Q&A on Food Security with Chris Brett, Global Head of CR&S
1). Agricultural subsidies cause significant debate. Do you support the SDG statement 2.b?
SDG 2.b: Correct and prevent trade restrictions and distortions in world agricultural markets, including through the parallel elimination of all forms of agricultural export subsidies and all export measures with equivalent effect, in accordance with the mandate of the Doha Development Round.
Olam believes in free and fair markets that are unencumbered by protective tariff and non-tariff barriers. This would allow countries with a natural comparative advantage to produce a particular crop, unfettered access to key markets. Trade distorting subsidies can negatively impact this and lead to misallocation of capital. For example, in some countries, governments offer production subsidies – we consider these to be trade distorting subsidies. However, as a company, we do believe in other types of subsidies, particularly where there is a clear market failure such as land-use change subsidies or climate mitigation subsidies where transitionary support is required and where it does not lead to unexpected and unpredictable impacts on markets.
We appreciate why governments want to protect the interests of their people and their economies. However, we believe our efforts at Olam are better focused on helping developing countries to increasingly close the productivity gap between them and the developed countries. Equally, by helping those countries improve their domestic production and reduce reliance on imports it is a win-win for both Olam and the respective governments. This is a path dependent process and will take time to deliver results but we believe it is better to be aiming for a level playing field than to hamper or even undermine the need to improve efficiency and yields through distorting subsidies.
We were very interested in the views of the contributors to our Portfolio of Perspectives on this complex issue:
- Investor Jim Rogers: If you want to make money be a farmer, not a financier
- Author of Feeding Frenzy Paul McMahon – Managing boundaries in an unbalanced world
- Senior VP of Food & Markets WWF, Jason Clay: The 21st Century Commodity Trader
2) Olam is also a trader of commodities. Isn’t speculation increasing food prices?
SDG 2.c: Adopt measures to ensure the proper functioning of food commodity markets and their derivatives and facilitate timely access to market information, including on food reserves, in order to help limit extreme food price volatility?
Much has been written about this subject with the allegation that traders and other market participants are pushing up food prices by buying and selling futures contracts on commodity exchanges. Agricultural futures and options markets have an important role to play in laying off price risks for the producer, the consumer and for all users of specific commodities. But in order to lay off the price risk, you need to have deep and liquid futures and options markets. And in order to have deep and liquid futures and options markets, you need a variety of participants in the market from the hedgers to the speculators. They each have a legitimate role to play. Research is inconclusive that the flow of funds into commodity markets from hedge funds and other market participants actually distorts the cash value of a certain commodity with a futures price. Food price volatility is a combination of many factors including: weather-related supply disruptions; impact of climate change; under-investment in agricultural productivity;sudden export and import restrictions by governments to preserve domestic stocks or protect producers; lack of preparedness by policy makers and crop buyers; logistics inefficiencies; food wastage; fluctuating oil and energy costs; weather-related crop losses, and climate change.
At Olam, our focus is more on lifting people out of poverty, through helping them adopt good agricultural practices and thereby improving their productivity; helping them make better cropping mix decisions; providing them with inputs, support and micro-finance; and connecting them to markets so that people are better able to withstand shocks and volatility of the marketplace.
3) What will be Olam’s areas of focus in 2016?
We have two key Goals for 2016 – 2020 which are focused on food and nutrition security in emerging markets:
- Educating our workers on nutrition and ensuring they have access to nutritionally balanced foods within the workplace and surrounding communities – our goal is 100% of workers by 2020.
- Increasing the availability of micro-nutrient fortified foods. We produced 24 billion servings in 2015, and are aiming for 40 billion by end of 2020. Have a look at our Goals overview for more information
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