An apparent rift with the UN Food and Agriculture Organization signals a shaky start to French ambitions for the G20 countries to tackle world food insecurity.
Dr Jacques Diouf, Director-General of the FAO, has been forced to refute suggestions that his response to the Russian grain crisis in July 2010 was lethargic.
Reporting last Monday’s Elysee Palace press conference, in which President Sarkozy outlined how France would approach its turn as chair of the G20, Paris newspaper Le Monde featured remarks aside from the main speech.
“When Russia blocked its exports, it took FAO fifteen days to organize a meeting,” said an unnamed aide to the French president. Greater urgency might have prevented the spike in food prices that followed, was the implication.
On the day after publication of the article, the FAO head was interviewed by the Financial Times at the World Economic Forum in Davos. Without referring to Le Monde, Diouf took pains to point out: “we tried to calm the market when it started rising in July – successfully, because prices leveled and went down.”
Then on Thursday Diouf released a 7-point “clarification” setting out the actions taken by his office in the months following the export ban. The statement also hinted at a lack of shared understanding of the president’s proposal of an “expanded role” for the FAO in maintaining a public database of world food stocks.
Mr Sarkozy has a reputation for announcing initiatives without first consulting all parties involved.
A squabble over the interpretation of events may resurrect awkward questions about the role played by major corporate interests in world food markets during the crucial days of August 2010.
Swiss-based Glencore, the world’s largest commodities trader, held a clutch of contracts to deliver Russian wheat at the low price prevailing during the first half of the year. As the heat wave progressively destroyed the crop, its losses mounted.
In early August, Bloomberg reported that a Glencore executive was making strong representations to the Russian government to ban exports of grain.
Two days later, prime minister Vladimir Putin announced the decision.
The export ban effective from August 15th bailed out Glencore. It enabled the company to invoke a legal device known as force majeure, cancelling its contractual obligations.
Furthermore, the immediate price spiral triggered windfall gains for other grain traders, especially those with access to surplus stocks in the US.
The US family-controlled agribusiness giant, Cargill, promptly acquired major orders at inflated prices from countries such as Egypt which normally rely on Russian supplies.
Earlier this month Cargill announced that its profits for just three months in the latter part of 2010 had trebled to $1.49 billion. And last week Glencore was able to declare plans for a $50bn-$60 billion public flotation of its shares, following a surge in the company’s value.
As these gargantuan gains for the merchants of food emerge, so too does news that low income families from Algiers to Calcutta are struggling to cope with rising prices. As Jacques Diouf himself warned at Davos: “if the next crop is not up to the level that we anticipated, we will certainly have a very serious situation.”
The events of 2010 should therefore serve to remind Mr Sarkozy that the powers of Dr Diouf and the FAO to govern agricultural commodity markets are very limited.
Despite their testy exchange, the two men were in close agreement last week that regulations are required to curb the exploitation of the world food market as a casino.
“If we don’t do anything (to regulate the markets) we run the risk of food riots in the poorest countries and a very unfavorable effect on global economic growth,” warned the French president, according to Reuters who covered the Elysee event.
Jacques Diouf went further at Davos in calling for a return to the pre-1999 regulatory environment. He claimed that this limited the agriculture commodities market to the purpose of hedging physical trades, as opposed to price speculation.
Starting his 18th and final year as FAO head, the Senegalese Diouf said that he would be “very happy to see agriculture being put on centre stage in international priorities.”
Both Cargill and Glencore maintained a low profile during the Davos debates. Questioned about soaring food prices in a video interview with the Financial Times, Cargill boss, Greg Page, was non-committal.
“I think weather will always determine if (prices) are peaking,” he said.
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this article was first published in the OneWorld section of Yahoo World News