For Your Information
The
World Food Crisis
Food
prices over the last year have been soaring.
From March 2007 to March 2008, the UN Food and Agriculture Organisation
(FAO) estimates the world price for foods including cereals, dairy, produce,
meat, sugar and oils rose by 57 percent.
The price of rice, a staple in most of Asia, increased
by 68 percent between January 1 and April 15 of this year. The impact of these cost increases has been
immense, particularly in poorer countries, in which most people spend between
50 and 60 percent of their income on food.
There have been demonstrations against high food prices throughout
Africa and South Asia and protests in Haiti in February, March and April ended
with the resignation of the government.
Several
international institutions, including the UN, the World Bank and dozens of NGOs
have warned that millions face hunger over the next 12 to 18 months unless food
prices come down and the FAO has identified 37 countries facing the risk of
serious humanitarian crises related to hunger.
According
to the head of the UN’s development assistance agency, part of the problem has
been the shift away from agricultural self-sufficiency in many of the world’s
poorest nations. Aid to support
agriculture has dropped dramatically in recent decades, Supachai
Panitchpakdi, the head of UNCTAD, told reporters in
April. Between 2003 and 2005, $1.3
billion in development aid was spent on “governance initiatives” in the world’s
poorest countries, compared to just $12 million on agricultural
development. “We will be jumping from
one crisis to another unless the international community can address [this]
major issue,” he said. With less
emphasis on agriculture, more of the world’s poorest countries have become
dependent on food imports, and increasingly vulnerable to world price
fluctuations.
What isn’t clear, from the flood of media reports on the world food crisis, is what is behind it all? Certainly supply plays some part. In 2006 and 2007, there were production problems in some of the major food exporting nations of the world – drought in Australia and parts of the EU and former Soviet Union sharply reduced the amount of wheat, corn and barley available in the world. World wheat stocks are currently at their lowest level in over 25 years, with wheat stocks in the U.S. down to levels not seen since the Second World War.
Production
problems within major importing countries, such as China and India, also had an
impact, and the cyclone in Burma, which exports 20 percent of the rice consumed
in Asia, will also be felt. However,
despite these production problems, there was still enough grain and cereal
produced in 2006 and 2007 to meet human consumption demand.
The
two biggest factors contributing to increased food prices in the U.S., which is
the largest grains exporter in the world, are the shift to production of grains
for ethanol and increasing speculation in agricultural commodities on U.S.
stock markets.
According
to U.S. Department of Agriculture estimates, between one quarter and one third of all corn produced in the U.S. is now being used in
ethanol production. Corn plantings in
the U.S. have also increased by over 30 percent in the last five years. This is no accident but the result of
deliberate government policy – the American
ethanol industry has been supported through massive subsidies and tax
incentives, under the guise of creating energy security for the U.S. by
lessening its dependence on foreign oil imports. The chief beneficiary of the U.S. policies
supporting ethanol production is the largest agricultural multinational in the
world, Archer Daniels Midlands (ADM), which is also the world’s leading
producer of ethanol.
As
well, commodity markets in the U.S. have increasingly become attractive to
capital. Futures trading in agricultural commodities has spiked – open interest
in wheat on the Chicago wheat exchange, for example, surged by 230 percent
between February 2005 and February 2008. Soft red winter wheat is traded on the
Chicago exchange, but there was no significant increase of soft red winter
wheat production during this same period.
Instead, this increase is due to the increasing participation of the
large speculative hedge and index funds.
With the sub-prime mortgage crisis in the U.S., these funds have increasingly
turned to commodity markets as a source for speculative investment.
Despite
the soaring food prices, average farmers have seen very few benefits. In Canada, for example, where wheat prices
have doubled in the last year, farmers’ input costs (fuel, fertilizer,
chemicals) have increased by between 30 and 80 percent. Subsistence farmers in poorer countries have
been the hardest hit by price increases, as production problems have meant they
haven’t been able to sell any of their produce for higher prices and they are
reliant on extremely expensive imports to feed themselves and their families.