[wordup] The Food Crisis

[Adam Shand]

Between peak oil, peak water and the food crisis things are looking  
kinda shit! For some reason I want to put a smilie at the end of that  
sentence ...

:-)

Via: Brett Shand <brett at shand...>
Source: http://www.grain.org/articles/index.cfm?id=39

Making a killing from hunger
For some time now the rising cost of food all over the world has taken  
households, governments and the media by storm. The price of wheat has  
gone up by 130% over the last year.[1] Rice has doubled in price in  
Asia in the first three months of 2008 alone,[2] and just last week it  
hit record highs on the Chicago futures market.[3] For most of 2007  
the spiralling cost of cooking oil, fruit and vegetables, as well as  
of dairy and meat, led to a fall in the consumption of these items.  
 From Haiti to Cameroon to Bangladesh, people have been taking to the  
streets in anger at being unable to afford the food they need. In fear  
of political turmoil, world leaders have been calling for more food  
aid, as well as for more funds and technology to boost agricultural  
production. Cereal exporting countries, meanwhile, are closing their  
borders to protect their domestic markets, while other countries have  
been forced into panic buying. Is this a price blip? No. A food  
shortage? Not that either. We are in a structural meltdown, the direct  
result of three decades of neoliberal globalisation.

Farmers across the world produced a record 2.3 billion tons of grain  
in 2007, up 4% on the previous year. Since 1961 the world’s cereal  
output has tripled, while the population has doubled. Stocks are at  
their lowest level in 30 years, it’s true,[4] but the bottom line is  
that there is enough food produced in the world to feed the  
population. The problem is that it doesn’t get to all of those who  
need it. Less than half of the world’s grain production is directly  
eaten by people. Most goes into animal feed and, increasingly,  
biofuels – massive inflexible industrial chains. In fact, once you  
look behind the cold curtain of statistics, you realise that something  
is fundamentally wrong with our food system. We have allowed food to  
be transformed from something that nourishes people and provides them  
with secure livelihoods into a commodity for speculation and  
bargaining. The perverse logic of this system has come to a head.  
Today it is staring us in the face that this system puts the profits  
of investors before the food needs of people.

Market realities

The policy makers who have shaped today’s world food system – and who  
are supposed to be responsible for averting such catastrophes – have  
come out with a number of explanations for the current crisis that  
everyone has heard over and over again: drought and other problems  
affecting harvests; rising demand in China and India where people are  
supposedly eating more and better than in the past; crops and lands  
being massively diverted into biofuel production; and so on. All of  
these issues, of course, are contributing to the current food crisis.  
But they do not account for the full depth of what is happening. There  
is something more fundamental at work, something that brings all these  
issues together, and which the world’s finance and development chiefs  
are keeping out of public discussion.

Nothing that the policy makers say should obscure the fact that  
today’s food crisis is the outcome of both an incessant push towards a  
“Green Revolution” agricultural model since the 1950s and the trade  
liberalisation and structural adjustment policies imposed on poor  
countries by the World Bank and the International Monetary Fund since  
the 1970s. These policy prescriptions were reinforced with the  
establishment of the World Trade Organisation in the mid-1990s and,  
more recently, through a barrage of bilateral free trade and  
investment agreements. Together with a series of other measures, they  
have led to the ruthless dismantling of tariffs and other tools that  
developing countries had created to protect local agricultural  
production. These countries have been forced to open their markets and  
lands to global agribusiness, speculators and subsidised food exports  
from rich countries. In that process, fertile lands have been diverted  
away from serving local food markets to the production of global  
commodities or off-season and high-value crops for Western  
supermarkets. Today, roughly 70% of all so-called developing countries  
are net importers of food.[5] And of the estimated 845 million hungry  
people in the world, 80% are small farmers.[6] Add to this the re- 
engineering of credit and financial markets to create a massive debt  
industry, with no control on investors, and the depth of the problem  
becomes clear.

Agricultural policy has completely lost touch with its most basic goal  
of feeding people. Hunger hurts and people are desperate. The UN World  
Food Programme estimates that recent price hikes have meant that an  
additional 100 million people can no longer afford to eat adequately. 
[7] Governments are frantically seeking shelter from the system. The  
fortunate ones, with export stocks, are pulling out of the global  
market to cut their domestic prices off from the skyrocketing world  
prices. With wheat, export bans or restrictions in Kazakhstan, Russia,  
Ukraine and Argentina mean that a third of the global market has now  
been closed off. The situation with rice is even worse: China,  
Indonesia, Vietnam, Egypt, India and Cambodia have banned or severely  
restricted exports, leaving just a few sources of export supply,  
mainly Thailand and the US. Countries like Bangladesh can’t buy the  
rice they need now because the prices are so high. For years the World  
Bank and the IMF have told countries that a liberalised market would  
provide the most efficient system for producing and distributing food,  
yet today the world’s poorest countries are forced into an intense  
bidding war against speculators and traders, who are having a field  
day. Hedge funds and other sources of hot money are pouring billions  
of dollars into commodities to escape sliding stock markets and the  
credit crunch, putting food stocks further out of poor people’s reach. 
[8] According to some estimates, investment funds now control 50–60%  
of the wheat traded on the world’s biggest commodity markets.[9] One  
firm calculates that the amount of speculative money in commodities  
futures – markets where investors do not buy or sell a physical  
commodity, like rice or wheat, but merely bet on price movements – has  
ballooned from US$5 billion in 2000 to US$175 billion to 2007.[10]

The situation today is untenable. Look at Haiti. A few decades ago it  
was self-sufficient in rice. But conditions on foreign loans,  
particularly a 1994 package from the IMF, forced it to liberalise its  
market. Cheap rice flooded in from the US, backed by subsidies and  
corruption, and local production was wiped out.[11] Now prices for  
rice have risen 50% since last year and the average Haitian can’t  
afford to eat. So people are taking to the streets or risking their  
lives to journey by boat to the US. Food protests have also erupted in  
West Africa, from Mauritania to Burkina Faso. There, too, structural  
adjustment programmes and food-aid dumping have destroyed the region’s  
own rice production, leaving people at the mercy of the international  
market. In Asia, the World Bank constantly assured the Philippines,  
even as recently as last year, that self-sufficiency in rice was  
unnecessary and that the world market would take care of its needs. 
[12] Now the government is in a desperate plight: its domestic supply  
of subsidised rice is nearly exhausted and it cannot import all it  
needs because traders’ asking prices are too high.

Making a killing from hunger

The truth about who profits and who loses from our global food system  
has never been more obvious. Take the most basic element of food  
production: soil. The industrial food system is a chemical-fertiliser  
junkie. It needs more and more of the stuff just to keep alive,  
eroding soils and their potential to support crop yields in the  
process. In the current context of tight food supplies, the small  
clique of corporations that control the world’s fertiliser market can  
charge what they want – and that’s exactly what they are doing.  
Profits at Cargill’s Mosaic Corporation, which controls much of the  
world’s potash and phosphate supply, more than doubled last year.[13]  
The world’s largest potash producer, Canada’s Potash Corp, made more  
than US$1 billion in profit, up more than 70% from 2006.[14] Panicking  
now about future supplies, governments are becoming desperate to boost  
their harvests, giving these corporations additional leverage. In  
April 2008, the joint offshore trading arm for Mosaic and Potash hiked  
the price of its potash by 40% for buyers from Southeast Asia and by  
85% for those from Latin American. India had to pay 130% more than  
last year, and China 227% more.[15]

While big money is being made from fertilisers, it is just a sideline  
for Cargill. Its biggest profits come from global trading in  
agricultural commodities, which, together with a few other big  
traders, it pretty much monopolises. On 14 April 2008, Cargill  
announced that its profits from commodity trading for the first  
quarter of 2008 were 86% higher than the same period in 2007. “Demand  
for food in developing economies and for energy worldwide is boosting  
demand for agricultural goods, at the same time that investment monies  
have streamed into commodity markets,” said Greg Page, Cargill’s  
chairman and chief executive officer. “Prices are setting new highs  
and markets are extraordinarily volatile. In this environment,  
Cargill’s team has done an exceptional job measuring and assessing  
price risk, and managing the large volume of grains, oilseeds and  
other commodities moving through our supply chains for customers  
globally.”[16]

Managing and assessing are not so difficult for a company like  
Cargill, with its near monopoly position and a global team of analysts  
the size of a UN agency. Indeed, all of the big grain traders are  
making record profits. Bunge, another big food trader, saw its profits  
of the last fiscal quarter of 2007 increase by US$245 million, or 77%,  
compared with the same period of the previous year. The 2007 profits  
registered by ADM, the second largest grain trader in the world, rose  
by 65% to a record US$2.2 billion. Thailand’s Charoen Pokphand Foods,  
a major player in Asia, is forecasting revenue growth of 237% this year.

The world’s big food processors, some of which are commodity traders  
themselves, are also cashing in. Nestlé’s global sales grew 7% last  
year. “We saw this coming, so we hedged by forward-buying raw  
materials”, says François-Xavier Perroud, Nestlé’s spokesman.[17]  
Margins are up at Unilever, too.“Commodity pressures have increased  
sharply, but we have successfully offset these through timely pricing  
action and continued delivery from our savings programmes”, says  
Patrick Cescau, Group CEO of Unilever. “We will not sacrifice our  
margins and market share.”[18] The food corporations don’t seem to be  
making these profits off the back of the retailers. UK supermarket  
Tesco reports profits up 12.3% from last year, a record rise. Other  
major retailers, such as France’s Carrefour and the US’s Wal-Mart, say  
that food sales are the main factor sustaining their profit increases. 
[19] Wal-Mart’s Mexican division, Wal-Mex, which handles a third of  
overall food sales in Mexico, reported an 11% increase in profits for  
the first quarter of 2008. (At the same time Mexicans are  
demonstrating in the streets because they can no longer afford to make  
tortillas.[20])

It seems that nearly every corporate player in the global food chain  
is making a killing from the food crisis. The seed and agrochemical  
companies are doing well too. Monsanto, the world’s largest seed  
company, reported a 44% increase in overall profits in 2007.[21]  
DuPont, the second-largest, said that its 2007 profits from seeds  
increased by 19%, while Syngenta, the top pesticide manufacturer and  
third-largest company for seeds, saw profits rise 28% in the first  
quarter of 2008.[22]

Such record profits have nothing to do with any new value that these  
corporations are producing and they are not one-off windfalls from a  
sudden shift in supply and demand. Instead, they are a reflection of  
the extreme power that these middlemen have accrued through the  
globalisation of the food system. Intimately involved with the shaping  
of the trade rules that govern today’s food system and tightly in  
control of markets and the ever more complex financial systems through  
which global trade operates, these companies are in perfect position  
to turn food scarcity into immense profits. People have to eat,  
whatever the cost.

The urgent need for a policy rethink

The larger backdrop to this perverse food market situation is the  
global financial system, which is now teetering on its flimsy axis.  
What began as a localised housing loan collapse in the US in 2007 has  
unravelled into something far more serious, as people realise that the  
emperors of the global financial system have no clothes. The world  
economy is living on debt that no one can pay. While central bankers  
and Lear jet executives try to patch the holes and restore confidence,  
the underlying truth is that the system is close to bankruptcy and no  
one in power wants to take the necessary tough measures: not the IMF,  
nor the World Bank, nor the leaders of the world’s most powerful  
nations. Not much more than public relations glitter can be expected  
from the G8 meeting in June.

Similar problems lie at the heart of the food crisis: an ideologically  
driven elite has forced countries to wrench open markets and let the  
free market run, so that a few megacorporations, investors and  
speculators can take huge payoffs. Many countries have lost that most  
basic power: the ability to feed themselves. This loss, coupled with  
the corruption that plagues our countries and trading systems, shows  
that neoliberalism has lost any legitimacy that it might once have  
had. It is a measure of how out of touch these ideologues are that  
many now openly call for more trade liberalisation as a solution to  
the food crisis, with some even proposing that the rules of the WTO be  
changed to prevent countries from imposing export restrictions on food. 
[23]

The World Bank president, Robert Zoellick, has tried to win the world  
over with his call for a “New Deal” to solve the hunger crisis, but  
there is nothing new about it: he calls for more trade liberalisation,  
more technology and more aid. Today’s food crisis is the direct result  
of decades of these policies, which must now be rejected. While  
immediate action is necessary to lower food prices and to get food to  
those who need it, we also need radical changes in agricultural policy  
so that small farmers around the world gain access to land and can  
make a living from it. We need policies that support and protect  
farmers, fishers and others to produce food for their families, for  
the local markets and for people in cities, rather than money for an  
abstract international commodity market and a tiny clan of corporate  
boardroom executives. And we need to strengthen and promote the use of  
technologies based on the knowledge and in the control of those who  
know how to grow food. To put it another way, we need food  
sovereignty, now – the kind that is defined and driven by small  
farmers and fisherfolk themselves.

Social movements around the globe have been struggling to promote such  
a reversal of strategy, only to be dismissed as unrealistic and  
backward by those in power, and often violently repressed. The glimmer  
of hope in this crisis is that the situation can be reversed. Peasant  
organisations have concrete proposals about what needs to be done to  
resolve the crisis in their countries, and governments should listen  
to what they are saying. Already some governments are talking of a  
policy change towards food self-reliance.[24] Others are starting to  
question the fundamental rationale of pushing for more free trade.  
Neoliberal hawks at the top of the global food policy pyramid have  
lost whatever credibility they may think they once had. It is time for  
them to move out of the way so that the visions of food sovereignty  
and agrarian reform that come from the grassroots can take their place  
and get us out of this hellish mess.

Going further:

	• Overview: FAO, World Food Situation:http://www.fao.org/worldfoodsituation
	• Overview: Financial Times, “The global food crisis”, interactive  
map, last updated 21 April 2008: http://tinyurl.com/6knmy8
	• Overview: Stefan Steinberg, "Financial speculators reap profits  
from global hunger", Global Research, Centre for Research on  
Globalisation, Montreal, 24 April 2008.
http://globalresearch.ca/index.php?context=va&aid=8794
	• Overview: Confédération Paysanne, “Les révoltes de la faim dans les  
pays du Sud : l’aboutissement logique de choix économiques et  
politiques désastreux”, Press release, 18 April 2008: http://tinyurl.com/5glx8u 
  (French only)
	• Structural Adjustment Programmes: “UNCTAD official blames food  
crisis on structural adjustment programme,” This Day, Lagos, 23 April  
2008:http://allafrica.com/stories/200804230375.html
	• Food sovereignty: http://www.viacampesina.org and http://www.nyeleni2007.org
	• Agrofuels: GRAIN, Agrofuels special issues,Seedling, July 2007,http://www.grain.org/seedling/?type=68
	• Rice in the Philippines: GRAIN, Philippines and beyond: rice crisis  
– reaping the 'fruit' of market capitalism, Hybrid rice blog, 22 April  
2008,http://www.grain.org/hybridrice/?lid=201
References

1      Bloomberg, quoted by the BBC, London, 14 April 2008,http://news.bbc.co.uk/2/hi/business/7344892.stm

2      BBC, “Action to meet Asian rice crisis”, London, 17 April 2008,http://news.bbc.co.uk/2/hi/business/7352038.stm

3       See http://www.riceonline.com for daily reports. With many  
Asian rice exporters out of the game, needy countries from Asia and  
Africa are turning to the US market where prices are going through the  
roof.

4       Brian Halweil, “Grain harvest sets record, but supplies still  
tight”, Worldwatch Institute, Washington DC, http://www.worldwatch.org/node/5539

5      Katarina Wahlberg, “Are we approaching a global food crisis?”,  
World Economy & Development in Brief, Global Policy Forum, 3 March 2008,

6      Food policy expert interviewed on Radio France International,  
Paris, 20 April 2008.

7      “UN food chief urges crisis action,” BBC, London, 22 April 2008,http://news.bbc.co.uk/2/hi/americas/7360485.stm

8      Sinclair Stewart and Paul Waldie, “U.S. food producers,  
speculators square off”, Globe and Mail, Toronto, 23 April 2008,

9      Ibid. and Paul Waldie, “Why grocery prices are set to soar”,  
Globe and Mail, Toronto, 24 April 2008,

10     Paul Waldie, “Why grocery prices are set to soar”, op cit.

11    Bill Quigley, “USA role in Haiti hunger riots”, ZNet, US, 23  
April 2008,

12    World Bank, “Can the world market for rice be trusted”, Box 1 on  
p. 52 of “Philippines: Agriculture Public Expenditure Review,”  
Technical Paper, World Bank, Washington DC, 2007,http://go.worldbank.org/TGRSK19300

13    Potash and phosphates are two of the main ingredients in  
chemical fertiliser.

14    David Ebner, “Saskatchewan: A lot more than wheat” Globe and  
Mail, Toronto, 11 April 2008,

15    John Partridge and Andy Hoffman, “China deal sends Potash  
soaring” Globe and Mail, Toronto, 17 April 2008,

16    “Cargill income up sharply in third quarter”,World Grain, Kansas  
City, 14 April 2008,

17    “Tightening belts,” The Economist, London, 10 April 2008,

18    Jonathan Sibun, “Unilever profits surge despite price  
pressures,” Daily Telegraph, London, 3 November 2007, http://tinyurl.com/6p8tcx 
; and, “Get set for more price hikes: Unilever chief,” Business  
Standard, India, 16 March 2008,http://tinyurl.com/694cqn

19    Foo Yun Chee, “Major European retailers post higher profits for  
2007,” Reuters, 6 March 2008,www.iht.com/articles/2008/03/06/business/RETAIL.php

20    Associated Press, “Wal-Mart de Mexico’s 1Q profits rise 11  
percent on higher sales, cost controls,” 8 April 2008,

21    Monsanto, Annual Report, 2007.

22    DuPont, Annual Report 2007, and “Syngenta anuncia cifra negocio  
en progresión 28 por ciento primer trimestre”, EFE, 22 de abril 2008,

23    Isabel Reynolds, “WTO should pressure food exporters –  
Mandelson”, Reuters, 23 April 2008,

24    See, for example, recent comments from West African farmers and  
officials: Noel Tadégnon, “Le ROPPA préconise une pression sur les  
autorités politiques pour soutenir l’agriculture africaine,” APA, 23  
April 2008, http://www.apanews.net/apa.php?article61599; and, “Réunion  
extraordinaire du Conseil des ministres de l`UEMOA, hier : 200  
milliards pour freiner la flambée des prix,” Le Nouveau  Réveil,  
Abidjan, 24 April 2008,http://www.lenouveaureveil.com/a.asp?n=290011&p=1903