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FOOD

G20 nations discuss need for summit to address impact of rising grain prices

Pressure for US to reduce corn ethanol output in face of severe drought that has driven up grain prices - but talk of a G20 food summit meets with scepticism

PUBLISHED : Wednesday, 15 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 4:47am

Leading members of the Group of 20 nations are prepared to trigger an emergency meeting to address soaring grain prices caused by the worst US drought in more than half a century and poor crops from the Black Sea bread basket.

France, the United States and G20 president Mexico will hold a conference call at the end of this month to consider whether an emergency global meeting is required. The aim would be to avoid a repetition of the food price spike that triggered riots in poorer countries in 2008.

Yet even as the third grain price surge in four years stirs new fears about food supply and inflation, many say the world's powers are no better prepared to rein in runaway prices. Apart from a global grain database, which is yet to be launched, and the Rapid Response Forum authorities are considering convening for the first time, the G20 has few tools.

Instead, it must intervene through influence, perhaps urging the US to ease its ethanol policy in response to the crisis - difficult only months before a presidential election that may be won or lost in Midwestern farm states - or urging Russia not to impose an export ban, as it did two years ago.

The United Nation's food agency stepped up pressure on the US on Friday to change its biofuel policies, arguing it was more important to grow crops for food rather than fuel.

"Beyond words, expect little from the G20 on rising food prices," said Simon Evenett, a former World Bank official who is now professor of international trade and economic development at the University of St Gallen, Switzerland. He described the G20's record on trade as "feeble".

"With a string of broken promises on protectionism, no serious enforcement, monitoring well after the horse has bolted, and a tendency to pull their punches, any G20 promises on food trade won't be taken seriously - by the G20 themselves or by anyone else."

The group is hindered by the widely differing views of its diverse members, split between big consumers and producers.

A senior Brazilian official said that only a major food crisis would raise pressure on the G20 to call for intervention in physical commodity markets, something countries such as the US and Canada typically oppose.

"If we do have a meeting, I don't think we can have anything more than a recommendation coming out of it," said the official. "The forum has no powers to impose certain policies or decisions on its members."

The price of corn on the Chicago exchange, a global benchmark, rose to an all-time high on Friday after the US Department of Agriculture cut its production estimate by 17 per cent.

The US uses 40 per cent of its corn crop to produce ethanol, drawing criticism for using food for fuel when hunger is widespread in some poorer countries.

"They [G20] might talk about the US ethanol mandate requirements, but I don't see them making any massive responses at the moment. They don't have a lot of tools at their disposal," said analyst Muktadir Ur Rahman of Capital Economics.

The UN Food and Agriculture Organisation's (FAO) food index rose 6 per cent last month to higher than in 2008 and the FAO warned against the kind of export bans, tariffs and buying binges that worsened the surge four years ago.

The European Commission has also faced extensive criticism of its biofuel policy for using land otherwise devoted to food crops.

A French agriculture ministry official said countries on the conference call would decide whether to convene the first meeting of the Rapid Response Forum. The body was created last year to promote early discussion among decision-makers about abnormal market conditions, with the aim of avoiding unilateral action.

"If the situation requires it, a meeting of the Rapid Response Forum could be called as soon as the start of September," the official said, adding that the forum could be held in person or by a conference call.

Charity Oxfam is among the groups campaigning for ministers to agree on beginning to abolish mandates and targets for biofuel production in the EU and in the US.

Hannah Stoddart, head of economic justice at Oxfam Great Britain, said a report by 11 intergovernmental agencies to the G20 last year showed there was a link between biofuels production and food price inflation, and the report made various corrective recommendations.

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