x Abu Dhabi, UAEFriday 21 July 2017

Food prices likely to force their way onto G20 agenda

Food security will be a key focus of the meeting of G20 world leaders in Paris today.

World leaders from the Group of 20 (G20) leading and emerging economies will gather in Paris today against a backdrop of soaring food prices threatening economies in the Middle East and elsewhere.

The rapid rise of commodity prices over recent months could bring a renewed sense of urgency to efforts to achieve a breakthrough in long-running global currency wars, say economists.

"There's no easy remedy to rising prices," said Simon Williams, the chief economist for the Mena region at HSBC. "They go to the heart of the issue of real living standards and real income for people."

Advancing prices are likely to force their way on to the forum's agenda alongside other international issues such as exchange rates and economic imbalances.

Anger at rising food prices was a contributing factor to protests that led to the overthrow of leaders in Egypt and Tunisia.

Prices of items such as wheat and oil have surged in recent months. The combination of a global economic rebound and, in the case of food, bad harvests have fed supply pressures.

The World Bank has already urged the G20 economies to make the food crisis a top priority.

World food prices were reaching "dangerous levels", Robert Zoellick, the president of the World Bank, warned this week. Prices last month were 29 per cent higher than in January last year and 3 per cent below their previous peak in 2008.

The situation could hinder political reform in Egypt, Tunisia and in the Middle East and Central Asia, Mr Zoellick said.

Increasing commodity prices raised concerns for growth sustainability and food security, according to excerpts of a draft G20 communique reported by Dow Jones Newswires this week.

Surging prices have provided extra ammunition for emerging markets beset by escalating inflation that are unhappy with US monetary policy. Brazil is just one such country that has accused the US of stimulating destabilising capital flows through its quantitative easing programme.

In contrast, the US points the finger at countries such as China, arguing that their exchange rates policy pushes up the value of other currencies.

Rising commodity prices "will refocus attention for currency reform", said Mr Williams.

Developing countries tackling inflationary pressures, such as Saudi Arabia and Indonesia, are likely to be keenest to discuss food prices.

Saudi Arabia, the only Middle East G20 representative, has been in the firing line of rising prices because of its reliance on imports of many basic staples. Food price inflation in Saudi Arabia was 6.8 per cent last month.

Indonesia will ask members to agree to eliminate food price speculation, the country's finance minister Agus Martowardojo this week told reporters.

Nicolas Sarkozy, the French president, has already vented his frustration at the role of commodity speculators in pushing up prices. Mr Sarkozy holds the chair of the G20.

Indonesia will also urge consensus about pooling funds to increase food productivity, said Mr Martowardojo.

Meanwhile, the fear for slower-growing richer countries in Europe and elsewhere is that rising inflation may impede their plans to encourage economic revival.

tarnold@thenational.ae