How much have U.S. ethanol policies pushed up corn prices? And how much have these higher prices cost developing countries dependent on imports for their staple foods? And if one of those countries is the chair of the G20, will it use its considerable influence over the agenda to demand policy changes?
The answers to the first two questions are clear from my new study, “The Cost to Mexico of U.S. Corn Ethanol Expansion” U.S. ethanol expansion has pushed prices up 20% or more in recent years, and that cost Mexico, which imports one-third of its corn, an extra $1.5-$3.2 billion from 2006-11.
The answer to the last question is less clear. Mexico is indeed the chair of the G20, whose vice ministers of agriculture meet tomorrow in Mexico City to set the G20’s food-security agenda in advance of the June 18-19 G20 summit. The Mexican government issued a report that suggests little ambition on food security, but hopefully our biofuels report will bring home why Mexico should lead and not follow on biofuels in the G20.
When it comes to food security and agriculture, the G20 seems to be all too willing to take the credit while passing the buck. It wants to set the agenda on world food security. But it has been reluctant to require the G20 governments themselves to coordinate regulatory changes to address high and rising food prices or put the kind of money needed into agricultural investment in the world’s poorest countries. Rather, it seems to be passing on responsibility for establishing rules and governance mechanisms to address food security onto others, while at the same time blocking others from discussing measures that might request changes to the G20’s policies.
For a while, in the immediate aftermath of the Global Financial Crisis of late 2008, the G20 came into its own. This group of (self-styled) leaders of the global economy, representing governments in nations contributing more than half of global GDP, came together in April 2009 to pledge a co-ordinated response to unprecedented global economic threats. This not only had a role in staving off immediate disaster through the implementation of broadly Keynesian responses, but also promise more for the future. This was not just vainglorious self-importance on the part of these governments. There was a genuine absence of global institutions that were sufficiently small as to be coherent (something that was not as possible in the United Nations, given its size and structure) or even seen as generally reliable, flexible and aware (given how the IMF has discredited itself by awarding good marks to so many economies just before they imploded financially).
But since then, the drama in the world economy could even have been Hamlet without the Prince of Denmark, as Act 2 of the global financial crisis unfolds. In its subsequent meetings, the G20 has been much more about style than substance – and sometimes the style has also been lacking. At least, in its Seoul meeting in 2010, the G20 committed themselves to promoting inclusive and sustainable economic growth. They argued that ‘for prosperity to be sustained it must be shared’ and also endorsed ‘green growth’, which promised to decouple economic expansion from environmental degradation.
The storm brewing in Europe makes it all the more important that all countries prepare themselves for dangerous economic shocks. For developing countries, as we learned in 2008, shocks are transmitted through multiple channels, a key one of which is capital flows.
The exit of some countries from the euro, or even its break-up, is now a high probability. There are two big implications: capital flight within the EU and the risk aversion by global investors. Imagine the accelerated flight from Greek banks towards German ones if Greece no longer participates in the euro project. The most recent example would be the Icelandic banking collapse of 2008, at which the Icelandic authorities resorted to strong foreign exchange and capital outflow controls, controls that were even endorsed by the IMF. However, as the report explains, within the EU there are deeply entrenched policy hurdles, not least of which is the Lisbon Treaty, which would prevent the Greek authorities from trying to stem a run on their banks in the same way the Icelandic authorities did.
Triple Crisis blogger Ilene Grabel was recently interviewed by the Real News Network on why the major institutions governing international economic affairs in Europe, the G20, IMF, ECB and European governments, have failed to develop comprehensive responses to the eurozone crisis.
Triple Crisis blogger Matías Vernengo was recently interviewed by the Real News Network on Europe’s new fiscal compact, which he argues is based on the interests of bankers, large companies and the European elite.
The G20 meeting in Cannes earlier this month was derailed by the pressing eurozone crisis. Actors were disappointed if they were looking for concrete action on global imbalances and the food crisis, let alone the new global monetary system that French President Nicolas Sarkozyboasted would be the goal of the summit when he first took the helm as host. But behind the scenes, the G20 actually delivered on a set of “coherent conclusions” on the management of speculative capital flows in emerging markets that should not be overlooked, especially by the International Monetary Fund (IMF).
Sarkozy assumed his role as head of the G20 during a period of excessive volatility in global capital markets that continues to this day. Because of loose monetary policy, low interest rates and a slow recovery in the North Atlantic, accompanied by high interest rates and rapid growth in emerging markets, the world’s investors flocked from north to south – to Brazil, Chile, South Korea, Taiwan and others. More recently, in response to eurozone jitters, capital has retreated from emerging markets to the “safety” of the United States – showing how dangerous speculative capital flows can be. New work released by the IMF this week suggests they are picking and choosing their direction from the G20.