Over the last month wheat prices have experienced considerable volatility after drought prompted Russia to implement a temporarily ban on exports. This came on the back of three years of considerable up and down movement in food commodity prices generally.
However, in an interview published on the FAO website, Hafez Ghanem, assistant director-general for economic and social development at the UN organization said the current market situation is very different from those that sparked the price spikes of 2007/2008.
“The market fundamentals are sound and very different from 2007-2008,” said Ghanem. “Despite the shortfall in Russia’s wheat production, this year’s cereal harvest was the third highest on record and stocks are high. Under these conditions we don’t believe that we are headed for a new food crisis, but we will continue monitoring the situation closely.”
Even if the elements for a crisis appear not to be in place, the FAO official said the years ahead are likely to be characterised by continued turbulence. Ghanem picked out three key reasons for increased volatility in the medium run:
- The growing importance as a cereal producer of the Black Sea region, where yields fluctuate greatly from one season to the next
- The expected increase of extreme weather events linked to climate change
- The growing importance of non-commercial actors in commodities markets
Recently much debate has surrounded speculation in commodity markets, and the extent to which it can cause price volatility. Ghanem argued that speculation can magnify the impact of price shocks but cannot create them.
The official added that non-commercial actors play an important role in food commodity markets, bringing much-needed liquidity to the table.
He called on the international community, perhaps under the leadership of the G20, to start looking at ways of coping with higher market volatility. Potential strategies include tightening the regulatory framework in futures markets to limit the adverse effects of speculation and taking steps to improve market transparency.
Other priorities mentioned include establishing an appropriate level of emergency stocks and finding ways of assuring that international trade in food products is both fluid and efficient. For the long term, Ghanem said the key to food security lies in investing in the agricultural sector of developing nations to ensure that more food can be produced to feed the growing world population.