Become Filthy Steenkin' Rich...in the Falklands

To say British tabloids have output of variable quality is an understatement--witness Rupert Murdoch's fine mess--but the Daily Mail recently ran an interesting feature on the British Falklands. Ever since the 1982 Falklands War between the UK and Argentina put this remaining piece of Empire in the world's consciousness, I've kept tabs on developments there.

Aside from its jingoistic/quasi-strategic value, the Falklands are not quite as barren as certain pop entertainers make it out to be. Indeed, as the article notes, the Falklands are doing quite well, thank you--arguably better than Britain itself. While oil finds may see the Baa-rain [get it?] name become apropos, granting fishing rights has proven to be a money spinner for the Falklands for years and years. Hence--pardon their other pun, not mine--the squidionaires. With farming becoming pretty lucrative in recent years on top of everything, well, it's not such a bad way of living down South:

The once-barren rock, defended at the cost of 255 lives during the 1982 war, is undergoing an economic revolution. In the past, the name ‘Falklands’ summed up images of a windswept archipelago covered in thousands of sheep and penguins, and populated by a rugged rural people rather cruelly dubbed ‘Bennys’ by British soldiers after the simple soul in Crossroads.

But in the nearly 30 years since the war, the place has undergone an astonishing transformation. The population now enjoys a higher average income than the UK, the education and health system is second to none and a booming fishing trade has created at least seven ‘squidionaires’.

In recent days the Falklands, 8,000 miles from London but just 300 from Argentina, have again been in the headlines. Argentine President Cristina Kirchner accused Britain of being ‘a crude colonial power in decline’ as she called for ‘Las Islas Malvinas’ to be returned to Argentine rule. But her sabre-waving is more than just nationalistic pride. For today’s Falkland Islands are a prize indeed.

The prospect of potentially 60 billion barrels of oil less than 150 miles offshore has led to an influx of hundreds of oil workers who have dubbed the remote sheep-filled islands ‘Baa-rain’ after the oil-rich Arab state.

The turning point, as one would suspect, is the post-Falklands War era. "How do you make it safe from the Argentines?" was probably a goal for British leaders seeking to consolidate their dominion over these islands. As you'd suspect, making the place not only economically sustainable to populate but even bountiful in certain respects does help:

The islands’ economy was transformed after the war. Before 1982, the annual GDP was just £3.9 million. The economy was based on the production of wool – there are 250 sheep for every resident – but plummeting prices in the Eighties caused mass emigration. Farms were owned by absentee landlords. There was no international airport, few proper roads and nightlife was non-existent.

After the war, the British Government backed a 200-mile exclusive fishing zone around the Falklands (which locals had been demanding for years) that enabled the islanders to start selling lucrative squid and fishing rights to Japan, Spain, Russia and Korea.

Today, the islands have an annual GDP of £90 million. There is no national debt and the Falklands government has £103 million in savings which generate a further £5.1 million in interest each year. Booming fishing and tourism industries earn £42 million and £7.6 million a year respectively and high wool and meat prices means agriculture brings in a further £6.4 million a year.

You have to give credit where credit is due. They even have a tourist authority that brings the punters in. One of the top draws, evidently, are wartime tours. Generally, the Falklands present an interesting cultural counterpoint to the rest of South America for travellers in that part of the world. As the Brits would say, it's bloody impressive for a bunch of islands with less than 5000 persons for a population.

Countering Rising Food Prices at the G-20 (Sort Of)

In case you missed it, the G-20 recently held a meeting of agricultural ministers in gay (as in happy) Paris. Given the wide range of global governance problems, focusing on things other than finance is welcome even if they ultimately return to matters of Mammon. France being the current head of the G-20 as well as the EU's largest agricultural producer and the world's second largest exporter of such products--its interest in the matter is evident. That said, we too came to an impasse over two important agricultural matters at the aforementioned meeting.

First, government subsidies for the production of biofuels remains a hot topic. Some blame diversion of food crops to biofuels as one reason for soaring food prices. Certainly, I would distinguish among the cost-effectiveness of such solutions. The US programme is a massive financial boondoggle, whereas that of Brazil has established its economic rationale for quite some time. At any rate, the UN Food and Agricultural Organization (FAO) believes that curtailing such subsidies should alleviate price rises hurting some of the countries hardest hit by rising food prices. A recent NY Times op-ed has this to say on the matter:

The price of agricultural commodities has surged by more than a third over the past year — cereal prices by 70 percent — surpassing even the levels that sparked widespread food riots in 2008. According to the World Bank, the rise in prices pushed 44 million more people into hunger in the second half of 2010.

It is disappointing that the agriculture ministers from the 20 large industrial economies who gathered last week in Paris failed to end two policies that are a big part of the problem: bans on agricultural exports by certain producers and government supports for food-based biofuel production.

A report for the Group of 20 meeting by the United Nations’ Food and Agriculture Organization, the World Bank and others noted that eliminating or curtailing these policies would help mitigate the spikes in prices that have deepened hunger in the poorest countries in the world.

The United States, Brazil and several other biofuel makers opposed an agreement to cut support for biofuels. This country is the world’s biggest ethanol producer. The 13.5 billion gallons made here last year used about 40 percent of the nation’s corn crop. Government supports include a nearly $6 billion annual subsidy for ethanol makers.

The ministers agreed only to further study the relation between biofuel production and food prices. That is just an excuse for continuing to protect these industries. The cost should be clear to all by this point. The report to the Group of 20 noted that biofuels consumed 20 percent of the global sugar cane crop between 2007 and 2009, when food prices soared, as well as 4 percent of the beet crop and 9 percent of the world’s production of coarse grains like corn.

There's also the matter of major agricultural producers refusing to export their products, also exacerbating high prices worldwide:

The ministers also failed to forbid the use of export barriers to hold down food prices at home. Argentina [see my earlier post on its soy export limits], Russia and more than two dozen others have adopted bans since prices began to surge, sending global prices even higher and discouraging investment in food producing regions. The ministers did agree that countries could not restrict sales to the World Food Program so it can continue to address crises. It is not enough.

That said, the speculation-wary Sarkozy has shown his influence in putting in place mechanisms for determining if rising prices are due less to supply and demand dynamics but trader profiteering, howsoever defined:

The agricultural summit meeting, the first of its kind, did make some progress. The participants agreed to set up a system to monitor world food stocks and production to prevent misinformation that can contribute to price fluctuations. They also agreed on a pilot program for an emergency food reserve system to respond to shortages in vulnerable countries.

The Guardian also has a summary of other areas discussed if you are further interested in this important topic.

Exchange Rate Regimes and Soaring Food Prices

While some would argue that America's unrepentant salvo of free money is a significant driving force behind food inflation worldwide (yours truly included), the Food and Agriculture Organization (FAO) has a more nuanced explanation. Even providing that the currency in which most foodstuffs are denominated in is on a long-term downward trend, today's market gyrations notwithstanding, the particular foreign exchange regime a country adopts as well as its status as a net food exporter/importer helps determine how well it copes with global price rises. To de facto peg or not to peg, and to the dollar or the euro? Hamlet never had it so easy compared to the decisions LDCs are faced with in this day and age. The following is taken from the FAO's Initiative on Soaring Food Prices - Guide for Policy and Programmatic Actions at Country Level to Address High Food Prices:

Meanwhile, here are some key talking points from the report:

There is emerging consensus that the global food system is becoming more vulnerable and susceptible to episodes of extreme price volatility. As markets are increasingly integrated in the world economy shocks in the international arena can now transpire and propagate to domestic markets much quicker than before.

Increased vulnerability is being triggered by an apparent increase in extreme weather events and a dependence on new exporting zones, where harvest outcomes are prone to weather vagaries; a greater reliance on international trade to meet food needs at the expense of stock holding; a growing demand for food commodities from other sectors, especially energy; and a faster transmission of macroeconomic factors onto commodity markets, including exchange rate volatility and monetary policy shifts, such as changing interest rate regimes.

What is more, financial firms are progressively investing in commodity derivatives as a portfolio hedge since returns in the commodity sector seem uncorrelated with returns to other assets. While this ‘financialisation of commodities’ is generally not viewed as the source of price turbulence, evidence suggests that trading in futures markets may have amplified volatility in the short term.

So aside from the helicopter dropping of dollars, we also have to contend with more extreme weather conditions (implicating global warming), the globalization of agricultural markets, commodity speculation, and the diversion of foodstuffs to biofuels. It certainly doesn't look like a promising scenario as far as food prices are concerned, making it imperative to study the link between FX regime and food prices.

GOP & Dems Agree: Whack Agricultural Subsidies

I will soon have more on the shameful budgetary shenanigans being waged Stateside, but something international trade followers can probably cheer is this: both parties' much-ballyhooed fiscal plans involve major rollbacks to American agricultural subsidies. As you would expect, states with large agricultural interests are looking warily on. Indeed, the Republicans are split given that the plan forwarded by Paul Ryan (R-Wisc) is calling for bigger cuts than those just outlined by the so far impotent Fiscal Commission. From the Fergus Falls Journal [!]:

The Republican head of the House Budget Committee, Rep. Paul Ryan, R-Wis., may find opposition from his own party regarding the cutback of agriculture subsidies by $30 billion over the next 10 years. He’s also meeting opposition from fellow House members such as Seventh District U.S. Rep. Collin Peterson, a DFLer [Democratic-Farmer-Labor Party] from Detroit Lakes.

Rep. Frank Lucas, R-Okla., chairman of the House Agriculture Committee, said, “Members of the House Agriculture Committee and I will write the next farm bill.”

Peterson said Monday that President Barack Obama’s deficit commission called for $10 billion in savings from farm programs over 10 years. “That’s something people can live with,” said Peterson. “However, there’s no justification for a $30 billion cut. Overall, we’re talking about a 25 percent cut for ag, and we’re not seeing 25 percent cuts to other parts of the budget bill.”

Ryan has proposed cutting $30 billion over 10 years by spending less on a crop subsidy program called direct payments and giving smaller subsidies to crop insurance. Direct payments were already expected to be a major target in the 2012 farm bill. That farm bill will cover the years from 2013 to 2018.

Reining in agricultural interests will be a challenge insofar as the House Agricultural Committee obviously authors the Farm Bill. Whatever budget is ultimately passed, keeping the lawmakers who decide on subsidies in line is obviously required.

Japan Says Don't Overreact to 'Nuked' Foodstuffs

With alarming news reports coming out of Japan on a nearly daily basis about how various foodstuffs are exhibiting raised radioactivity levels--whether the bulk of them are true or not I cannot ascertain for obvious reasons--its trading partners are becoming understandably wary of importing Japanese food products. In fact, a number of them have already begun slapping bans on imports from Japan. A few days ago, there were indications that Japan would voice its concerns at the WTO over this sort of overreaction:

Japan will ask World Trade Organisation (WTO) members not to 'overreact' to the crisis surrounding the stricken nuclear plant in Fukushima Prefecture, which has prompted import restrictions on some Japanese food products over fears of radioactive contamination, trade and diplomatic sources said.

The Japanese government delegates will make the request at an informal meeting of the WTO's Trade Negotiation Committee which convenes Tuesday, the first since the March 11 catastrophic earthquake and ensuing tsunami crippled the Fukushima Daiichi nuclear plant in northeastern Japan.

Concerns over safety of Japanese farm and dairy products are spreading globally as radioactivity levels higher than the legal limit set by the Japanese government under the food sanitation law were detected in several kinds of vegetables and milk produced in Fukushima and its vicinity in the aftermath of the nuclear accident.

Countries including Australia, Singapore, Hong Kong, the Philippines, Canada and Russia have placed restrictions on the imports of Japanese food products after the United States slapped an import ban on such dairy products and vegetables produced on farms contaminated by the crippled nuclear power complex, while some others said they would step up inspection of such products.

Japan is expected to ask the member countries and regions to abide by the WTO agreement which bans trade restriction not based on scientific grounds, telling them that Japan is taking strict measures such as shipment bans on agricultural and dairy products with radioactive levels above the limits so as to meet international requirements, the sources said.

Yoichi Otabe, ambassador extraordinary and plenipotentiary to the Permanent Delegation of Japan to International Organisations in Geneva, will explain to the meeting the stance of the Japanese government in order to prevent Japanese agriculture from being hit by harmful rumors, the sources added.

The report in fact previewed matters correctly since, just today, Japanese officials in Geneva raised this very issue at a gathering concerning Sanitary and Phytosanitary (SPS) matters. That's 'food safety' to non-trade junkies:

Japanese officials asked the country’s trading partners on Wednesday not to overreact on its food exports in response to the radiation leak at the Fukushima Daiichi nuclear power plant. A WTO official told journalists that Japan had briefed other countries on the state of food safety following the leak during a meeting of the WTO’s Sanitary and Phytosanitary Measures (SPS) Committee. Japan “urged WTO members not to overreact by implementing ‘unjustifiable’ import restriction,” the WTO official explained. He spoke on condition of anonymity.

Japanese officials said their government has already restricted the distribution of agricultural products which might be contaminated by the leak. “Japan said it has provisional regulations under its Food Sanitation Act for preventing food exceeding residual radioactive contamination levels from being supplied for public consumption. The provisional levels are based on the Japanese government's Nuclear Safety Commission's index, in line with recommendations of the International Commission on Radiological Protection (ICRP),” the WTO official continued.

The Japanese officials told the WTO meeting that their government is carefully monitoring radioactive contamination of food products. They explained that the government is trying to keep trading partners abreast of latest developments through the WTO, Food and Agriculture Organization and World Health Organization.

Japan's highly protected agricultural industry relies on export markets as an outlet for certain types of food products, and they're certainly not those it would like to lose at this point in time. All the same, these products only make up 1% of its total exports. Yet the concerted lobbying at the WTO and elsewhere abroad indicates this is no small matter for them.

UK Cabinet Member: EU Agri Subsidies 'Immoral'

Well, no @#$%. While I agree with the sentiment that spending vast amounts of EU funds on handouts to rich-world farmers--and benefits tend to go to large producers, mind you--is immoral, you do have to consider the context of who's saying so. Among other things:

• The Conservatives to which Environment Secretary Caroline Spelman belongs to are pretty hardcore Euroskeptic--many of them actually like the "Thatcher's children" jibe;
• Since the time of, well, Thatcher, the UK has been keen on receiving a "rebate" from the EU on what it considers as frivolous spending like the aforementioned agricultural subsidies;
• Given that UK farmers aren't major recipients on the EU dole, nobody there would really be offended if the Common Agricultural Policy (CAP) is cast as a waste of money.

Activists have made abolishing or drastically watering down the CAP a cause celebre, especially during advocacy for African farmers. Still, the political will for doing so in the European Union probably lags well behind such noble sentiments. Regardless, can you see the French moving to scrap CAP? While its percentage of the EU budget has shrunken from peaks well above two-thirds of the total, it's still a money drain. More pertinently, it places LDC farmers in competition with rich countries' subsidized agricultural products in contravention of conventional notions of trade fairness. So on to today's story:

European Union farm policy is “morally wrong” because it undercuts agriculture in developing countries with import tariffs and export subsidies, said Caroline Spelman, the U.K. environment secretary. The Common Agricultural Policy “continues to distort trade by maintaining high EU prices,” Spelman said in an e-mailed speech to be delivered today at the Oxford Farming Conference. “This gives rise to high import tariffs and the use of export subsidies to clear market surpluses.”

The EU should cut direct payments to farmers, and rising world food prices make it possible to plan for the end of such subsidies, Spelman said. Farmers should instead be paid for taking steps to protect the environment, she said. The CAP is the biggest single spending area for the EU, which budgeted 56.7 billion euros ($75.4 billion) for agriculture and rural development in 2009, according to data from the bloc. The current rules end in 2013, and EU ministers are set to discuss changes to the regulations this year.

The U.K. plans to work with other Group of 20 countries to end export bans on agricultural commodities, such as Russia’s halt to grain exports last year after drought reduced its cereal crop. France will head the G20 this year. “As global demand for food rises and as international food markets open up, the risk increases of wrong-headed protectionism,” said Spelman, one of the officials who make up the U.K. government cabinet. “I would like to work with France to seek an end to export bans, one of the most restrictive practices found in the world market.”

Aside from throwing red meat to the Euroskeptic Tory base, I don't see real EU-wide policy implications here. Yes, these supports have probably become immoral. But, the compromise of agricultural subsidies is--in historical terms--more important to the very existence of European Union than any bailout fund.

Let's Talk About Global Food Governance

Conflicts over resources are the stuff of history. In the previous century, petroleum was considered The Prize in the words of a Pulitzer Prize winning book by Daniel Yergin. In this day and age, new resource issues have emerged that attract interest from international relations / international political economy scholars in search of new areas of investigation over who gets what where and when. One is the struggle for water resources, especially in arid regions where growing nations compete for this increasingly scarce commodity. Another is that for food which tends to cut across the globe's (poorer) regions.

Like my particular area of research, migration, food security is an issue area whose global governance is overlapping yet tenuous. Alike for migration, food is a domain covered by a multiplicity of regional and international organizations that do not necessarily operate in a coordinated fashion. In plain English, there's a whole bunch of people who don't seem to bother checking how their efforts fit together with those of others. Heck, the United Nations contains a number of bodies alike the Food and Agriculture Organization (FAO), World Food Programme (WFP), and the International Fund for Agricultural Development (IFAD) that not only fail to work together but also engage in turf wars over matters such as obtaining UN funding.

Overall, global food governance is something of a mess. Given increasing incidences of hunger that occurred in the wake of the global financial crisis, these concerns are not trivial ones. Yet, the existing infrastructure of international organizations has not acquitted itself well in recent times. While browsing Nature, I came across this interesting piece by Joachim von Braun who suggests what we can do to improve matters. The prescribed solutions deal more with organizational matters than with food production per se. What follows in his conclusion, though the rest of the article is well worth reading. In particular, he highlights the role that can be played by reform in making the Committee on World Food Security (CFS) act as the "quarterback." Adding to the complexity, however, the CFS itself is under the FAO. It is, in a word, complicated:

The establishment of global governance is a complex and sensitive political matter, so it is pragmatic to build on existing elements. The CFS was established in 1974 as a result of the food crisis of the 1970s. Long criticized as a talking shop, it has the potential to be much more. It is an ideal candidate for the overarching strategic body that is needed to synchronize action in the world food system.

The 2009 reform plan for the CFS aims to give the committee strong coordination roles at the global level. It pictures a group with wider membership, including representatives of all UN member governments, the UN organizations, international finance organizations, industry, foundations and non-governmental organizations. The committee would have a flat, non-bureaucratic structure and access to sound expert advice, enabling it to take quick, informed action.

Nothing currently stands in the way of government-to-government networks in food, nutrition and agriculture. They are simply not being created. A reformed CFS could identify people with an interest in such networking, connect them and give them access to science and policy expertise, and provide a forum in which they can meet.

The CFS reform plan, however, is not sufficient. The body remains under the control of UN organizations rather than being independent of them, and depends for funding on the very organizations it is supposed guide. It must be independent to provide sound global governance covering all aspects of food, agriculture and nutrition.

A system is only as strong as its weakest parts. Even with a robust and independent CFS, existing global bodies would need to respond to the criticisms of their independent reviews much more quickly than they are doing.

Governments must grant the CFS the authority it needs for these roles. A good place to start would be an agreement between the leaders of the G20 to establish the CFS as an independent intergovernmental body, endowed with the resources to operate effectively. There is already strong political momentum for this issue. The G8 and G20 discussed food security extensively at their 2008 and 2009 meetings, for example, and the World Economic Forum meeting in Davos, Switzerland, this January had a greater focus on food issues than ever.

The G20 meeting on 26 and 27 June in Canada has food on its agenda, and the G20 chaired by South Korea later in the year could close the deal. Such a change in global food governance is sorely needed to help avert another food crisis.

Certainly, there is better time to get going as the present.