Posted to the IUF website 28-Apr-2008
"Often we are seeing food on the shelves but people being unable to afford it."
United Nations' World Food Program Executive Director Josette Sheeran on "The new face of hunger"
"Producing biofuels today is a crime against humanity."
Jean Ziegler, UN Special Rapporteur on the Right to Food
"I see so much focus on food, and it seems to be so trendy in the investment world…The markets seem to me to have a bubble-like quality."
Goldman Sachs chief economist Jim O'Neill
Some 16 months after tens of thousands of Mexicans took to the streets to protest a four-fold increase in the price of tortillas (flat maize bread that is the country's staple food), politicians and international agencies have woken up to the enormity of the global food crisis. From Argentina to Yemen, Bolivia to Uzbekistan, food riots are spreading across the globe. The FAO warns that global food reserves are at their lowest in 25 years, and says that with prices set to rise still further food riots will become a general phenomenon over the next year. The IMF now speaks of 100 million potential new victims of starvation.
What is powering the 90% overall rise in global food prices over the past three years, the doubling of wheat prices in less than a year and similarly dramatic increases in the prices of other grains and edible oils over the past year? One putative explanation has been recycled with such frequency by politicians, industry, journalists and even the Director General of the United Nations' Food and Agriculture Organization (FAO) that it has all but escaped critical examination. We have been repeatedly told that escalating food prices are the result of rising demand in developing countries, whose growing consumption of meat and milk is driving prices rapidly upwards. Rising demand for animal-based protein, however, has been steady rather than explosive. It cannot explain the 31% increase in the price of rice which occurred in the closing days of March alone, or the 400% increase in the price of Mexican tortillas. India, hard hit by the rising cost of rice, produced record harvests of rice, wheat and oilseeds in 2007/8. Mexico exported maize in 2006; 2007 saw record levels of production in Mexico, in the region and globally.
The other conventional explanation for sharp, rapid food price inflation - climate change-related pressure on arable land and water resources - likewise fails to fit the facts, though the problem is real and requires urgent action. Australia's poor grain harvest as a result of drought is reckoned to have added no more than 1.5% to global wheat prices.
It is unquestionably the diversion of food crops to biofuel production which has reduced world food stocks to dangerously low levels and is driving the increased prices which have transformed basic food into a luxury for the world's rural and urban poor. Biofuels made from food and feed crops include ethanol made from maize (corn), cane sugar, beet sugar and wheat, and biodiesel made from soybeans, sunflower oil, palm oil, rapeseed (canola) and other plants. From 20 to 50 percent of feedstocks in major producing countries, and in particular maize and rapeseed, are now filling fuel tanks rather than stomachs. This in turn has driven up the price of soybeans, an important global protein source, and dragged with it meat, dairy and other food prices.
Corporate hunger for biofuels, not growing demand for more varied protein in developing countries, is what is aggressively driving up the cost of food. The maize currently feeding US ethanol production is sufficient to meet the current needs of all the FAO's low-income food-deficit countries - and the United States has mandated a five-fold increase in ethanol production. If the entire US maize output, rather than last year's 20%, were diverted to ethanol, it would still only replace 7% of current US petroleum consumption. It has been estimated that for domestic production to meet the EU's mandatory targets for biofuels in road transport, half the EU's arable land would have to be devoted to non-food production. Indonesia is encouraging a 400% increase in palm oil production over the coming decade. These policies will have catastrophic social, environmental and climatic consequences.
It has been repeatedly claimed that switching to biofuels will protect the environment. However when all the inputs and outputs are adequately taken into account, the energy (most of it petroleum-derived) required to produce a given unit of biofuel is considerably greater than that contained in the biofuel itself. Some of the proposed "second generation" biofuel sources (like cellulosic biomass from trees whose cultivation would replace food crops) are even more avid consumers of energy. Factor in increased pressure on water and land (for example destroying the tropical forests which are the planet's carbon sinks) for expanded oil palm and soy production, and the biofuel contribution to reversing global warming is sharply negative. Expanding biofuel production means more, not less, greenhouse gas emissions.
While food riots and the threat of mass starvation have begun to shake optimistic forecasts of reversing climate change through biofuels, two other critical factors have largely escaped notice, as if the biofuel boom were taking place in the pure environment of a laboratory greenhouse.
First, the promotion of biofuels through subsidies and other measures takes place in the context of extremely high concentration along the supply chain. Two companies, Cargill and ADM, distribute the vast bulk of the world's internationally traded maize and other grains. A handful of TNCs dominate global sugar production and trade. Equally high levels of concentration often exist at national level. One company, Mexico's Grupo Gruma, controls over three-quarters of the country's market for tortilla flour. Their concentrated buying power is what sets benchmark prices.
Second, record amounts of money have been flowing into agricultural commodity markets in recent years, accelerating even more rapidly as investors fleeing meltdown in the credit markets seek new outlets. Speculative capital has hitched itself to the food commodity boom, creating a classic "asset bubble". Food processing companies have also devoted increasing financial resources to these same markets, potentially adding to the upward pressure on prices without fundamentally affecting the diversion of grains from food to energy.
If the precise contribution of speculation, hedging and old-fashioned hoarding to food price inflation cannot, at present, be precisely determined, it is because few of the agencies suddenly alert to the food crisis have even asked the question. This in turn has important implications for policy proposals to deal with the crisis. Getting a grip on food price inflation means confronting the concentrated power of the agrofood TNCs and reining in speculative finance.
World Bank chief Zoellick has raised the spectre of mass starvation to call for a "New Deal" for agriculture - administered by the IMF and World Bank. The New Deal, however, looks suspiciously like the old. Together with the WTO, the international lending agencies have promoted and enforced a world food system dominated by a handful of giant corporations whose power and reach are built on production systems geared to massive export at the expense of domestic food-producing capacity. Global food riots are proof that feeding hungry corporations is not identical to feeding human beings.
Rather than calling on the institutions which brought about the crisis to resolve it, trade unions, together with civil society organizations, must demand a public investigation by the United Nations into the surge in the cost of basic food. While the role of the FAO in tackling the crisis is generally acknowledged, the FAO's record is on many counts ambiguous: it too has promoted export-based industrialized farming at the expense of food security and social and environmental sustainability. If the UN is to take a lead in developing policies and measures to address the crisis, there must be formal participation by the UN Special Rapporteur on the Right to Food, along with UNCTAD, the UN agency with the most experience of international commodity markets, and the ILO, the only UN agency in which trade unions have an institutional voice.
Given the enormity of the crisis, the WTO's Agreement on Agriculture must be suspended to give governments the policy space they need for measures to tackle the crisis. Regulating imports, limiting or even halting exports, the imposition of tariffs/taxes, and production subsidies to satisfy domestic food (not biofuel) requirements must be considered legitimate measures to defend food security, which take precedence over the rules of the WTO.
Governments of major food staple exporting countries should be required to furnish the World Food Program with stocks at below market prices or the equivalent in cash to allow food-deficit governments to buy supplies from appropriate sources at subsidized prices. Priority must be given to raising funds for an international program to strengthen systems of local and national food production. Since food price inflation is an aggressive tax on the poor, who in developing countries devote most of their income to food, taxing the record profits of the grain trading and processing TNCs would be a legitimate means of partially financing the reconstruction of agriculture. And unions should seek to implement the recent decision of the IUF Executive Committee, which, meeting in Geneva April 17 to 18, called for a moratorium on the expansion of biofuel production pending a full assessment of the social, employment and environmental impact. Food rights - the right of all to affordable nutritious food, and rights for those who produce the world's food - must be at the heart of global food policy.