Global trade seen limiting food price volatility

BRUSSELS (Reuters) – Increased global trade in agricultural commodities can help to limit world food price volatility, while trade restrictions help to fuel it, economists from the World Bank and European Union said on Wednesday.

France is seeking greater international coordination to limit unilateral trade restrictions during its presidency of the G20 group of major economies this year, after Russia’s ban on grain exports this summer sent world prices soaring.

“In our view, higher volumes of trade can help to mitigate volatility,” said Willi Schulz-Greve, head of the economic analysis unit in the European Commission’s agriculture department.

“Export restrictions on the other hand would increase volatility, and that’s why there’s a strong focus in the G20 and international discussions to get away from these kinds of instruments,” he said at a seminar on food security in Brussels.

Will Martin, an agricultural economist at the World Bank, said he understood why countries often sought to insulate themselves from price rises through export restrictions.

“The problem is if all countries attempted to insulate themselves from all price rises, the world price just goes up more. It’s completely ineffective,” he said.

“It’s very similar to the situation you get when everyone in the crowd of a grandstand stands up to get a better view — it’s clearly ineffective,” he added.

Martin said he and his colleagues had recently published a study showing that 45 percent of the increase in rice prices in 2008 was due to measures taken by countries trying to insulate themselves from the rising cost of the food staple.

The answer, according to Martin, is to secure a rules-based agreement to liberalize global trade.

But with an agreement to prohibit export bans altogether seemingly unlikely, some — including the head of the World Trade Organization — say humanitarian aid should be made exempt from export embargoes, in order to limit the impact on the world’s poorest populations.

(Reporting by Charlie Dunmore)

Global trade seen limiting food price volatility