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  • From: "Tradingpost" <tradingpost@lobo.net>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] How deregulation fuels the global food crisis
  • Date: Thu, 31 Jul 2008 23:17:14 -0600


News > July 23, 2008
Let Them Eat Free Markets
How deregulation fuels the global food crisis
By David Moberg

As the food crisis in Haiti worsens -- and rice and bean prices have
increased 100 percent -- many turn to clay 'biscuits' as a source of food.
The clay is mixed with salt and vegetable fat, then dried in the sun.

Agriculture and food markets aren't like markets for clothes or
automobiles. Food is a daily essential.

In April, crowds of angry Haitians — reduced to eating mud cakes to staunch
hunger — erupted in deadly protests against high food prices, forcing the
prime minister to resign. The price of rice, a staple of the Haitian diet,
had risen 16 percent on the world market last year, then shot up 141 percent
from January to April.

Around the world, similar riots — or fears of them — have pushed governments
to restrict exports, reduce tariffs, attack hoarding and take other desperate
measures as prices of virtually all major food commodities have spiked — and
often fluctuated wildly.

But in the months since Haitians hit the streets, leaders of the major
international financial organizations — the World Bank, the International
Monetary Fund (IMF), the World Trade Organization (WTO) — as well as the Bush
administration and European Union (EU) have responded weakly to the crisis.
Mainly, they’ve issued underfunded appeals for emergency aid and for speedy
conclusion of the latest round of WTO free-trade negotiations. For the
world’s poor, that’s like lifting a drowning man out of the water, only to
tie weights around his ankles and shove him back in.

When world leaders met in June for a U.N. Food and Agricultural Organization
summit, says Steve Suppan, senior policy analyst for the Minneapolis-based
Institute for Agriculture and Trade Policy (IATP), a research and advocacy
group, “there was an urgent recognition of the food crisis but a more urgent
sense of the need to salvage neoliberalism.”

And Raj Patel, author of the recent book, Stuffed and Starved: The Hidden
Battle for the World’s Food System (See review on page 40), adds, “It’s
preposterous that the Bush administration and EU are pushing us toward
precisely the policies that got us into this mess.”

Many developments may have triggered the food price crisis, including bad
weather conditions (from droughts in Australia to more recent floods in the
Midwest), oil price increases, and rising biofuel and consumer demand.

But the current food crisis ultimately stems from over-reliance on
deregulated global markets and increasingly concentrated corporate control of
an ecologically unsound world food system. Pushing free-market fundamentalism
harder will only intensify the fault lines, setting the stage for even more
serious crises in the future.
All markets are not the same

Agriculture and food markets aren’t like markets for clothes or automobiles.
Food is a daily essential, which consumes as much as two-thirds of the income
of the poorest half of the world.

Many of those poor people are also peasants who rely on food production for
their livelihoods. Farming depends on the whims of nature and slowly
adjusted, seasonal plans. Agriculturalists don’t merely turn out a product
for the market; they play a major role in environmental conservation or
degradation and the definition of people’s cultures.

What’s more, wide disparities in power, financial resources and information
exist between the many small producers and the handful of giant
multinationals that control grain trade (like Cargill), hybrid seeds (like
Monsanto), chemicals (like DuPont), wholesale markets (like Archer Daniels
Midland) and retail markets (like Wal-Mart or Carrefour).

Add to that the distortions of markets in favor of the giants through
governmental policies and the growing role of huge speculative investors.

“The markets are not perfect, and they can’t be,” says Sophia Murphy, senior
adviser on trade for IATP. “The orthodoxy that drove liberalization of
agriculture didn’t take account of the way markets don’t behave the way a
neoclassical model of the economy behaves, and didn’t allow for regulation
that needs to make up for agricultural market failures.”

But the rush to free-market fundamentalism has stripped governments of many
of the tools they need — such as maintaining grain reserves — to produce
price stability, equity, environmental sustainability and widespread human
social development.

Haiti is a case in point. In the early ’80s, Haiti, though a poor country,
produced nearly enough rice for its own population. But when a popular
uprising overthrew Jean-Claude Duvalier’s dictatorship, the new government
turned to the IMF for loans. However, the IMF conditions for loans — and
later “structural adjustment programs” — included cutting tariffs on rice.

Heavily subsidized rice from the United States flooded into Haiti,
bankrupting many small farmers. Then U.S. food aid further undermined Haitian
agricultural self-sufficiency.

Haiti now has among the fewest trade restrictions in the Americas, and
produces only about 18 percent of its domestic rice needs, making its
population — four-fifths living on less than $2 a day — extremely vulnerable
to global price run-ups. However, Haiti’s tiny rich elite prospers as the
middlemen in this grain trade.

‘Laughing all the way to the bank’

The story is similar throughout the developing world. From roughly 1950 to
1972, the U.S. government opened up markets and created dependency on global
grain purchases by providing subsidized, low-cost surplus grain. Governments
could pay with their local currencies, rather than dollars, and the United
States used that soft-money income to finance its global, Cold War political
and military objectives. The governments of developing countries willingly
accepted the aid, hoping to pacify their urban poor while keeping wages low
for new industries.

At around roughly the same period, the “green revolution” took place, which
replaced traditional polyculture — farming many food products from small
plots — with larger monoculture of crops that are more dependent on
fertilizer, purchased hybrid seed and irrigation. The shift raised rice
yields per farmer but did not increase pounds of food produced per acre,
according to Eric Holt-Gimenez, executive director of Food First, an
Oakland-based research and advocacy group. It did, however, concentrate land
ownership, move poor farmers onto marginal lands and increase the role of
multinational agribusinesses.

Then, in the ’80s, World Bank and IMF loans, as well as structural adjustment
programs, required that countries not only reduce tariffs and other trade
barriers but also dismantle grain reserves, marketing boards and other
government institutions designed to stabilize food prices.

Free-trade agreements in the ’90s locked in and further dismantled
regulations of farming and food markets, especially in developing countries,
even as farmers in Europe and the United States were able to keep many of
their protections.

As countries tried to repay their foreign debts and buy imported food, they
were forced to turn to commercial agriculture, most often large, industrial
agricultural enterprises owned by foreign corporations.

With the world supposedly awash in cheap food, there was a sharp decline in
international and national investment in agriculture for the local market,
including basic research, often under budget-cutting pressure from the IMF.

Also over the past decade, governments, again under IMF prodding, have let
grain reserve stocks drop to the lowest point in several decades.

Millions of small farmers were pushed off the land and into cities or into
international migration — 2 million in Mexico alone, since NAFTA was
implemented in 1994.

Many developing countries that had earlier fed their own populations became
less self-sufficient. In Africa, governments, international investors, and
organizations financed the import of grain and the export of specialty crops.
But they failed to invest in roads, refrigerated storage and other technology
to get local food to urban markets, Suppan says, leaving 40 percent of all
food produced to rot in the fields — depriving urban dwellers of food,
farmers of income and nations of potential for homegrown economic development.

Meanwhile, big corporations continue to rake in huge profits. “The industry
is not in crisis at all,” Holt-Gimenez says. “They’re laughing all the way to
the bank.”

The global grain trade was supposed to take the place of governments with
their reserves stored for hard times, such as when an Australian drought in
recent years reduced rice and wheat exports to Asia.

“But the private market has very little interest in managing a reserve,”
Murphy says. “Why would they? They don’t care about the price. They don’t eat
food; they sell it to the highest bidder. They’re only interested in getting
food before the competition does.”

If world grain reserves had been higher, the recent unusual weather might
have had little effect, although climate change does pose a major threat to
food production and prices in the long run.

China, which resisted much outside neoliberal pressure, maintained
substantial rice reserves and has preserved much greater price stability. But
as part of joining the WTO, it relaxed restrictions on soybean imports. The
world’s largest soy importer now suffers from price spikes and from growing
concentration of foreign control over soy oil processing. Yet contrary to the
argument that the recent price hike is a result of increased meat (and grain)
consumption by the rising Chinese middle class, China has increased
production and continues to supply most of its own growing food consumption.

Biofuels have increased demand, accounting for somewhere in the range of 3
percent (the U.S. Department of Agriculture’s estimate) to 30 percent
(International Food Policy Research Institute estimate) of recent price hikes.

But the impact is complex: Using corn for ethanol, regardless of questions
about its wisdom, doesn’t boost rice prices — and has limited impact on meat
prices because the waste mash from distilling is used to feed cattle.

Originally encouraged to use up European and American surpluses, biofuels
were seen by many farm and environmental advocates as a potential locally
controlled and sustainable business. But biofuels now threaten to become a
global, corporate-controlled industrial farming and export business that may
put fuel for American SUVs in competition with food for poor people in other
countries, all while degrading tropical forests.

The boom in energy prices — oil for production and transport, natural gas for
fertilizers — boosts food costs and is likely to have even greater
significance on prices in the future. But that’s partly a consequence of
free-market failures to properly account for the costs of dependence on cheap
oil, including the threat climate change poses to tropical agriculture.
The main culprit: changing futures markets

Yet changes in supply, demand and agricultural costs don’t adequately account
for the huge price spikes.

An EU study earlier this year concluded that certain food commodities had
increased in price three times more than agricultural markets would explain.
One possible reason: speculation in commodity markets.

Agriculture futures markets provide farmers and industrial users of farm
products a chance to lock in prices for future delivery. This provides a
hedge against damaging price fluctuations and helps to set an openly known
market price. Small-scale speculators help provide liquidity for such markets.

But deregulation of American commodity markets in both energy and agriculture
in the late ’80s and early ’90s expanded the ways in which companies could
make trades without federal regulation.

Other regulatory changes made it possible for large investors, including
institutional investors like pension funds, to buy agricultural futures
without limits. Congress had imposed such limits to prevent manipulation of
the relatively small futures markets — much as Enron did with California
electricity rates.

In recent years, these big investors have increasingly bought futures indexes
and other bundled futures products as part of a diversification of their
holdings. But these investments behave entirely unlike the traditional
futures buying and selling by farmers and grain users.

As hedge fund manager Michael Masters explained to Congress in May, these
investors — with an estimated $250 billion now invested in commodity futures
— tend to hold their investments like a stock or bond, not trade in search of
the appropriate market price. They thus skew the price upward, regardless of
supply and demand of the real product. As the price increases, more money
flows in, pushing the price even higher.

Eventually, such a commodity bubble will burst — as the housing and dot-com
bubbles burst — but with harsh consequences for real people.

While Congress has begun to close some of the regulatory loopholes,
speculation still magnifies real-world food price increases. Once again,
free-market fundamentalism creates real economy failures — taking food out of
hungry people’s mouths.

The rise of food sovereignty

As long as the food system is organized around free-trade policy and
maximizing private profits, Suppan and Murphy argue, it will exacerbate
volatility, inequity and environmental damage.

What’s needed, says Murphy, is “not just a redistribution of wealth but a new
model of agriculture and a new model of consumption.”

Food sovereignty advocates propose that people — local communities and
nations — should have the right to make decisions about their own food
regimes, including how much and what to import and export, and whether to use
the genetically modified crops that agribusiness pushes as a false solution
to the current crisis.

“The food riots are calling for two things,” Patel says. “Obviously food, but
also accountable government.” Under global trade agreements, many governments
have lost that accountability to their people.

A new food regime also needs an alternative to current industrial farming,
with its ever more costly and damaging practices and growing concentration of
profit from feeding the world. This alternative agro-ecological model would
rely on the productivity and resilience of small farmers.

Earlier this year, a U.N. commission of 400 agricultural experts concluded
that the world needed to shift from agricultural business-as-usual to a more
ecological and small-scale approach. To no one’s surprise, the U.S.
government and agribusiness refused to endorse its recommendations.

How many more food riots will it take to change their minds?
-----------------------

David Moberg, a senior editor of In These Times, has been on the staff of the
magazine since it began publishing. Before joining In These Times, he
completed his work for a Ph.D. in anthropology at the University of Chicago
and worked for Newsweek. Recently he has received fellowships from the John
D. and Catherine T. MacArthur Foundation and the Nation Institute for
research on the new global economy.





  • [Livingontheland] How deregulation fuels the global food crisis, Tradingpost, 08/01/2008

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