“I will acknowledge that markets exist.”
For most of us a statement like that is right up there with “the sun comes up in the morning” – an indisputable fact. It’s just one of the amazing things I heard while attending the UN FAO’s 37th meeting of the Committee on Food Security. This was the first meeting where the private sector was asked to participate in the meetings. It was, for me, an eye opening event.
For the 29 years I’ve been in the agricultural industry, I’ve always believed what we are doing is part of a noble purpose – feeding the world. The agricultural industry employs the best agronomics and technology to produce the crop. It manages the quality after harvest to minimize losses and move it from place to place as efficiently as possible. Throughout this process it manages risk by hedging in a way that keeps the risk premium built into prices to a minimal amount. The profits earned on this venture are reasonably modest when compared to many other industries. It seems to me, like the sun coming up in the morning, to be all too obvious this is a significant benefit to society. In the opinion of some, “this is not the case.
When Robynne Anderson of Emerging Ag asked me to participate as part of the International Agri-food Network delegation of private firms to the event, she warned me the world doesn’t always see things the way we do. As I sit here traveling back from the conference reflecting on the last few days, I realized I underestimated what she was saying. I was one of five presenters in a session on price volatility but I learned about much more than just that.
The world food shortage is a serious problem and one that gets few headlines. Particularly in less-developed countries, current high prices are hurting people. My paradigm of agriculture comes from growing up in East Central Illinois and running grain elevators across the Midwest. It involves corn and soybeans, big tractors, big combines and shiny steel grain bins. In that world, a bad crop means no new combine. In the worst case, like back in the mid 80s, people lost their farms. Yet in developing countries, on average women make up 43 percent of the agricultural labor force. And production of food is often at a subsistence level that barely yields enough to feed the family in less-developed regions of the world.
One of the members of the delegation was Dr. Digvir S. Jayas, Vice President of Research from the University of Manitoba, who pointed out to me that outside of the developed world, 20-50 percent of farmers’ production was lost to post-harvest spoilage. In places like this, a bad crop means they need to sell the family cow to pay the bills, which means no milk next year; or, in many cases, they starve. Food security is a serious problem, and though not simple, or easy, there are solutions, to which I strongly believe our products contribute.
My frustration was that many of the attendees blame modern farming and markets for these issues. They reel off speculation (not excessive speculation – any speculation) as a problem right up there with investment, free trade and fertilizer (one group argued we should only have organic farming). They talk about price transparency but don’t really understand what that means. While we understand we’re part of the solution, they see us as part of the problem. I can tell you we as an industry have work to do on two fronts. First, we need to help people understand the role of a futures market and the concepts of price transparency and risk transfer – in particular the latter. The concept was not well understood. Secondly, we need to become more aware of the global food shortage problem and work even harder, in many cases doing what we are doing today – making efficient markets – to help solve it. I know I will. We are part of the solution.
Tim Andriesen is the managing director of agricultural commodities and alternative investment products at CME Group.