Healthy soil and sustainable growing

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The 21st century's bleak harvest
 By Asif Mehdi, development practitioner

Rising food prices increased the aid dependency of developing countries
[GALLO/GETTY]

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 50 and 70 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 15
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.

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

In contrast to the magnitude of those subsidies, Official Development
Assistance from OECD member states amounted to $120bn (the US alone had a
military budget of $600bn 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 60 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 60 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.

The poorest were most seriously impacted by rising food prices
[GALLO/GETTY]
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 30 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.

If the financial crisis reduces aid another food crisis could be
devastating[GALLO/GETTY]
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.