Two Peas in a Pod: Global Food and Two Peas in a Pod: Global Food and Finance and the Value of Finance and the Value of Geographical IndicationsGeographical Indications

V Qualivita Forum on Food QualityV Qualivita Forum on Food Quality

29-30 November 201129-30 November 2011

Judson BerkeyJudson Berkey

www.acalltofarms.info www.acalltofarms.info

22

ContentsContents

Growth of Global Food and FinanceGrowth of Global Food and Finance

Sustaining Production - Capital & SoilSustaining Production - Capital & Soil

Limiting Externalities – Liquidity & CentralizationLimiting Externalities – Liquidity & Centralization

Ensuring Stability – Leverage & WasteEnsuring Stability – Leverage & Waste

ConclusionsConclusions

Growth of Global Food and Finance Growth of Global Food and Finance

44

Growth of Global FinanceGrowth of Global Finance The prevailing trend for The prevailing trend for

the past 25 years was the past 25 years was global banking growthglobal banking growth• International growth International growth

even more than even more than national growthnational growth

• E.g. 10x increase in E.g. 10x increase in foreign owned assets foreign owned assets from 1980 to 2005from 1980 to 2005

This is not a priori bad This is not a priori bad as any value judgment as any value judgment should focus on impact should focus on impact on competition rather on competition rather than pure sizethan pure size

However scale is not However scale is not without other impacts without other impacts and regulations need to and regulations need to adapt to keep upadapt to keep up

Source: Banking Concentration, Financial Stability and Public Policy, Kevin Davis (2007)

55

Growth of Global FoodGrowth of Global Food There is a parallel in the There is a parallel in the

food sector which also food sector which also became more global became more global over the past decadesover the past decades• Top 20 manufacturers Top 20 manufacturers

account for approx account for approx 80% of value add in the 80% of value add in the sector; 2x what they sector; 2x what they did in early 80sdid in early 80s

• Top 10 grocers have Top 10 grocers have increased share of increased share of market by more than market by more than 25% since early 90s25% since early 90s

• 90% of agrochemicals 90% of agrochemicals were sold by 20 firms were sold by 20 firms in ’80s, 10 firms in ’90s in ’80s, 10 firms in ’90s and now 7 firms in ’00sand now 7 firms in ’00s

While firms are “global” While firms are “global” in operation the impacts in operation the impacts are often felt “locally” are often felt “locally”

Source: Food Industrialisation and Food Power: Implications for Food Governance, Lang (2004)

Sustaining Production – Capital and Sustaining Production – Capital and SoilSoil

77

Capital Needs in FinanceCapital Needs in Finance In the financial crisis, In the financial crisis,

firms had to raise firms had to raise significant amounts of significant amounts of capital to cover write-capital to cover write-downs and asset lossesdowns and asset losses• Figures still increasing Figures still increasing

but IMF has estimated but IMF has estimated ultimate cost in excess ultimate cost in excess of USD 1 trillionof USD 1 trillion

• National regulators National regulators and central banks and central banks played a key role in played a key role in ensuring capital and ensuring capital and liquidityliquidity

New regulations (Basel New regulations (Basel III) have been passed to III) have been passed to require more capital require more capital and liquidity (both and liquidity (both quantity and quality)quantity and quality)

Source: Bloomberg, USD billions

Source: McKinsey, EUR billions

Top 15 banks = USD 412 B

88

Growth of Global FoodGrowth of Global Food The food sector is also The food sector is also

struggling to ensure a struggling to ensure a sufficient base of capital sufficient base of capital assets are available for assets are available for continued productioncontinued production• FAO estimates 25% of FAO estimates 25% of

farmland is degraded farmland is degraded • 70% of freshwater 70% of freshwater

withdraw for irrigationwithdraw for irrigation• ““Peak” oil & Peak” oil &

phosphorousphosphorous Sustainable production Sustainable production

standards are being standards are being developeddeveloped• No till agricultureNo till agriculture• Integrated pest Integrated pest

managementmanagement• Bio / OrganicBio / Organic

Source: “Land Commodities | Farmland Investment | Agriculture Investments,” Land Commodities, accessed 22 Oct 2011, www.landcommodities.com

99

The Role of GIsThe Role of GIs There are a variety of regulatory and self regulatory mechanisms There are a variety of regulatory and self regulatory mechanisms

that can be used to facilitate sustainable production practicesthat can be used to facilitate sustainable production practices GIs are particularly interesting given that they often have long GIs are particularly interesting given that they often have long

production histories that may effectively prove sustainability production histories that may effectively prove sustainability

Adapted from analysis by T. Becker in Estey Centre Journal of International Law and Trade Policy

• Geographic Indications (GIs) – sui generis, collectively owned, connected to place, open to all

• Collective Marks – trademark, personally owned self-defined criteria, owner licensed

• Quality Assurance (QA) – public/private, class of products, usually open for use (e.g. Demeter, Label Rouge, Red Tractor, Private Labels)

• Bio/Organic – legisl. defined production criteria

“A document established in 1115 by the first count of Gruyère….” Qualigeo Atlas

“Furthermore, citations of the mortadella can be found in the final pages of The Decameron by Giovanni Boccaccio…” Qualigeo Atlas

GI

QA Bio

Collective Mark

I taly

Austria

Switz.

Ger./UK

Spain

France

USA?USA?

GI

QA Bio

Collective Mark

I taly

Austria

Switz.

Ger./UK

Spain

France

USA?USA?

Limiting Externalities – Liquidity & Limiting Externalities – Liquidity & CentralizationCentralization

1111

System Effects of Loss of LiquiditySystem Effects of Loss of Liquidity During the crisis (and During the crisis (and

still today in the EU) still today in the EU) there is a concern that there is a concern that as banks raise capital as banks raise capital and preserve liquidity and preserve liquidity they will reduce loans, they will reduce loans, particularly to the real particularly to the real economy and emerging economy and emerging marketsmarkets

This could have This could have negative impacts on negative impacts on the broader economic the broader economic system given the role system given the role of finance in facilitating of finance in facilitating business development business development and tradeand trade

Source: BIS Quarterly Review (Sep 10); Chui, Domanski, Kugler, Shek

1212

Externalities in Food ProductionExternalities in Food Production The production of food The production of food

also has externalities also has externalities that may create system that may create system wide impacts on natural wide impacts on natural resources - e.g. resources - e.g. • Agriculture and Agriculture and

deforestation combined deforestation combined are the top contributor are the top contributor to green house gas to green house gas emissionsemissions

• Food production is also Food production is also a major source of water a major source of water and land useand land use

Add in bio-fuels and Add in bio-fuels and there may be ongoing there may be ongoing trade-offs on land use trade-offs on land use between food, feed, fuel, between food, feed, fuel, fiber, or leaving it fallow fiber, or leaving it fallow (i.e. carbon sink)(i.e. carbon sink) Source: “Mitigating Climate Change Through Agriculture” Deutsche

Bank Research (Sep 2011), Claire Schaffnit-Chatterjee

1313

The Role of GIsThe Role of GIs GIs are by definition rooted in their local physical environmentsGIs are by definition rooted in their local physical environments When combined with their long histories of production they may When combined with their long histories of production they may

have found naturally found a balance that help ensure ongoing have found naturally found a balance that help ensure ongoing sustainable resource usesustainable resource use

The production area of Culatello di Zibello PDI is located in the municipal areas of Polesine, Busseto, Zibello, Soragna, Roccabianca, San Secondo, Sissa e Colorno, in the district of Parma, in the Emilia Romagna region.

Qualigeo Atlas

Ensuring Stability – Leverage and Ensuring Stability – Leverage and WasteWaste

1515

Leverage as a Potential Tipping PointLeverage as a Potential Tipping Point Many of the banks that Many of the banks that

suffered the largest losses suffered the largest losses were also the most highly were also the most highly leveraged before the crisisleveraged before the crisis• For example, a bank For example, a bank

leveraged 40x will destroy leveraged 40x will destroy all of its capital with a all of its capital with a 2.5% loss in value of the 2.5% loss in value of the assets financed assets financed

Regulators have passed Regulators have passed leverage ratios as a means leverage ratios as a means to address this potential to address this potential weaknessweakness• in Switzerland banks must in Switzerland banks must

meet a 3% ratio – i.e. meet a 3% ratio – i.e. cannot have more than cannot have more than 33x leverage33x leverage

1616

Feeding a Growing PopulationFeeding a Growing Population With world population With world population

having reached 7 billion having reached 7 billion and projections of 9-10 and projections of 9-10 billion in future there is a billion in future there is a concern about how to concern about how to ensure sufficient foodensure sufficient food• Oft-quoted estimates state Oft-quoted estimates state

food production must rise food production must rise 50% by 2030 & 70% by 50% by 2030 & 70% by 20502050

• Changes in dietary habits Changes in dietary habits may make the problem may make the problem worse given the calorie worse given the calorie intensity of meat intensity of meat productionproduction

Reducing the waste in the Reducing the waste in the system (i.e. the over-system (i.e. the over-leveraging of land and leveraging of land and other resources) may helpother resources) may help

R. Leemann, UBS Wealth Management Research, Agribusiness (28 Apr 2010)

1717

The Role of GIsThe Role of GIs GIs again provide an interesting example of products that are place specific (and GIs again provide an interesting example of products that are place specific (and

thus adapted to local tastes) and have a proven record of continued productionthus adapted to local tastes) and have a proven record of continued production Maintaining their scale without falling prey to unsustainable growth may be key to Maintaining their scale without falling prey to unsustainable growth may be key to

preserving this status (e.g. ability for producer organizations to regulate volumes)preserving this status (e.g. ability for producer organizations to regulate volumes)

D.. Pantini, Qualigeo.EU Isse 1, Quality Producdts and Policies in the European Union

ConclusionsConclusions“I would sympathize… with those who would minimize rather than those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel – these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily local.”

John Maynard Keynes, National Self Sufficiency, 1933

1919

General ObservationsGeneral Observations We are in a period of re-balancing between the philosophies of de-We are in a period of re-balancing between the philosophies of de-

regulation / globalization and regulation / nationalism.regulation / globalization and regulation / nationalism.

There are serious questions being raised about not only the equality There are serious questions being raised about not only the equality of income but also the equality of opportunity.of income but also the equality of opportunity.

There is a positive way forward - World 3.0 (P. Ghemawat) that There is a positive way forward - World 3.0 (P. Ghemawat) that balances globalization benefits with national regulatory protections.balances globalization benefits with national regulatory protections.

GIs are a tool that can help find this balance for food. GIs are a tool that can help find this balance for food.