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Food crisis 2008

NewsNotes, July-August 2008  

            he current crisis of rapidly rising food prices is caused by a perfect storm of several causes. Demands from the IMF in the 1980s and 1990s, followed by requirements in trade agreements, caused a number of countries in the global South to move from food self-sufficiency to dependence on imports, making them more vulnerable to world food prices. Added to this are more recent problems with severe weather, significant shifts in land use, rising fuel prices, and a falling dollar. Unfortunately, most of the causes cannot be corrected quickly, but will require years of structural changes in how we produce and consume food around the world.  

Agriculture liberalization: During the 1980s debt crisis, many southern governments were forced to borrow money from the IMF, World Bank and other international sources. In return for the loans, governments agreed to liberalize their economies by, among other things, eliminating state credit and subsidies for farmers, price supports, marketing boards, and extension services, all of which were considered as barriers to trade. At the same time, protective tariffs and quotas were lowered, resulting in a flood of cheaper imported food. The result was a huge increase in food imports for many of these countries. At the time of decolonization, in the 1960s, Africa was a net food exporter. Today the continent imports 25 percent of its food. Globally, about 70 percent of southern countries are net food importers.

            While mandating lowered state assistance for agriculture, the international financial institutions cut their own agricultural aid as well. Between 1980 and 2005, agricultural aid fell in real terms by 54 percent, from $8 to $3.4 billion. Today, less than four percent of all foreign aid goes to agriculture with an even smaller percentage going to support small-scale farmers. This massive disinvestment will take years to overcome.

Another aspect of agriculture liberalization that took place was a decrease in the amount of grains stored as reserves. Global rice and corn stocks have shrunk by almost half since the year 2000. With lower reserves, governments are less capable of confronting poor crop years and prices fluctuate more wildly.  

Changes in land use: In more recent years, there have been significant changes in how we use land, with land previously used for directly consumed food being either abandoned or used for other purposes. The policies described above have devastated small farmers around the world, contributing to the abandonment of numerous farms and an increase in urbanization. Both of these trends result in less land used for farming.

            More recently, many countries are working to increase the production of crops to be converted into agrofuels (referred to as biofuels by many). Land that once produced food to eat is now going to feed our insatiable appetite for car fuel. While cereal use for food and feed increased by four and seven percent since 2000, respectively, the use of cereals for industrial purposes — such as agrofuel production — increased by more than 25 percent. In the U.S., of the 48 million tons by which domestic U.S. consumption of maize increased in 2007, nearly 30 million were used exclusively for ethanol (agrofuel) production. This race to grow more fuel for transportation is a futile struggle as, according to one study, even converting all the world’s grains to ethanol would yield only 11 percent of total world oil demand. During the recent FAO meeting on the food crisis in early June, countries from the global south complained veraciously about the role of growing agrofuel production resulting in rising food prices. Yet the final document from the meeting recommended nothing other than further study of the effects of agrofuels on food prices. Farmers’ organizations protested and were barred from entering the building where the negotiations were being held. These organizations call for a moratorium on agrofuel expansion, if not a complete abandonment of agrofuels.

            Another factor that has had a strong effect of changing land use is the increase in meat consumption by the growing middle classes of China and India. As people make more money, they tend to eat more meat and dairy products. In China, meat consumption has risen from 20 kilograms per person in 1980 to 50 kilograms today. Beef is a very inefficient use of grains, as to produce one pound of meat requires eight pounds of grains. Chicken is more efficient, requiring about two kilograms of grains. The large increase in meat consumption has resulted in a drastic increase in the need for grains. While 100 million tons of grain are being diverted to make fuel this year, over seven times as much (760 million tons) will be used to feed animals. Another concern with so many cattle is that every cow produces more greenhouse gases in the form of methane per day than the average 4x4 on a 33-mile drive. They are a significant part of the world’s production of global warming gases.  

Climate change: Climate change appears to play an increasingly significant role in the food crisis. Some of today’s food crisis was caused by poor harvests in Australia and other large food exporting countries. The tendency will be for an increase in difficult farming weather in much of the world as dry places become drier, leading to longer droughts and fires; and for moist places to receive more rain with resultant flooding and lost crops. Ironically, the U.S. and European nations, the countries responsible for most of the global greenhouse gases, may actually benefit from climate change as their growing seasons should expand with rising overall temperatures. Meanwhile most countries in the tropics, who contributed little to our climate problems, will feel the brunt of the negative changes.  

Fuel costs: Rising fuel costs also have a large effect on food prices as our entire food system is highly dependent on fossil fuels. An increasing amount of food is produced on large agribusiness, usually monocrop farms. These types of farms use tractors to prepare the land, plant seeds, spread fertilizers and to harvest. They also usually require large doses of pesticides and fertilizers, all of which are made from fossil fuels. Finally, a large part of agricultural products are transported thousands of miles to be consumed. Increases in the price of fossil fuels makes food more expensive at every step. This problem will most likely continue as we are near if not already passed the point of peak oil, where production levels will steadily fall, further raising fuel prices.  

Falling value of U.S. dollar: The weakening dollar also drives up food prices. As oil is sold mostly in dollars, oil exporters must raise the price per barrel to retain the same level of purchase power against other currencies that are appreciating. Most food commodities are also sold in dollars and so experience the same effect. Another phenomenon with the falling dollar is that, after losing almost half its value against the euro, central banks and foreign investors are looking for better places to store their money. “If the U.S. wants to remain the magnet for world capital flows it became during the 1990s, it will have to allow the savers of the world to become partners in the U.S. economy, that is, to buy into its first-rank companies.” (Asia Times, Sept. 5, 2007) Yet the U.S. government has made it clear that it will not allow sovereign funds to own important U.S. firms. As long as that holds true, these massive funds will continue to put their money into commodities, further increasing prices. With a struggling economy, the U.S. will be tempted to lower interest rates to spark the economy, but this will further lower the value of the dollar, exacerbating the commodities problem.

  Export bans: In an effort to tame rising food prices, at least 40 countries have chosen to ban or tax exports in order to keep the food at home. China has banned rice and maize exports; India has banned milk powder exports; Bolivia has banned the export of soy oil to Chile, Colombia, Cuba, Ecuador, Peru, and Venezuela; Ethiopia has banned exports of major cereals; Argentina temporarily stopped wheat exports; Brazil has suspended exports of government-owned rice; and numerous Asian countries have stopped rice exports. This has raised prices for food importing countries. One study calculated that if these bans and taxes were removed average world food prices would drop by 30 percent.  

Record profits: While the increase in food prices has been horrible for billions of people around the world, it has been a boon for a handful of agribusiness corporations. Cargill, the world’s biggest grain trader, achieved an 86 percent increase in profits from commodity trading in the first quarter of this year. Bunge, another huge food trader, had a 77 percent increase in profits during the last quarter of last year. In just a three month period, ending in February of this year, profits for Monsanto, the world’s largest seed company, were up 108 percent, while Archer Daniel Midlands registered profit increases of 42 percent. Profits for Mosaic, one of the world’s largest fertilizer companies, rose an astounding 1,134 percent, all in just three months. These excessive profits clearly are a part of the food crisis as well.

            To address most of the causes discussed above will require medium and long term strategies to fundamentally change our food production system. In the short term, there is a need for large increases in social protection programs like food or income transfers and nutrition projects, especially for children. Stopping the export bans of various countries would help, but would be difficult for many countries. (See “Speculation and world food prices” for another policy change that would have significant short term effects.)

            But primarily, the solutions to the food crisis are difficult, structural changes. We must abandon the current global system of large, fossil fuel-intensive farms exporting food around the world in order to establish localized, sustainable systems where most food is produced and consumed locally. This will require heavy investments in small farms, which numerous studies show are more efficient per hectare than large farms.        Grain reserves must be slowly built up to allow more for more options in the future. The radical liberalization of agriculture established in the 1996 U.S. farm bill must be reversed to give the government more policy tools to make necessary adjustments. Unfortunately, U.S. legislators missed their opportunity a few months ago when they passed the new 2008 farm bill without addressing any of the fundamental problems with U.S. agriculture. Trade laws must also be restructured so as to allow incentives for local farms. The extreme concentration in agricultural markets where the top 3-4 corporations control large majorities of the world markets must stop in order to assist in the growth of small, localized farms. Agrofuels must be reconsidered and seen as only a small scale solution in certain situations. According to Via Campesina, the world’s largest coalition of small farmers, a global agrofuels market will inevitably lead to “empty bellies and full gas tanks.”

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