Tird, appropriate and timely information on
food production, stock levels, and price forecast- ing is sorely lacking. When information deficits lead to overreactions by policymakers, the result can be soaring prices.
ACTIONS AND PROPOSALS
In the wake of the two recent food price crises, some actions have been taken and many propos- als have been put forward to prevent such events from occurring again. Tese can be grouped by the objectives they try to achieve: (1) beter informa- tion and more research, (2) easier trade in agricul- tural commodities, (3) larger food reserves and beter-managed grain stocks, (4) more active use of financial instruments to influence agricultural commodity markets, and (5) stricter regulation of these markets. Scholars and policymakers are debating the merits, feasibility, and likely effective- ness of many aspects of these proposals. Better information and more research. Rec-
ognizing the need for beter information, the Group of 20 (G20) countries agreed in June 2011 to launch the Agricultural Market Information Sys- tem (AMIS). Te AMIS is designed to encourage major players in global agrifood markets to cooper- ate more and to share data and information. If it is properly linked to existing early warning systems at global and national levels, it could substantially improve countries’ ability to make sound decisions on food security and help reduce price volatility. To make the AMIS effective, countries and regions need to develop transparent and publicly accessible systems for monitoring food security and collect- ing data so that they can provide appropriate infor- mation on food production balances and reserves. In addition, the system will require the full partici- pation of private agrifood companies, which hold much of the world’s stocks of grain. So far, private companies are merely urged to participate in the AMIS on a voluntary basis, and without their par- ticipation the information will be incomplete and the system will have limited impact. Two other key proposals have been made to
improve information and coordination in ways that would increase market confidence and relieve
20 RIDING THE ROLLERCOASTER
temporary disruptions in supply. Te first, from Brian Wright and Alex Evans, is for an interna- tional food agency,11 following the example of the International Energy Agency. Tis food agency would report on stock levels and develop proto- cols for the global response to shortages to help prevent market panic. Two criticisms have been directed at this proposal. First, generating beter information on stocks will likely involve consider- able effort and international coordination—and therefore cost. Currently, information is lacking not only on the public stocks held by key pro- ducer countries such as China and India, but also on the stocks held by private enterprises, which consider them commercial secrets. Second, with this information asymmetry, it is not clear how the proposed agency would identify the threshold of stocks at which international collaboration would be required or how countries would agree on an emergency response. Te second proposal, from Carlos Martins-
Filho, Maximo Torero, and Feng Yao, consists of an early-warning mechanism for identifying abnor- mally high price volatility in the futures prices of staple food crops on a daily basis.12 Tis informa- tion could help reduce the potential asymmetry of information between buyers and sellers and thereby help dampen price volatility. Tere is one main caveat for this model: it currently operates only for commodities traded on the futures market, but it could be extended to spot markets if beter
price information existed. Easier trade in agricultural commodities. In
the 2007–08 and 2010–11 food price crises, many countries responded by cuting exports or boost- ing imports in ways that worsened price increases. Some proposals therefore aim to facilitate trade to reduce risks in grain trading when supplies are low and to avoid disruptions in global grain markets. One proposal is for a food import financing facility that would help poor countries afford food imports at times of high prices, as well as an international grain clearinghouse arrangement to ensure the availability of staple food imports.13 Tis clearing- house would guarantee contracts for grain deliver- ies, reducing the risk that exporters would renege on contracts when supplies are tight. In a different
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