A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
G20 de Séoul
point of view

The Seoul G20: What repercussions for agriculture?

momagri Editorial Board

Following the London and Pittsburgh summits marked by the urgency to find solutions to the financial crisis, the Toronto G20 in June 2010 signaled the start of thoughtful consideration on the need to reform international financial governance. Heads of State and of governments then focused on issues related to the debt and the return to economic growth. The Seoul G20 held on November 11 and 12 represented a direct continuation of the Toronto meeting. It aimed to reduce imbalances of all kinds and encourage durable and balanced economic recovery in an international environment marked by a debt crisis and a "currency war". While agriculture was not directly addressed, it is nevertheless a correlated issue. This indeed confirms the relevance of Nicolas Sarkozy's proposals to focus the next G20 Summit in France on the issues of commodities, particularly agricultural commodities.

The five priority projects emphasized at the Seoul G20 Summit.

1 – Encouraging durable and balanced growth. The subprime mortgage crisis had a deep impact on global economic growth and was followed by a debt and trust crisis that touched almost all nations of the world. The priority currently announced is to fight "macroeconomic imbalances", such as unemployment or hunger worldwide, by easing existing tensions between exporting emerging nations and their heavily indebted customers. In order to achieve "balanced growth", the G20 nations decided to set up, jointly with the IMF, problem-solving directives to uncover the major discrepancies in current accounts and to curb market risks that contribute to increased price volatility and to the vulnerability of poorer countries.

2 – Fighting against the currency "war". To stimulate their sagging economic growth, many countries voluntarily kept their currencies undervalued––like China and the United States in particular––thus generating strong tensions on international markets. Without actually defining concrete methods, the G20 made the resolution to evolve toward currency exchanges that are closer to market reality, to prevent any competitive devaluation and to control speculative funds.

3 – Improving financial regulation. Because of its duration and scope, the 2008 financial crisis brought to light the inadequacy of international financial regulation in matters of market positions and the lack of transparency of OTC derivative markets. To that end, the G20 leaders ratified the Basel III Agreement that aims to increase the ratio of equity held by banking institutions, and endorsed the idea of improved surveillance for OTC derivative markets.

4 – Reviving international trade. To revitalize their domestic economies and improve their supply security, most large economic powers have implemented protectionist measures. The resulting decline in international trade generated significant trade imbalances and new sources of tensions, affecting even more the already jeopardized international cooperation. To remedy this situation, the concept of more advanced trade liberalization was reinforced, without actually ruling on concrete methods.

5 – Reforming the international Monetary Fund (IMF). Recent times have highlighted the strategic role of the IMF as a key governance body for international economic balance. However, its structure and practical methods must be rethought to take into account future challenges and be representatives of the new economic powers. With this in mind, several reforms were ratified, among which the one concerning the transfer of six percent of voting rights to new emerging powers, such as China or Brazil.

How is agriculture concerned?

1 – The primary objective of encouraging durable and balanced growth concerns agriculture in the first place. Most agricultural activities are supported by governments indebted through special and heavily subsidized public policies. In addition, farms are increasingly indebted in the short-term (cash flow backing) as well as longer term (production investment). Hence, interest rates charged by central banks play a key role in the cost of farmers' debt, in the preparation of domestic agricultural budgets, and consequently in farming competitiveness. According to momagri©, the differences in actual key rates charged in the United States and in Europe to contain the debt crisis resulted into a relative competitive advantage for the United States that was assessed at $4.487 billion between 2007 and 20091.

2 – The same applies to the proposals put forward to fight against the currency war since exchange rates have a mounting impact on agricultural competitiveness. The gradual liberalization of trade go hand in hand with a continued rise in trade flows, in terms of value as well as volume, especially since the conclusion of the Uruguay Round in 1994 (Marrakesh Agreement of the GATT). The conditions for market competition were consequently deeply altered, thus providing exchange rates with increased weight in international agricultural competitiveness. According to momagri©, the actual differential between the dollar and the euro gave the American agriculture a relative advantage compared with European agriculture that was assessed at $4.4 billion for the sole 2009 year, or the equivalent of 50 Airbus A380 planes.

3 – The methods to improve financial regulation also directly concern agricultural markets, which are subject to increased financialization on unregulated markets. The financialization2 of agricultural markets is a recent but very forceful phenomenon. In 2008, the amount of commodity contracts traded was five times the average recorded for other supports, such as interest rates, stocks or precious metals. In addition, over 80 percent of transactions on futures markets are now carried out on OTC markets that represent unregulated gray areas. In 2008, over 90 percent of positions on such markets did not generate physical settlements, and thus could be considered as purely speculative operations. For this reason and without any control on speculative moves, price volatility of agricultural commodities became more severe, which represents an added factor for destabilization in agricultural markets.

4 – agriculture is one of the strategic issues in international trade. Agriculture represents one of the components of the WTO talks on global trade liberalization. The lack of international consensus on the agricultural question, especially regarding the decline of domestic support, during the past four ministerial meetings of the WTO held since 2003 in the framework of the Doha Round, explains to a large extent the failure of the talks until today. In addition, the protectionist measures implemented by some agro-export nations––such as Russia or Ukraine––deeply disrupted agricultural commodity markets and price volatility, and can eventually affect agricultural stability and global food security.

5 – The financialization of agriculture pleads for an agricultural governance system expanded to the IMF. As consequence of the above-mentioned items, the debt crisis, currency exchange discrepancies and increased financialization require renewed agricultural governance, so that these issues can be incorporated in the current agricultural discussions. It is therefore essential to open up the agricultural negotiations currently held in the framework of the WTO––whose mandate is specifically tailored to trade––to other directly concerned institutions, and first of all to the IMF for currency and financial issues.

1 This note is part of a more detailed report prepared by the think tank momagri©. That report outlines an indicator that measures real direct and indirect support to agriculture in the framework of the think tank's project to develop a rating agency for agriculture and its related issues.
2 Financialization can be assessed in particular by the growing importance of financing through debt by the various players active in markets. Evaluating the various assets is then essentially done through financial markets that are increasingly responsive to the international economic environment and the variations of the most diverse economic indicators.
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Paris, 16 June 2019