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G20 Summit ends without strong commodity market reform

G20_Obama_Sarkozy
President Barack Obama and French President Nicolas Sarkozy
share the stage at the G20 Summit in Cannes.
(© Presidency of the French Republic - P. Segrette / C. Alix)


By JERRY HAGSTROM

CANNES, France — Leaders of the G20 countries ended their meeting in this Mediterranean resort city today by endorsing an end to tariffs and restrictions on food purchased for humanitarian purposes and backing a food reserve pilot project in West Africa.

But the group did not take the strong measures to reduce commodity speculation that would have followed the type of rhetoric French Presidency Nicolas Sarkozy used in discussing the issue of excessive speculation earlier this year.

The statements that the leaders of the G20 — the 20 largest world economies — made on agriculture were a minor aspect of their final communiqué, which focused on global economic problems, particularly the eurozone crisis caused by financial instability in Greece.

At a final news conference, President Barack Obama emphasized that he has confidence that European leaders are sending “a clear signal that the European project is alive and well.” But Obama also noted that the G20 had taken “unprecedented steps” in other areas by opposing fossil fuel subsidies, promising to strengthen the response to the food security crisis in the Horn of Africa and discussing how to find “new resources for development.”

Nicolas Sarkozt
Nicolas Sarkozy
(© Presidency of the French Republic - P. Segrette / C. Alix)

Sarkozy, in his press conference, noted that the communiqué did take strong positions on financial regulation, including the naming of countries that are considered “tax havens” because they help corporations avoid taxation in their home countries, and that it also endorsed methods to improve transparency in energy and agricultural commodity markets that affect food production and availability.

The communiqué noted that the G20 had created the Agriculture Market Information System database run by the U.N. Food and Agriculture Organization to improve the quantity and quality of information available on agricultural markets.

It also endorsed an expansion of the JODI oil market database managed by the International Energy Forum by setting 2013 as the year G20 countries should comply with its reporting requirements, urging member countries also to report gas market information in 2012 and moving forward with a consideration of increasing transparency in the coal markets.

The communiqué also said that the International Organization of Securities Commissions will monitor the implementation of derivatives market reforms in the United States and the European Union to “oversee and prevent abuse and market manipulation.”

The communiqué also said that the G20 had endorsed “a common regulatory and supervisory framework for commodity derivatives markets,” including “tighter oversight (stricter reporting obligations) and greater powers for the market authorities. It advocates, in particular, the setting of an ex-ante position limits to limit the hold an investor can have over a market in order to more efficiently combat market manipulation.”

But those commitments to increasing transparency and regulation seemed a dull response compared to Sarkozy’s speech to the G20 agriculture ministers on June 23 in which he said:

”Volatility, let us be absolutely clear about this, is a scourge. Volatility is a scourge for small farmers and for consumers, as well as for the stability of states; volatility is a threat because it endangers agricultural productivity for years to come: What farmer can commit himself to major investment when he is at risk of losing a third of his income the following year? What businessman would risk investing in such an unstable market?”

A week earlier, on June 16, Sarkozy had told a world farmers’ forum in Paris, “In the commodity futures markets in Chicago today, 85 percent of short positions are held by purely financial actors, whose business bears no relation to the goods traded. That example proves how our world has lost sight of value and reality and of a sense of capitalism that should serve development and the prosperity of the population. That kind of capitalism does not reflect our values. To those who fear that France wants too many rules, I will say again that a market without rules is not a market, and that the capitalism we want is a productive capitalism, not a solely financial capitalism.”

Some activists had hoped that Sarkozy would convince the G20 to intervene more strongly in the commodity markets, perhaps by encouraging a ban on index funds and other institutional investors in those markets, but G20 member country finance ministers opposed him.

Sarkozy won an endorsement for a pilot project for an emergency humanitarian food reserves system in West Africa.

Free market economists don’t approve of physical food reserves on the grounds that they interfere with markets, and Agriculture Secretary Tom Vilsack agreed reluctantly to consider the pilot project when the G20 agriculture ministers met in June. But some development experts believe that physical reserves in areas where there are frequent food crises can be used for a quicker and more effective response.

The pilot project that won G20 backing is a one led by the Economic Community of West African States (ECOWAS).

Constructed on a small scale and based on a regional approach, the system will be made up of a physical reserve (67,000 tons of rice, corn, sorghum and millet for 30 days’ consumption by the most vulnerable populations of the 11 least developed countries with a food deficit in ECOWAS), according to a G20 news release. It will also feature a “virtual reserve” equivalent to 60 days consumption, based on various financial instruments, which Vilsack has said he believes will be effective with use of modern communications and transportation.

A steering committee will coordinate all the international and regional organizations, states and donors that are stakeholders and a board will bring together representatives of producers and civil society, the communiqué said.

Josette Sheeran, UN World Food Program
Josette Sheeran
U.N. World Food Program

Josette Sheeran, the executive director of the U.N. World Food Program, praised the G20 for all their actions on agriculture and food, but said she particularly welcomed the decision to remove food export restrictions or extraordinary taxes for food purchased for humanitarian purposes by WFP.

“WFP moves the vast majority of multilateral food assistance and now we will have secure access to food from G20 nations that provide the biggest share of global food exports, enabling us to reach the needy rapidly and efficiently,” Sheeran said.



Bill Gates
Bill Gates at the G20 Summit in Cannes. © Presidency of the French Republic - P. Segrette / C. Alix
Microsoft founder and philanthropist Bill Gates presented a report on development finance to the G20 leaders on Thursday, but in their final communiqué the leaders did not sound particularly enthusiastic about the message they had gotten from Gates.

“We discussed a set of options for innovative financing highlighted by Mr. Bill Gates,” the communiqué said. “Some of us have implemented or are prepared to explore some of these options. We acknowledge the initiatives in some of our countries to tax the financial sector for various purposes, including a financial transaction tax, inter alia to support development.”

Gates said in a news release today that “It was a great privilege to have been asked by G20 Chair President Nicolas Sarkozy to address the G20 on financing for development, and to be able to hear, in person, world leaders’ strong commitment to to ensuring that the needs of the poorest are not neglected.”

Gates added that he believed many of his ideas were adopted, “including the need for developed countries to meet their aid commitments and explore innovative financing options, and the need to promote triangular partnerships that draw on the expertise and experience of big emerging economies in key areas like health and agriculture.”

Neil Watkins, ActionAid USA
Neil Watkins, ActionAid USA
Initial non-governmental organization reaction to the communiqué was mixed, probably reflecting an understanding that G20 members faced a near crisis with the euro as well as long-term issues.

“The G20 summit outcomes show progress on tax and banking secrecy but fall far short of what is needed to resolve the world’s food crisis,” said Neil Watkins, director of policy and campaigns at ActionAid USA.

The communiqué said Mexico will assume the presidency of the G20 on Dec. 1 and that the G20 will meet in Los Cabos, Baja California, in June 2012.

Russia will chair the G20 in 2013, Australia in 2014, Turkey in 2015, and after that the presidency will rotate among regional groups, starting with the Asian group of China, Indonesia, Japan and Korea, the communiqué concluded.