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

1. Two Peas in a Pod: Global Food and Finance and the Value of Geographical Indications V Qualivita Forum on Food Quality 29-30 November 2011 Judson Berkey www.acalltofarms.info

2. Contents • Growth of Global Food and Finance • Sustaining Production - Capital & Soil • Limiting Externalities – Liquidity & Centralization • Ensuring Stability – Leverage & Waste • Conclusions

3. Growth of Global Food and Finance

4. Growth of Global Finance • The prevailing trend for the past 25 years was global banking growth • International growth even more than national growth • E.g. 10x increase in foreign owned assets from 1980 to 2005 • This is not a priori bad as any value judgment should focus on impact on competition rather than pure size • However scale is not without other impacts and regulations need to adapt to keep up Source: Banking Concentration, Financial Stability and Public Policy, Kevin Davis (2007)

5. Growth of Global Food • There is a parallel in the food sector which also became more global over the past decades • Top 20 manufacturers account for approx 80% of value add in the sector; 2x what they did in early 80s • Top 10 grocers have increased share of market by more than 25% since early 90s • 90% of agrochemicals were sold by 20 firms in ’80s, 10 firms in ’90s and now 7 firms in ’00s • While firms are “global” in operation the impacts are often felt “locally” Source: Food Industrialisation and Food Power: Implications for Food Governance, Lang (2004)

6. Sustaining Production – Capital and Soil

7. Capital Needs in Finance • In the financial crisis, firms had to raise significant amounts of capital to cover write-downs and asset losses • Figures still increasing but IMF has estimated ultimate cost in excess of USD 1 trillion • National regulators and central banks played a key role in ensuring capital and liquidity • New regulations (Basel III) have been passed to require more capital and liquidity (both quantity and quality) Top 15 banks = USD 412 B Source: Bloomberg, USD billions Source: McKinsey, EUR billions

8. Growth of Global Food • The food sector is also struggling to ensure a sufficient base of capital assets are available for continued production • FAO estimates 25% of farmland is degraded • 70% of freshwater withdraw for irrigation • “Peak” oil & phosphorous • Sustainable production standards are being developed • No till agriculture • Integrated pest management • Bio / Organic Source: “Land Commodities | Farmland Investment | Agriculture Investments,” Land Commodities, accessed 22 Oct 2011, www.landcommodities.com

9. The Role of GIs • There are a variety of regulatory and self regulatory mechanisms that can be used to facilitate sustainable production practices • GIs are particularly interesting given that they often have long production histories that may effectively prove sustainability • 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 Adapted from analysis by T. Becker in Estey Centre Journal of International Law and Trade Policy “Furthermore, citations of the mortadella can be found in the final pages of The Decameron by Giovanni Boccaccio…” Qualigeo Atlas “A document established in 1115 by the first count of Gruyère….” Qualigeo Atlas

10. Limiting Externalities – Liquidity & Centralization

11. System Effects of Loss of Liquidity • During the crisis (and still today in the EU) there is a concern that as banks raise capital and preserve liquidity they will reduce loans, particularly to the real economy and emerging markets • This could have negative impacts on the broader economic system given the role of finance in facilitating business development and trade Source: BIS Quarterly Review (Sep 10); Chui, Domanski, Kugler, Shek

12. Externalities in Food Production • The production of food also has externalities that may create system wide impacts on natural resources - e.g. • Agriculture and deforestation combined are the top contributor to green house gas emissions • Food production is also a major source of water and land use • Add in bio-fuels and there may be ongoing trade-offs on land use between food, feed, fuel, fiber, or leaving it fallow (i.e. carbon sink) Source: “Mitigating Climate Change Through Agriculture” Deutsche Bank Research (Sep 2011), Claire Schaffnit-Chatterjee

13. The Role of GIs • GIs are by definition rooted in their local physical environments • When combined with their long histories of production they may have found naturally found a balance that help ensure ongoing sustainable 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

14. Ensuring Stability – Leverage and Waste

15. Leverage as a Potential Tipping Point • Many of the banks that suffered the largest losses were also the most highly leveraged before the crisis • For example, a bank leveraged 40x will destroy all of its capital with a 2.5% loss in value of the assets financed • Regulators have passed leverage ratios as a means to address this potential weakness • in Switzerland banks must meet a 3% ratio – i.e. cannot have more than 33x leverage

16. Feeding a Growing Population • With world population having reached 7 billion and projections of 9-10 billion in future there is a concern about how to ensure sufficient food • Oft-quoted estimates state food production must rise 50% by 2030 & 70% by 2050 • Changes in dietary habits may make the problem worse given the calorie intensity of meat production • Reducing the waste in the system (i.e. the over-leveraging of land and other resources) may help R. Leemann, UBS Wealth Management Research, Agribusiness (28 Apr 2010)

17. The Role of GIs • 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 production • 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) D.. Pantini, Qualigeo.EU Isse 1, Quality Producdts and Policies in the European Union

18. Conclusions “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

19. General Observations • We are in a period of re-balancing between the philosophies of de-regulation / globalization and regulation / nationalism. • There are serious questions being raised about not only the equality of income but also the equality of opportunity. • There is a positive way forward - World 3.0 (P. Ghemawat) that balances globalization benefits with national regulatory protections. • GIs are a tool that can help find this balance for food.