Don’t supply chains: responsible business conduct in agriculture

You've read the book, now buy the banana
You’ve read the book, now buy the banana

Two questions today: which fictional character helped bring down a colonial empire and gave his name to a food label? If you’re Dutch, you probably know the answer, if not, I’ll save you an Internet search by telling you: Max Havelaar, eponymous protagonist of Multatuli’s Max Havelaar, of de koffi-veilingen der Nederlandsche Handel-Maatschappy, translated into English as Max Havelaar: Or the Coffee Auctions of the Dutch Trading Company. In the middle of the nineteenth century, the Dutch government ordered farmers in its East Indies, modern-day Indonesia, to grow quotas of export crops rather than food. The Dutch also reformed the tax system, creating a public-private partnership that allowed tax commissioners to keep a share of what they collected. The result was the misery and starvation the book denounces. Max Havelaar helped change attitudes to colonial exploitation in the Netherlands and was even described as “The book that killed colonialism” by Indonesian novelist Pramoedya Ananta Toer in the New York Times Magazine.

The name Max Havelaar was adopted by the Dutch Fairtrade organisation and other European members of their network. The movement describes itself as “an alternative approach to conventional trade and is based on a partnership between producers and consumers. When farmers can sell on Fairtrade terms, it provides them with a better deal and improved terms of trade”. The movement has its critics. For instance in this article on Fairtrade coffee in the Stanford Social Innovation Review, Colleen Haight argues that “strict certification requirements are resulting in uneven economic advantages for coffee growers and lower quality coffee for consumers” and that while some small farmers may benefit, farm workers may not.

Which brings us to the second question: what’s that got to do with the OECD? We’re asking for comments on the draft FAO-OECD Guidance for Responsible Agricultural Supply Chains. Government, business and civil society representatives, international organisations, and the general public are invited to send comments by email to coralie dot david squiggly sign oecd dot org by 20 February 2015. I’d like to say that winning entries will receive a guinea, but they won’t. We will however publish a compilation on this web page from the OECD division in charge of the Guidelines for Multinational Enterprises (MNEs).

The world’s population is increasing and, human biology being what it is, so is the demand for food. Agriculture is expected to attract more investment, especially in developing countries, and human nature being what it is, some rascals may be tempted not to trade fairly. Or as the call for comments puts it: “Enterprises operating along agricultural supply chains may be confronted with ethical dilemmas and face challenges in observing internationally agreed principles of responsible business conduct, notably in countries with weak governance and insecure land rights.”

Apart from the OECD MNE Guidelines, the guidance considers half a dozen other sets of standards and principles from the FAO, UN, and International Labour Organization among others, designed to encourage “responsible business conduct”. Intended users include everybody from farmers to financiers, in fact the whole supply chain from seed sellers to grocers. The guidance as it stands today was developed by an Advisory Group with members from OECD and non-OECD countries, institutional investors, agri-food companies, farmers’ organisations, and civil society organisations.

The aim is not to create new standards, but to help enterprises respect standards that already exist “by referring to them in order to undertake risk-based due diligence”. Some unfamiliar language/jargon/special terminology is inevitable in a document like this, but the authors of the guidance have taken care to explain it all. “Due diligence” here refers to the process through which “enterprises can identify, assess, mitigate, prevent, and account for how they address, the actual and potential adverse impacts of their activities” (and those of their business partners).

The draft proposes a five-step framework for risk-based due diligence, covering management systems, identifying risks, responding to them, auditing due diligence, and reporting on due diligence. Some of the concrete proposals will provoke little or no discussion I imagine, such as “respect human rights”. On the other hand, “promote the security of employment”  is likely to see a frank and open exchange of views. (The 2013 OECD Employment Outlook has a chapter on enhancing flexibility in labour markets.)

The human rights and labour sections could apply to any sector of the economy, as could most of the proposals on governance (we’re against corruption) and innovation (we’re for appropriate technologies), but there are a number of proposals targeting agriculture in particular, for example “promoting good agricultural practices, including to maintain or improve soil fertility and avoid soil erosion”. Again, some of the draft focusing on agriculture is uncontroversial (respect legitimate rights over natural resources), but I can’t imagine owners of factory farms agreeing to grant animals “the freedom to express normal patterns of behaviour”.

I’m sure you’ll find plenty to agree or disagree with, so let us know and we’ll rid the agricultural supply chain of, as Multatuli would say, all the “miserable spawn of dirty covetousness and blasphemous hypocrisy”.

Useful links

The OECD Cleangovbiz Initiative “supports governments to reinforce their fight against corruption and engage with civil society and the private sector to promote real change towards integrity”.

OECD Integrity Week, 23-26 March, brings together stakeholders from government, academia, business, trade and civil society to engage in dialogue on policy, best practices, and recent developments in the fields of integrity and anti-corruption.

OECD work on agriculture

Malthus wrong again says OECD

Agriculture Outlook 2014-2023Even if you know nothing about the French Revolution, you’ve probably heard of Marie-Antoinette’s reaction on being told the people had no bread: “Let them eat cake”. In fact, the infamous catch phrase was probably invented by Jean-Jacques Rousseau, who attributes it to an unnamed princess in his Confessions, written before the 14 year-old Austrian princess even married the future Louis XVI. As far as the course of events went, it doesn’t matter whether she said it or not, since the people believed that it was the kind of thing she would say. The doomed monarchs could have learned a few lessons in the art of good government from the founder of the Bourbon dynasty. One goal of the reforms instigated by Henri IV, King of France from 1589 to 1610, was a chicken in every pot, on a Sunday at least. This slogan was to reappear in the United States in the 20th century, with “a car in every garage” tacked on to some versions.

Food riots are thing of the past in most OECD countries, but in 2007-08, various places around the world would see people taking to the streets as food prices rose suddenly in response to the interactions among a number of factors, including high oil prices forcing up production costs, drought in major producing areas, diversion of land to biofuels, and a very low level of stocks.

The food price crisis in 2008, the renewed price hikes in 2010, and depressingly regular reports since of people facing famine (the latest in South Sudan) have raised questions about whether agri-food markets could be relied on in future to deliver sufficient quantities of food at affordable prices. And not just in sensationalist media with their love of explosions in food prices and population growth. In 2009, Sir John Beddington, the UK’s chief scientist, warned of “Food, energy, water and the climate: a perfect storm of global events?

As we pointed out in this article, there have been predictions that the world will face mass starvation ever since Malthus published his famous essays on demography. As Malthus himself put it in An Essay on the principle of population: “The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race.”

And yet it hasn’t happened. The UK’s population for example doubled over 1750-1800 (the year in which Malthus published The present high price of provisions), and tripled over the next century. This demographic surge couldn’t have happened without the interaction of a number of elements. We often talk about the agricultural “revolution”, suggesting sudden overthrow of the old systems. But even in Britain, the initial changes to agricultural techniques and practices such as enclosing common land and introducing crop rotation were spread over centuries, and what accelerated the pace of change was interaction with the industrial revolution. Improved communications and storage and preservation techniques allowed producers to serve markets far from home. A well-functioning financial system provided capital. And a feedback loop was created whereby improved food supplies supported a bigger population that in turn provided labour for emerging industries and markets for farmers.

Likewise, when looking at the prospects for food production and consumption today, we have to look at the whole picture. The OECD-FAO Agricultural Outlook 2014-2023 doesn’t expect a Malthusian crisis to materialise. The report argues that the world’s farmers and fishers will be able to satisfy demand over the next 10 years. Rising incomes, urbanisation and new eating habits will reinforce the transition to diets richer in protein, fats and sugar. . In real terms, prices are expected to fall (slightly) but remain higher than the historical lows seen in the early 2000s.

This year’s report has a special focus on India, the world’s second most populous country with the largest number of farmers and also the largest number of “food-insecure” people. The Outlook proposes a relatively optimistic scenario for India, with the expansion in the production and consumption of food both projected to continue, led in particular by higher value added sectors, even for staples, for instance consumers preferring basmati rice rather than inferior varieties.

At least two major issues still need to be addressed though.

First, any rise in food prices can affect the food security of the poor. An OECD working paper shows that developing countries with very different levels of economic development, population size and geographical location have succeeded in reducing poverty and improving nutrition. Despite the significant differences among them, they share some characteristics. During the period when they had the greatest success in reducing poverty, the macroeconomic context became progressively more favourable. Their own governments were lowering export taxes, reducing overvalued exchange rates and dismantling inefficient state interventions in agricultural markets. Meanwhile, the governments of rich country trading partners were reducing the kinds of support to their farmers that distorted production and trade the most.

Second, as argued by the OECD in Climate Change, Water and Agriculture that we featured last month, climate change poses challenges on a different scale from the variations that can affect crops and livestock during the course of a season or even a year or two. Future changes in the climate could have significant impacts on land use, commodity production, and where different activities are viable; and the implications of expanding food production for the natural resource base and climate change.

Useful links

OECD work on agriculture and fisheries

Rain doesn’t follow the plow: climate change, agriculture and water

Coming your way soon?
Coming your way soon?

It takes about 1000 cubic metres (m3) of water to produce the food that one person eats in a year, assuming a daily intake of 2800 kilocalories (kcal) per day. This doesn’t include all the food wasted, and the average hides enormous differences in diet. For example, producing 1kg of meat requires between six and twenty times more water than 1kg of cereals, depending on how much feed is converted to flesh, but the 1000m3 per person figure means that global annual needs average over 6000 cubic kilometres of water, almost all of it for crops. Non-food agriculture, notably biofuel crops, adds to the total amount of water used as well. About 85% of the water for agriculture comes from rain stored in the soil, with the rest provided through irrigation.

Water withdrawals from rivers and lakes for irrigation, household and industrial use have doubled in the last 40 years, and in some regions, such as the Middle East and North Africa, humans use 120% of renewable supplies (“mining” groundwater that is not recharged). At a global level, some 1.2 billion people live in basins where the physical scarcity of water is absolute (human water use has surpassed sustainable limits). By 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity, and two-thirds of the world population could be under stress conditions, mostly in non-OECD countries.

Farmers have always had to react to changes in rainfall and temperature, but as a new OECD report Climate Change, Water and Agriculture argues, climate change poses challenges on a different scale from the variations that can affect crops and livestock during the course of a season or even a year or two. Future changes in the climate could have significant impacts on land use, commodity production, and where different activities are viable. We can’t forecast exactly what will happen, but history shows us numerous examples of how human actions both influence the environment and are influenced by it.

Today people forced to leave their homes because of drought or some other “natural” disaster are called “environmental refugees”. In 1930s America, they were called Okies, because so many of them were driven from their homes in Oklahoma by the “Dust Bowl” created by a combination of drought and wind that “blew away everything but your debts”. This was a natural disaster in the sense that it came after a series of severe droughts and dust storms hit the US and Canadian prairies from 1930 to 1936. But drought wasn’t unusual in these regions, nor were high winds, and the prairies had resisted similar episodes in the past.

The difference was that a few exceptional periods of higher than average rainfall had encouraged extensive and intensive farming, with no attempt to protect the soil. People believed that “rain follows the plow”. It doesn’t, and when the grasses that held the soil in place and trapped moisture had been ploughed under, the droughts turned the earth to dust that the wind then carried off, often in so-called black blizzards that blotted out the sun and caused drastic, rapid drops in temperature. Millions of acres of farmland were lost, and hundreds of thousands of people made destitute.

Starting in 1933, the US government undertook a massive programme combining investment in soil conservation, education and subsidies to adopt more sustainable practices. It took over a decade for the region to recover but most of the people who left never came back. What can we do today to stop climate change provoking similar catastrophes?

In one sense, the Dust Bowl was easy to deal with because the causes, effects and consequences were identified. Regarding the main linkages between climate change, water and agriculture, however, the OECD book warns that “an important knowledge gap is related to seasonal impacts, extremes and variability of water availability since many current studies focus on annual timescales. There are challenges in comparing regional impact assessments driven by climate (and other) data from widely differing sources, and this may lead to conflicting and potentially misleading results. Significant uncertainties in future hydrological responses to climate change across models also exist.”

That doesn’t mean we have to wait until we’re sure. Climate Change, Water and Agriculture looks at what can be done starting now. Strategies for adapting agricultural water management to climate change need to target five different levels of intervention, and the linkages among them:

  • On-farm: adaptation of water management practices and cropping and livestock systems.
  • Watershed: adaptation of water supply and demand policies in agriculture and with the other water users (urban and industrial) and uses (ecosystems).
  • Risk management: adaptation of risk management systems against droughts and floods.
  • Agricultural policies and markets: adaptation of existing agricultural policies and markets to the changing climate.
  • Interactions between mitigation and adaptation of agricultural water management.

In many areas today, there is no such thing as a “natural” landscape. Thousands of years of farming have selected and encouraged some species, marginalised or eliminated others. The land itself has been altered by ploughing, enclosure, herding and other human interventions. We may feel that we have tamed Nature. Reports like this new one from the OECD remind us of our ignorance and warn us about our arrogance.

Useful links

OECD work on water use in agriculture

How much do farmers get from taxpayers?

Click to find out more
Click to find out more

In 2008, one farmer from Blackburn in the UK got 32 pence (around $0.45) from the EU’s Common Agriculture Policy (CAP). That’s not much, but it’s still over 30 times as much as one of his neighbours, who only got a penny. At the same time, some large landowners in the UK and other countries got hundreds of thousands of euros. The food industry didn’t do too badly either, with some food processors getting around a million pounds each. The biggest payout, over £6.7 million, went to a “professional services company in the sugar market”.

Other OECD countries could show a similar pattern for farm subsidies, with the rich getting more than their less well-off colleagues. More what, though? There are problems with vocabulary in such a sensitive area. For some people, we’re talking about handouts or the less pejorative “aid” or “assistance”; others prefer the dynamism of “incentives”, or the neutral-sounding “transfers”. The OECD term “support” describes the various ways in which governments intervene in the business of agriculture, including subsidies, grants, tax breaks and other policies that boost revenues.

So what’s it worth? Over $258.6 billion (EUR 201.2 billion) in the OECD area in 2012 according to Agricultural Policy Monitoring and Evaluation 2013: OECD Countries and Emerging Economies, published today. Support represented 19% of farm receipts in the OECD, up from 18% in 2011. Support averaged one-sixth of gross farm receipts in the 47 OECD and non-OECD countries covered in the report. The Producer Support Estimate increased to 17% of gross farm receipts in 2012, compared to 15% in 2011.

It can be hard to understand the economic justification of support to farmers. If there is a surplus in supply, why should the taxpayer subsidise producers? If there is a shortfall, you’d expect prices to rise and the need for subsidies to disappear (or at least weaken). The reason usually given by governments is that agricultural policies are designed to improve the “competitiveness” of their farmers. Yet sometimes this is meant to be achieved by reducing support in the interests of imposing stronger market discipline, while at other times improved competitiveness means granting subsidies for inputs such as fertilisers; according tax concessions, for example on diesel fuel; or providing financial incentives to meet the costs of implementing new regulations.

Do the subsidies and other forms of support really help farmers? OECD research into farm household income suggests that with the most commonly used policy, market price support, only about 25% of the cost finds its way as a net income gain to the intended recipients in farm households. “Farmer” is not the first word that springs to mind when seeking to define what service companies, food processors and other large beneficiaries of support actually do. The CAP, like many other forms of support, does not target farmers, but farms or activities related to agriculture, which is why a confectionary firm ended up receiving 332 000 euros to help buy sugar.

Subsidies don’t help the hungry either. Some of the sharpest increases in farm support have occurred in countries that are trying to promote self-sufficiency, but the OECD sees only weak links between higher self-sufficiency and improved food security, particularly in less developed economies. Access to food would be more effectively improved by reducing poverty and developing safety nets.

Agricultural support policies are evolving, but only slowly. This may seem surprising given the repeated, often violent, calls for change and the massive amounts of public money being spent. Policy makers and the public alike would agree that some programmes no longer do what they were created for and should be modified or scrapped (for instance, one catering company supplying cruise ships got 148,000 euros in subsidies for the sugar and milk powder it “exported” in passengers’ stomachs).

Why is change so slow and difficult? In agriculture as in other areas, fundamental policy thinking is often born of crises, but can persist even when the original problems have been solved. Key features of agricultural policy in the United States emerged in the 1930s in response to the Great Depression and the Dust Bowl. Today’s agriculture policy in Europe and Japan can be traced to concerns with food supply at the end of World War II.

Policy shifts can be dramatic however. Airport security is one example of how things can change practically overnight. Agriculture provides examples of this too, for instance the sudden imposition of export restrictions and traceability norms in reaction to the BSE outbreak. However, despite the volatility of commodity prices and regional difficulties related to drought, flooding or other environmental conditions, food security is not a problem in the countries giving most of the support, and the agro-food system as a whole is not faced with any major threat to its existence. The sector even fared better than others during the recent recession.

Another factor to consider is who would gain and who would lose if the current system was changed. Actual numbers of people are less important in this respect than how the costs and benefits are distributed and how well-informed and politically influential they are.

Consumers pay twice for agricultural support, first through the taxes used to finance it, second through higher prices. The cost to an average European citizen is over 100 euros a year, but few people are aware of this extra sum they’re giving to the agri-food industry. For those receiving the support, much more may be at stake. The smallest farms receive relatively little support, but the big producers and industrialists who do get public money also have the means to finance sophisticated lobbying and public relations campaigns to block change that would seriously erode their privileges.

Useful links

OECD work on agricultural policies and support

OECD work on sustainable agriculture

Sell the farm: agriculture and poverty reduction

Click to see the book on OECD iLibrary

In 1972, French film maker Louis Malle spent several days interviewing people he met in a large square in Paris. The resulting documentary, Place de la République, provides a snapshot of a country undergoing profound changes as a result of the postwar boom. Then, as now, a significant number of Parisians were not born in the city but “came up” from the provinces.

One of them was a road mender. Malle asks him what it’s like to do such a tiring, dirty, dangerous job. He agrees that it’s hard, but, he points out, it’s much better than working on a farm. He describes his life as a farmboy back in Normandy in the 1940s – the endless chores, the poverty, the lack of opportunity. He left as soon as he could, and never regretted it.

Across the world, millions would do the same in the search for a better life, and the process is continuing. It can be surprising to see how keen people are to quit farming and life in the country for the city. Author Fred Pearce interviewed women working in sweatshops in Bangladesh. Like Louis Malle’s road mender, they had no illusions about their present jobs, but they still preferred having some money and better prospects for their children than the alternative in rural villages. Nazma Akter, a campaigner for garment workers’ rights told Pearce that, poor as they were, “women are becoming an economic force here. This is the first time they have had jobs. They are independent now. They can come and go; nobody stops them. Don’t take that away from them.”

Today, it may be more difficult for unskilled farm labour in poor agriculture-dependent economies to be absorbed by other sectors than it was for, say, European farmers to move into industrial jobs a century earlier. But once the change starts – and, crucially, once people have the relevant skills – the pace is invariably more rapid than in the past. In Korea, agriculture’s share of employment fell from 40% to 16% in just 14 years – a transition which took 53 years in the US and 68 years in the UK.

One way of looking at this process and what governments can do to help is outlined in a new OECD publication  Agricultural Policies for Poverty Reduction, edited by Jonathan Brooks. Change can be seen as a four-phase process for the agricultural sector.

In the early stages of development, agriculture dominates output and employment, and the priority is to “get agriculture moving”.

The subsequent generation of a surplus within agriculture leads to a second period in which agriculture makes a key contribution to growth both directly and via a variety of linkages to other sectors. These linkages range from small-scale local arrangements such as farm households having another source of income off the farm, to participation in global value chains through selling produce to international food processors.

In the third phase, agriculture’s share of national income declines and agricultural incomes fall behind those in other sectors, so the priority lies in helping the adjustment to succeed.

The fourth and final phase is one in which the agricultural sector, including agricultural labour markets, is integrated into the rest of the economy.

Policy requirements vary at each stage, and many of the policies required to improve farmers’ opportunities are not agricultural. Education and health for example may be better investments for rural populations than spending on agriculture.

A number of poor countries, mostly in Africa, are at the first two stages of this development process, and agriculture can account for up to half of GDP and 80% of employment. The book argues that while there may be plausible reasons for governments to intervene in agricultural markets in poorer economies, any short-term benefits from these expenditures should be balanced against those from investments to support long-term agricultural development.

If this development is successful, it will lead to many farmers quitting the sector, so a strategy for strengthening rural incomes should emphasise three development pathways for farm households: improving competitiveness within agriculture; diversifying income sources among farm household members; and, finally, leaving the sector for a better paid job.

This approach is relevant for countries at all stages of development, even if the opportunities vary. Smallholder farming dominates agriculture in most poor countries, and while some smallholders will be able to establish commercially viable operations, others won’t. Every country that has made the transition to a modern economy has seen agriculture’s share of GDP and employment shrink, not because agriculture has become poorer (on the contrary, farmers have become richer), but because other sectors offer far greater prospects. Agriculture can contribute to development and the fight against poverty, but there is no evidence that it can win on its own.

There may be a price to pay in terms of traditional lifestyles and culture, but not all aspects of these traditions are positive. This is one reason why the experience of Louis Malle’s road mender in France or the garment workers in Bangladesh suggests that given the chance, many people living in poor rural areas will leave the farm.

Useful links

OECD work on agriculture

OECD work on poverty reduction

Immediate action and long-term approaches for food security and food price volatility

Click to see the OECD-FAO Outlook

This post is contributed by OECD Secretary-General Angel Gurría, following his address to the agriculture ministers of the G20 countries meeting in Paris on June 22.   

The OECD-FAO Agricultural Outlook to 2020 published this week expects commodity prices for cereals to be 20% higher over the coming decade compared with the 2000s, and meat 30% higher. That’s good news for farmers the world over, but for the one in seven of the world’s population who goes to bed hungry, it could spell disaster.

Moreover, price volatility could make matters worse.

So what should we do?

The immediate priority is to address the severe consequences of hunger and malnutrition, whose root cause is poverty. Undernourishment rapidly leads to underweight babies and prevents young children from developing properly, both physically and cognitively. The related problems generally last for life.

In a report including contributions from 10 international organisations OECD coordinated with FAO, we make a number of recommendations to deal with the consequences of high and volatile prices on the most vulnerable.

Working closely with the UN World Food Programme, we propose setting up small strategic food reserves for rapid deployment through safety net programmes in situations where countries find it impossible to procure supplies for themselves.

We also outline a number of market-based financial instruments to assist vulnerable countries and households, including measures designed to help farmers manage unavoidable risks.

In brief, we propose a wide range of safety nets that can come to the aid of the most vulnerable, quickly.

The long term priority – the sustainable solution to price volatility and food insecurity – is to improve the productivity and resilience of global agriculture. Doing so requires action on a number of fronts.

OECD and FAO have a joint proposal for a new Agricultural Market Information System (AMIS). Associated with AMIS is a proposal for a Rapid Response Forum to improve international coordination of government responses to food emergencies, preferably before a situation becomes a widespread crisis.

Better information and transparency on financial markets is also important, as is consistency between regulatory regimes. This would help reduce opportunity for market manipulation and ensure that the farm and food sector has instruments at its disposal to help smooth price fluctuations and to manage risk.

Agricultural trade will be even more important in the years to come. Food has to flow more easily from surplus to deficit areas and humanitarian food purchases and shipments must not be caught up in export restrictions or be taxed. Most of the future growth of supply – and demand – will come from developing countries, but supply growth will be stalled if competitive suppliers around the world are not able to access regional and global markets.

Even if WTO trade negotiations are currently in great difficulty, we must reduce the import and export barriers to trade in food, feed and fuel that add to price volatility and constrain global food security.

We have also made tough recommendations on biofuel policies that subsidize production, mandate blends, and restrict trade.

Let’s be very clear about this. We support the development of a wide variety of renewable fuels, including biofuels. But our analysis has shown that there are higher costs and lower benefits than anticipated, as well as unintended negative impacts, from current biofuel policies.

Finally – and arguably most importantly – in our report, the international organisations make a strong case for various actions to improve farm productivity. This is an essential ingredient in a sustainable and long-term solution to the challenge of increasing food production between 70% and 100% by 2050.

For many developing countries, greater use of existing technologies offers immediate and significant opportunities. For all countries, new science and technology offers further promise.

Returns to investment in agricultural research are enormous: generally over 20% and as high as 80 % a year. But the lead times are very long – often 20 years or more. The investment that will bring those long-term benefits has to start now.

Required investments are way beyond what can be achieved with public funds or development aid, although both are important. National governments have to create an enabling environment that encourages private and public-private investments to flow.

OECD will focus more on this, drawing upon its agriculture, science and development communities to highlight best policy practices for increased innovation in agriculture.

Can the global food and agriculture system meet the challenges of the coming decades? I’m optimistic. Throughout history, farmers have demonstrated again and again their capacity to adapt to new circumstances, adopt new methods and technologies, and supply safe and nutritious food for growing populations.

Since 1960, cereal production world-wide has doubled, and fruit and vegetable production has tripled. The increases in meat production have been even more dramatic – pork production has more than tripled and poultry has increased sevenfold.

The G20 is giving agriculture the importance it deserves. And acting now will position the sector well for a profitable future in the service of us all.

Useful links

OECD work on agriculture

The trillion dollar grocery bill

Click to see the report

Farming is an industry, but there are limits to how closely you can compare it to other sectors. Livestock production is fairly predictable, but farmers can never be certain of how well their crops will grow. It’s as if you started an auto production line without knowing for sure how many cars would roll off the end, or what size they’d be. And with a fair chance that floods or fire would destroy the whole factory.

This unpredictability is one of the reasons food commodity prices have been so volatile over the past year. For instance, the latest FAO Food Outlook expects world cereal production to contract by 2% although only a few months ago the FAO predicted a 1.2% increase.

As a result, world cereals stocks are expected to shrink by 7%, with barley plunging 35%, maize 12% and wheat 10%. Prices will rise, with the global bill for food imports topping a trillion dollars, a level not seen since prices peaked in 2008.

That may be good news for producers, but food import bills for the world’s poorest countries are predicted to rise by 11% in 2010 and by 20% percent for low-income countries with food deficits.   

The weather is partly to blame, with droughts and fires hitting Russia and other important growing zones this year, but there are other reasons too. An OECD contribution to last month’s meeting of the Committee on World Food Security looks at a number of factors affecting food price spikes.

This year, export restrictions and exchange rate fluctuations had a big impact. This kind of influence can be reversed quickly, but increased use of agricultural feedstocks for biofuels and the growing demand for food and animal feed from emerging economies put more permanent pressure on prices.

The impacts of other factors are uncertain, for instance climate change or water scarcity. Declining investment in research could prove costly too. Moreover, lack of infrastructure means that a lot of food is destroyed before it can be eaten, as Indians discovered during last summer’s monsoons, with CNN reporting that a third of the country’s reserves were rotting in the open.

The most controversial issue is speculation. An OECD working paper rules out financial market speculation as the cause of the price bubble in agricultural futures markets in 2007-08. However, at the meeting of agriculture ministers at the OECD earlier this year, different views were expressed about the role of speculation.

At the end of this month, the OECD Global Forum on Agriculture will bring together government representatives, along with agricultural experts from intergovernmental organisations, NGOs, producer groups and agribusiness, as well as researchers toidentify ways governments can accelerate agricultural development and tackle the twin problems of poverty and food insecurity.

Useful links

OECD work on agriculture

FAO Initiative on Soaring Food Prices