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The Global Food Crisis:How the Market Has Driven up Prices and Hunger

Anger at rapidly rising food prices has now been surpassed in the US by anger at the high cost of gas and getting to work. For the 2 billion ordinary people around the globe that live on less than $2 a day, the current global food crisis is having a huge impact. It is likely that more people will starve to death in the coming months than die as a result of all the current wars on the planet combined. How did this situation arise?
Karen Harper, Oakland LMV
 Kaznrob@sbcglobal.net

There has been a worldwide increase in prices in certain food commodities especially cereals, which are the staple foods for a huge proportion of the world's population. Primarily affected are wheat, corn, rice and soybeans. These price increases in turn are affecting the prices of other foods like dairy products and eggs. Slightly less affected at this point are the prices of meats and vegetables.
For example, globally, food prices have increased by 83% in the past 36 months, 1 with the greatest price increase happening since the summer of 2007. Rice prices in Asia have increased two to threefold in the recent period and specifically doubled this year. Thai rice at the end of 2007 was $320 per metric ton, in May 2008 it was $1100 per metric ton.2 In May of 2008, corn in the US was priced at $5.50 a bushel, which is double the 2007 price, 3 and at the Minneapolis Grain Exchange in February wheat prices had quadrupled in one year to over $15 a bushel.4 Even food commodities that have primarily local markets have increased in price: lentils in India have increased from $300 to $800 per ton during this same period.5 In Burundi a product called farine noir, a combination of black flour and moldy cassava, which is sold as a subsistence food to the very poor, saw its price triple in eight weeks.6
In China food inflation was estimated at about 18% for last year.7 In the Middle-east, which is net food importer, the food import bill has increased 170% since 2000. In Egypt and Yemen alone food prices have increased almost 60% in one year.8 In Pakistan food and beverage prices increased by over 20% in March of this year alone.9
Worldwide Starvation, Increased Revolts
The biggest impact from price increases are on the world's poorest people. There are many references to the "world's bottom billion," which is generally the population who live on less than $1 per day, and is currently about 880 million people. This is an arbitrary dividing line, and in fact, 2.1 billion people live on less than $2-a day.10 The UN estimates that with the current rise in food prices 100-130 million more people are at risk from hunger than they were 8 months ago.11 In the world's under developed countries the poorest people spend about 40-70% of their incomes on food, compared to 10-15% in the industrialized nations.12 So it is clear how this food crisis is greater for those living in poverty.
In response to these dramatic price increases, there has been increased unrest in dozens of countries in the form of strikes and riots. Haiti, Egypt, Yemen, and the Philippines have had some forms of rioting. In Haiti the Prime Minister was forced to resign in response to the unrest over food prices. In Lebanon, a general strike was organized in response to price increases, and calls for strikes in Egypt have been aggressively suppressed by the US-backed regime there.
Some countries, desperate to prevent food-related unrest, have introduced increased price controls for food. India and Vietnam, the #2 and #3 rice exporters in the world, have begun export restrictions.13 Also countries such as Argentina, China, Cambodia, and Indonesia have introduced similar measures.
India, under pressure from its population's rising anger, shut down its food futures markets to try to dampen price fluctuations. Indonesia, Thailand, and Cambodia are providing subsidized rice to their populations, and the government of the Philippines has been buying up massive amounts of rice, which it then plans to provide to its population at a lower cost. However when the Philippines government tried to buy up 500,000 tons of rice on the global market, only 300,000 tons were available for purchase.14
Energy and Food Crisis Converge
There are multiple reasons why food prices are increasing, primary among these is the increase in fuel costs. Currently oil is selling at about $135 a barrel, which has more than doubled since last year's high price. This is a huge additional expense for food production, especially for factory farming practices. These are very fuel-intense and highly mechanized, with the use of tractors and other heavy machinery. Also, with globalized food production, there is increased shipping of food around the globe, which is consuming more fuel. This is entirely a market-driven process. Food production is geared toward producing large volumes of food cheaply, which is then shipped to where they are most likely to be sold for the most profit.
This process increases the dependence on cash crops for many farmers in the developing world who hope to produce enough to make a meager living for themselves. However, this makes many poor rural dwellers more vulnerable to the market. Inherent in capitalism's inequality, they will never be paid the full value of the food products they are producing, so they can never afford to buy back what they are producing. In areas where farm productivity is relatively low it is impossible for them to make enough income from what they produce to buy back enough basic food for themselves and their families. This just puts them at a further disadvantage compared to their counterparts in more developed countries whose farming techniques are more productive per acre: simply irrigating land doubles its productivity compared to non-irrigated land. In the US, farmers can often yield 150 bushels of corn per acre, compared to farms in the under developed world which average about 30 bushels per acre.15
On top of increased fuel prices, there is increased demand for food worldwide. With rising economic growth in China and India swelling the ranks of the middle class in those countries, there is increased demand for meat. Every kilogram of beef produced requires 10 kilograms of grain, and each kilogram of pork requires about 4.16 This grain is being diverted to animal feed, or the land is being diverted away from human food production to animal food production.
Food for Cars
Other food crops, especially corn, and soy to a lesser extent, are also being diverted to bio-fuel production. Last year a record 13.1 billion bushels of corn was grown in the US on 85 million acres; 22% of that was diverted to ethanol production.17 US farmers get a 51 cent tax credit per gallon of ethanol produced. The current farm bill in Congress will likely decrease this to 45 cents, but this is unlikely to have a major effect on the colossal production of ethanol from corn. This push for bio-fuels is a huge subsidy to big corn growers and not necessarily a greener source of fuel.
Increased demand for corn for bio-fuels will lead to diversion of land from growing other crops which will in turn increase the cost for animal feeds and other food production. The UN estimates that the diversion of corn to bio-fuels has already contributed 10% to the current rise in food prices, while the IMF estimates it at 20-30%.18 Patrick Schnable, an agronomy professor at Iowa State University made this point, "Crops will go to the highest bidder, and we in the western world are willing to pay more for fuel than poor people are able to pay for food."19
Global warming is also likely contributing a small amount to the price increase through the effects of climate change on changing crop patterns. An ongoing drought in Australia for the last few years has significantly decreased their wheat production.
Finally, financial speculation on food prices has also contributed to the increase. It is discounted as a significant factor in the capitalist press. They are very quick to rule it out as a possible contributor to escalating prices. However, in an interview with the Financial Times Kemal Dervis, head of the UN Development Program argued, "We are seeing excessively expansionary economic policies, just as we did when the dotcom bubble burst" and, "We face a new phenomenon of commodity prices going through the roof at a time of recession, or at least slowdown, in the advanced economies... . I cannot help feeling that liquidity in the system is looking for an outlet." 20
Speculation Fuels Runaway Prices
An important element of capitalism is that it always seeks to maximize its profits. The current housing and credit crisis means that real estate is not as attractive as a source of profits, and consequently food futures have become more appealing. Food futures, which are the basis of this speculation, are when food is bought before it is harvested and delivered. Those who buy the futures at one price can turn around and sell at whatever the market price is later. There is a huge speculative element in this, as those buying the food futures are hoping that food prices will rise. Tim Hannagan, a senior grain analyst from a major Chicago trading company said, "I've never seen a rice (futures) market until this year in my three decades of trading grains." 21
Middlemen stand to make huge amounts of money, just as we have seen in recent years in the housing market. Grains are being stockpiled, not just by traders, but by governments, which fuels panic buying and further increases the mammoth potential for profiteering. Around Christmas of 2007, fuelled by the low dollar, investors staged a run on the US wheat harvest. The price skyrocketed.
Jeff Voge, the Chairman of the Kansas City Board of Trade, said, "We have never seen anything like this before. Prices are going up more in one day than they have in entire years in the past. But no matter what the price there always seems to be a buyer... this isn't just any commodity. It is food, and people need to eat." 22
Meanwhile, according to the European Commission, two-thirds of the recent rise in food prices can be attributed to increased costs of ingredients. Bread increased 10% between February 2007 and 2008, but doubling the price of wheat should only have led to a price increase of 3%. From their report, "energy, transport, and labor costs have risen. But it is possible that somewhere along the food chain someone may be doing well out of this." 23
Short Term Perspectives
There is no perspective for a short-term decrease in food prices. None of the fundamental causes are likely to change soon. Financial Times analyst, Martin Wolf, argues, "prices are likely to remain relatively elevated, by historical standards, unless (or until) energy prices tumble."24 It is hard to imagine any perspective of energy prices tumbling. Energy is likely to continue to become more expensive. This will, in turn, increase world wide suffering, poverty, starvation, and social unrest, particularly in the under developed world, but capitalism will continue to push to maximize profits as long as it can get away with it.
Increased prices of their commodities will still fail to help poor cash crop farmers, and the general price increases will only make it harder for them. In fact, Kemal Dervis, the UN development notes that "we have been saying Africans cannot grow food or cotton because of low world prices, in a sense, there is an opportunity here. But on the negative side you have to remember that higher energy prices affect the prices of fertilizer and other inputs. Farmers cannot produce more because the inputs are so expensive." 25
Once again we are facing the undeniable fact of capitalism that there will always be an underclass, and those on the bottom need to stay on the bottom for capitalism to maximize its profits.
Capitalism's Alternative
Capitalism's solutions to the global food crisis would be aimed at the preservation of the market and maintaining maximum profits. Their answers would include an increased use and reliance on genetically modified foods. In Japan, where the population has a deep aversion to genetically modified foods, manufacturers have started importing GM foods for use in processed foods for the first time.26 The capitalists will push also to eliminate subsidies and tariffs to decrease regulations and allow the market to "work things out". This will be at the expense of poor countries and to the benefit of richer ones.
Big Business will also push to increase production per acre, which is more energy and water intensive, more chemically reliant, more destructive to the environment, and ultimately unsustainable.
The market is driven by profits and ignores the needs of humanity. It depends on and perpetuates massive imbalances and inequality worldwide. To solve the global food crisis the market system itself must be destroyed.
In the midst of rising global food prices there is also extreme global caloric imbalances with massive levels of starvation in the under developed world and unprecedented levels of obesity in the developed world. Calories are put into the global market place and then they follow the Dollar or Euros. In the developed world it is common to throw food calories away. Bulimics flush them down the toilet, while others exercise hard to get rid of them. Capitalism pushes them our way and we are desperate to get rid of them. Meanwhile there is brutal starvation and malnutrition across the entire globe. As long as the market exists the imbalance will continue.
We also need to focus on decreasing consumption in developed nations, not just of unnecessary calories, but also of consumer goods. A change in lifestyles will decrease the general strain on global resources, making more resources available for food production.
Socialism, Democracy and Ending the Market
By replacing capitalism with democratic Socialism we can begin to plan food production according to the needs of people worldwide and with a better understanding of resources worldwide to try to decrease the global shipping of food. This may mean any of the following: do we eat foods only when they are locally in season? Do we only eat foods grown in our geographic area? Do we discourage development in places such as deserts where there is inadequate soil and water to produce enough food to support large populations? Do we try to increase food production within urban areas. These questions need to be discussed, and will only be seriously taken up once the market itself is eliminated.
Cuba, after the fall of the Soviet Union, lost access to cheap Soviet oil, and essentially became close to a post-petroleum economy. As combine harvesters were left to rust, wheat production collapsed and the caloric intake of Cubans also collapsed. In response the Stalinist regime led the development of infill urban organic gardens all over the island. These were able to produce a massive increase in food for the population. Local organic gardens in Havana supply 90% of all the fruit and vegetables consumed by the city's two million residents.27 Similarly, where lawns were abandoned for agriculture during World War Two, Victory Gardens provided the US with 40% of all its vegetables. 28
We can see that under democratic socialist planning there is a perspective to better provide for the world's food needs in a way that capitalism has failed to do. Big business will never be able to feed the world because the profit motive can never be separated from capitalism.

Sources
Business Week 5-12-08 Solutions for a Hunger Crisis (1,19)
Business Week 5-1-08 What Spurred the Run on Rice? (2,13,14, 21)
Business Week 5-1-08 Is Ethanol Getting a Bum Rap (3,15,17)
Mgex.com (4)
Financial Times 4-26-08 UN says Oil Rise Hits Food Prices Harder (5,18)
Business Week 5-12-08 Food Emergency: On the Front Line with the U.N.'s Josette Sheeran (6,11)
Voanews.com (7)
Financial Times 5-7-08 Mideast Reels as Hunger Outgrows Oil Revenues (8)
Financial Times 5-12-08 UAE Investors Buy Pakistan Farm Land (9)
World Bank 2008 World Development Report (10)
Financial Times 4-30-08 The Food Crisis is a Chance to Reform Global Agriculture (12, 24 )
Earthsave.ca (16 )
Financial Times 5-7-08 Warning over Dangers of Inflation for World's Poor (20,25)
Washington Post 4-27-08 The New Economics of Hunger (22,26)
Financial Times 4-30-08 Food Prices Have Risen Faster Than Justified, Argues Brussels (23)
The Independent 8-8-06 The Good Life in Cuba: Havana's Green Revolution (27)
PBS.Org Victory Gardens (28)