Most of the work conducted during the G20 summit of the most powerful twenty economies in the world takes place behind the scenes. The actual meeting marks more of a deadline for identifying major topics and assembling coalitions. It appears that food insecurity is so far dominating the agenda for the next summit. However, there are a few worrying signs that we may not get to June before this issue reaches crisis levels.
As this Marketwatch article reports, the UN's Food and Agricultural Organization (FAO) says world food prices reached a record in December. The relevant comparison here is the price shock of 2008, which saw $12/bushel wheat (recently $8), for example. One worrying aspect of this story is the nugget that the previous record of 2008 was partially influenced by crude oil commodities prices (a component of the FAO's agricultural commodities price index), which peaked at around $140 per barrel. Crude oil has risen recently and has been trading for the past few weeks around $90 per barrel. It should be noted that the US Dollar has strengthened against the Euro since that time.
This Washington Post article suggests that there is room for prices to rise further. Looking at the charts presented in this Globe and Mail investor article, that is absolutely true. It appears that in 2011 continuing price rises will be supported by a combination of fear about the weather and previous market highs that were outrageously unsupported outliers, with lip service given to supply and demand fundamentals, just like last year and 2008.
This issue may reach crisis levels far ahead of the summit, in part as food riots spread from North Africa to other third world countries, and also due to the influence of two powerful G20 players. French President Nicolas Sarkozy, as head of the G20 in 2011 has put this issue front and center. Meanwhile, newly installed Brazilian President Dilma Rouseff's administration has warned of a looming trade war over currency manipulation, which hurts Brazilian agricultural exports.
Rouseff (pron. Hoo-SEFF-ee) is an economist, whose domestic agenda is to continue former president Lula's efforts to increase economic opportunities for the roughly 40% of the Brazilian population that lives in poverty. Despite her past affiliations with radical leftists, she is also a pragmatist who knows that this agenda will halt if the relative gains being enjoyed by the new Brazilian middle class are wiped out by external financial pressures.
In addition, Dilma campaigned on maintaining Lula's economic agenda in total, which is very popular with the Brazilian people. It is generally viewed as pro-free market. However, as the first female Brazilian president, Dilma must be able to lead on the economic issues which are her strength, or risk her legacy being only symbolic. Lula was a social politician who wisely embraced economic pragmatism. Dilma is an economic pragmatist who will become a social politician only if she is successful at managing a looming financial crisis. Trade war saber-rattling is her first shot across the bow (even though this language is similar to recent pronouncements by Lula). How her administration handles this issue in the coming months may well define her presidency.
Sarkozy is extremely ambitious, and a legacy that includes solving the world's food insecurity issue would suit him. He is a controversial figure in France for many things other than the financial expertise that has characterized his long career. The G20 summit of 2011 is for Sarko a great opportunity.
Brazil and France have enjoyed a healthy relationship in recent years. While Brazil's membership in the BRIC (Brazil-Russia-India-China) trade and security coalition has been the western media's focus of late, the dynamic duo of Sarko and Dilma may be the big story of 2011.
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