The neoliberal diet

Why are world food prices rocketing?

More food is being grown than ever before—yet people are still starving. Ken Olende looks at how capitalism lets the rich profit from food while those who need it go without

The biggest wheat crop in world history is expected this year—yet half the globe’s population are at risk of going hungry. Globally, food prices have risen by 36 percent in the past year, meaning millions of people are priced out of the basic foods.

Anger and desperation has led to protests and food riots in countries including Mozambique, Serbia, Pakistan, India, Algeria, Uganda—and Tunisia and Egypt.

Most of the 100 million people who were pushed into food poverty during the 2008 food crisis never emerged from it. The number of undernourished people in the world grew to over a billion—the highest level since records began.

As the global recession continues to bite, food prices are at their highest ever. The rising price of bread in Britain causes hardship—but it can mean starvation in many poorer countries.

The “common sense” response to the food crisis is to say that there are too many people and not enough food to feed them. Some people add that the crisis is made worse by climate change and increases in extremes of temperature.

But neither of these theories can explain why the last peak in food prices in 2008 coincided with a year of record production and record profits for multinationals.

Global food production has increased every year since the 1950s—much faster than population growth.

The issue is not that there is too little food in the world, but that most people just can’t afford it. This means the issue of food prices is centrally important.

Speculation

There are two factors behind the current crisis—the growth of financial speculation on food, and the biofuels industry (see box, below).

Indian economist Jayati Ghosh has written, “It is now quite widely acknowledged that financial speculation was the major factor behind the sharp price rise of many primary commodities, including agricultural items, over the past year.”

Some commentators claim the cause of the crisis is the growth of meat-

eating by newly-wealthy middle class people in India and China—leading to grain being used to feed animals instead of people.

But according to the UN, if cereals were not used as animal feed they would simply not be produced, so would not be available as food for humans. It concludes that, “The use of cereals as animal feed does not contribute to hunger and undernutrition.”

And since 1980, the imports of cereals in China and India have fallen by 4 percent per year on average. China has been a net exporter of cereals since the late 1990s.

The real problem is the way bankers and traders gamble on food prices on what is called the “futures market”.

In the futures market, investors speculate on what a product will be worth at some time in the future rather than its current value.

Apologists for the markets argue that they have helped farmers by stabilising prices over time, as the market tends to iron out short-term price fluctuations based on the weather or other unpredictable factors.

Neoliberal economists claimed hedge funds would stabilise food markets, replacing what state intervention and subsidies did in the past.

But this ignores the fact that, as economist Robert Pollin put it, “The market is driven by people who benefit from bubbles.” And these people will always chase a short-term profit, as the 2008 crash showed us.

This profit-chasing in fact makes prices much more unstable, because when these investors see a potential crisis such as a flood, they buy, gambling that food prices will rise on the news of a shortage.

A perfect example of this was revealed last week. Glencore, a Swiss-based wheat trader, revealed it made speculative bets of on rising corn and wheat prices as the Russian drought took hold in summer 2009.

The head of Glencore’s Russian grain unit made public statements encouraging the Russian government to ban exports of wheat. Russia imposed a ban two days later on 5 August, sending prices soaring 15 percent.

The underlying problem is a system of world agriculture based on profit rather than need.

The current system of agriculture and trade developed with capitalism, through the colonial empires, when countries like Britain and France carved up the world to ensure the supply of raw materials, and controlled markets for their manufactured goods.

In the period since the Second World War, poorer countries, often newly independent, were told that the way to compete was to introduce Western farming methods—using large farms with mechanised farming and chemical fertilisers.

It is true that this “Green Revolution” meant that the amount of food available per person in the world increased by

11 percent between 1970 and 1990—but by the end of this period, hunger was increasing again.

Debt

This was because farmers found they were in debt to the people who supplied the machines, seeds and fertilisers. If they stopped paying the companies, their yields would plummet.

At the same time, farmers had been encouraged to grow “cash crops” to sell on the world market, which made them much more susceptible to the ups and downs of world prices over which they had no control.

Markets only “work” to distribute food if people have the money to pay.

Jeffrey Sachs, adviser to the UN general secretary, writes, “Markets can’t step in and won’t step in when people have nothing. And if you take away help, you leave them to die.”

Yet there is an innate hypocrisy at work. Rich countries demand the poor be left to the “free market”, while they subsidise and support the vast agribusiness firms of the West.

The US system of farm subsidies was first set up after the Great Depression in the 1930s.

In Food Rebellions! Crisis and the Hunger for Justice, by Eric Holt-Giménez, Raj Patel and Annie Shattuck, it is argued that the US government encouraged the development of a permanent surplus, which could then be sold cheaply around the world: “Overproduction in the North was used as a battering ram to open up markets in the global South.”

Even in the rich countries, these kinds of subsidies favour large farmers over small ones.

The agribusiness and food processing sector is the second most profitable US industry—after pharmaceuticals.

In April 2008, US agribusiness giant Cargill reported an 86 percent leap in profits over the past year.

Cargill can stockpile supplies to sell at inflated prices.

In 2006, the price of corn—a staple ingredient in the tortillas eaten by the majority of the Mexican population—started to rise.

Cargill bought 600,000 tonnes of white Mexican corn at 1,650 pesos per tonne—then sold it six months later for 3,500 pesos per tonne.

In 1986 John Block, US secretary of state for agriculture, said the idea “that developing countries should feed themselves is an anachronism from a bygone era.

“They could better ensure their food security by relying on US agricultural products which are available, in most cases, at much lower cost.”

But the reality is that flooding the market with cheap grain does not help local people who are thrown out of work and so have no money to buy it.

It is no use relying on the US and the free market for cheap food. The key question is over who controls the food industry—and in whose interests.

The imperial powers have been forced to concede Tunisians and Egyptians formal “democracy”, but they will fight tooth and nail to halt the social changes that people are demanding.

Only when we take control of agriculture and produce food in a rational, planned way will we end the scandal of famine and hunger forever.

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Biofuels just make things worse

Biofuels have been presented as a way to save the earth from climate change by burning crops for fuel instead of using fossil fuels like oil.

But biofuels push up prices by diverting crops and land from food production as agribusiness and governments chase the higher profits and subsidies in the biofuel industry.

The industry does not even keep its “green” promise, as it requires huge amounts of technology and land, usually in poorer countries. For example, transfer of resources to biofuels is responsible for swathes of deforestation of rainforests in Brazil.

However, they remain enormously popular with governments, as can be seen by the massive switch to them in recent years.

Jayati Ghosh says, “In 2007 the US diverted more than 30 percent of maize production, Brazil used half of its sugar cane production and the European Union used the greater part of its vegetable oil seeds production, as well as imported vegetable oils, to make biofuels.”