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

Karen Harper, Oakland LMV

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?

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)