[R-G] [BillTottenWeblog] The 21st century's bleak harvest

[Bill Totten]

by Asif Mehdi, development practitioner

Al Jazeera (May 19 2009)


As the world staggers from one economic crisis to another, it seems easy
to forget the global food crisis that occupied centre stage in 2008.

World prices for essential grains more than doubled between 2006 and 2008.

Rice, the staple food of most of Asia, doubled in price in just seven
months. And, despite their commitments to trade liberalisation, a few
significant grain-exporting developing countries rushed to protect
domestic grain stocks by banning exports.

The poor, who typically spend between fifty and seventy per cent of
their meagre incomes on food, were most affected by the crisis.

According to the United Nations Food and Agriculture Organisation, the
food crisis raised the number of undernourished people from 923 million
to more than one billion by this year.

In late 2007 and 2008, the crisis caused food riots in at least fifteen
countries across the world, from Brazil to Bangladesh, and international
media and forums spoke of little else.

Then, as suddenly as it struck, declining prices relegated the food
crisis to collective global amnesia.


Causes not addressed

However, while prices for grains and foods have declined in 2009, they
are still higher than pre-crisis levels and the fundamental causes of
their volatility have not disappeared.

The international economic system has witnessed a dramatic disbanding of
trade and investment barriers.

However, the international market for agricultural commodities, the
nature of industrial agriculture, changing consumption patterns and
international finance all threaten to make food price volatility and
food insecurity a recurrent feature of the early 21st century.

Agriculture offers a textbook case of international market distortion.
And in this case, the market distortion is created by precisely the
developed countries that extol the virtues of free markets.


Double standards

The developed world protects its domestic agriculture with any number of
subsidies and technical barriers to trade.

In 2006, for example, the Organisation for Economic Co-operation and
Development (OECD) estimated that agricultural subsidies in OECD member
countries were about $230 billion.

In contrast to the magnitude of those subsidies, Official Development
Assistance from OECD member states amounted to $120 billion (the US
alone had a military budget of $600 billion in 2007).

The agricultural subsidies cover a host of measures - from domestic
price support, to compensation to farmers for maintaining fallow land,
to export price subsidies to dumping, some of which is disguised as food
aid.

Paradoxically, international trade negotiations and, more importantly,
International Monetary Fund (IMF) lending conditions expect developing
countries to remove agricultural subsidies and liberalise domestic
markets to imported foods.

While these measures allow for the increased availability of food, they
have also eroded domestic agriculture and impoverished the rural
economy, often in the most economically fragile states.

It was not surprising that the most impoverished countries were unable
to meet the international price surge with increased domestic
production, or the release of buffer stocks of staple food commodities.

In fact, those countries became ever more aid dependent as governments
struggled to find the resources to pay the bills for imported food (and
fuel), in the face of sharpened threats of hunger and undernourishment.


Industry domination

The opening of developing country markets does not benefit the average
farmer in the developed world.

The international agricultural industry is dominated by a few grain,
seed, chemicals and oil companies.

Such is their market power that three companies control the global grain
trade and one company controls sixty per cent of seed production.

The grain trading conglomerates have unchecked market power to hoard and
influence world prices.

Seed companies have employed breakthroughs in biotechnology to produce
seeds that are compatible only with certain brands of pesticide or
supply patented terminator seeds which germinate just once, and
therefore the seed from a harvest cannot be used to grow a second crop.

This last feature of the seed business ensures a seed serfdom for the
farmer, who cannot set aside part of the harvest for replanting.

It is no wonder, then, that the profits of the grain traders soared to
astronomical heights in 2007, in one case up by sixty per cent over the
previous year.

And it is no wonder that small farmers are bankrupted by one crop
failure because of their inability to afford to buy or finance the
procurement of seed for a new crop.


Industrialised agriculture

The other facet of industrialised agriculture is its energy intensity
and reliance on hydrocarbon resources, whether as fertiliser or as fuel.

During the heyday of the Green Revolution, one study noted that between
1945 and 1994 US energy input for agriculture increased four-fold while
crop yields only increased three-fold.

Since then, energy input has continued to increase without a
corresponding increase in crop yield.

Barring a breakthrough in seed technology, industrial agriculture has
reached a point of diminishing marginal returns from energy usage.

In addition, the fact that oil resource availability has peaked suggests
that oil prices will be on a long-term increase, thereby increasing the
costs of food production.

Given the nature of the financial crisis in developed countries, it is
highly doubtful that governments will have the fiscal resources to
increase subsidies to the agricultural sector, in order to contain the
increase in prices.

For the developing world, fiscal constraints on governments and the
likely drying up of development assistance will have the same impact.


Food to fuel

The recent movement in the developed world to produce bio-fuels is yet
another factor propelling the price of grains.

A World Bank study, prepared in April 2008, pointed out that a third of
US corn production goes to produce ethanol and half the vegetable oils
produced in the EU to the production of biodiesel.

This diversion from food to fuel is subsidised extensively, while
imports from Brazil (which has had the longest standing and most
extensive bio ethanol production) are subjected to tariff barriers that
effectively prohibit imports of Brazilian ethanol into these markets.

Commodity speculators, seeing the potential from increased demand for
grains in these subsidised programmes, drove up futures commodity prices
which in turn raised current prices in grain markets.

The same World Bank study contends that 75 per cent of the food price
increase was due to bio-fuels, a figure hotly contested by the Bush
administration at the time.

An International Food Policy Research Institute study asserts that the
effect was somewhat less, at thirty per cent of the food price increase.


Ideology of the rich

The financial crisis in itself was a cause for the food price hike.

While prices rose steadily through 2006 and 2007, the latter half of
2008 saw a sharp increase in prices, in a so-called price spike.

However, little had changed in the fundamental conditions of supply or
demand to cause such dramatic market adjustments.

By now it is clearly evident that as the unregulated and complex
financial sector of the US was facing the unfolding effects of the real
estate bubble, trillions of dollars moved across sectors and spaces and
invested in food and primary commodities, causing another price bubble,
this time of an altogether more serious consequence.

The simultaneous inflation of oil and food futures caused cost increases
in the production of food while inflating its trading prices at the same
time.

It seems that finance had run out of opportunities for profit, so it
turned to the earth as a means of generating speculative profit, whether
through real estate or primary commodities and food.

As the more recent financial crisis has shown, there is no regulatory
capacity to stop such profiteering from reoccurring.

These are the difficult prospects and consequences of a world run by the
ideology of the rich and powerful.


Development lessons

There are development lessons to be learned here.

First, food security is an issue requiring long-term international
effort and food security demands that local agriculture be able to
supply domestic needs wherever possible and that reserve stocks are
garnered for difficult times.

Second, the developing nations are justified in holding out in the Doha
Round of trade negotiations until real and tangible concessions are made
with regard to trade in agricultural products.

Third, national development efforts need to be replenished with such
'old fashioned' endeavours as investing in rural production, water
availability and the empowerment of the small farmer.

Economic history shows us that industrialisation was preceded by
agricultural transformations, with the state playing a heavy role.

And economic history is a better guide to policy than the theorising of
free marketers serving powerful corporate interests.

_____

Asif Mehdi works in international development with an international
intergovernmental organisation and has worked extensively in Asia and
Africa during his 29-year career as a development practitioner.

The views expressed by the author are not necessarily those of Al Jazeera.

http://english.aljazeera.net/focus/globalrecession/2009/05/20095161253214553.html


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