minister Guido Mantega. "The solution lies in increasing production."

But it argues that current food prices are largely being driven by supply and demand, particularly pointing to the surging demand from emerging markets coupled with supply shocks that include flood and drought.

Even some French officials have started to tone down their push for more regulation. Finance Minister Christine Lagarde said in a recent interview that France would now focus more on transparency. "We will solve a number of things through access to information," she said.

The price of wheat, for instance, has doubled since July.

Inflation poses a headache for policymakers globally, but far more in developing countries, where households spend up to 75% of their budget on food, compared with around 10% to 12% in Europe and the U.S.

Food-price inflation has been partly blamed for sparking protests in North Africa that toppled long-standing presidents in Tunisia and Egypt. To prevent a repeat of the widespread unrest of the 2007-08 food crisis, governments in some importing countries have begun building up grain stocks while others have boosted food subsidies.

European Union data show that between 2003 and 2008 institutional investors increased their investment in commodities markets to between $250 and $300 billion from $15 billion. But opinions remain divided over the influence that financial investors wield over prices.

"Speculators are always an easy target, but speculators didn't cause food prices to rally in the second half of 2010," he said. "The more you have different types of players trying to use the derivatives markets, the more they reflect the true price of the commodity."

Strong demand growth and a lack of transparency in emerging markets have also contributed to price volatility, said David Lehman, managing director of commodity research and product development at futures market operator CME Group.

"Even if we don't have a complete overview, because of the severe impact this can have on people's lives, a precautionary approach should be taken," said Oxfam agriculture and trade expert Marita Wiggerthale. Read more at professional.wsj.com

 

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