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Farmageddon
There is an odd symmetry to the catastrophic problems which are gripping the top and the bottom of our globalised economy. At one extreme of world production, the market in some highly complex abstractions is crashing. Financial products, previously priced at trillions of dollars and rising steeply for many years: the best that commentators can now do in estimation of their tumbling values is to estimate them on a scale between 'junk' and 'poison'; leaving thousands of the wizards whose business is in collateralised debt obligations and structured investment vehicles to worry about how they can continue to earn their hitherto enormous incomes, and millions of others in the countries of advanced consumerism to worry that they may be sucked, through negative equity and rising unemployment, into the downdraft of the maelstrom. Those for whom anxiety leaves some room for curiosity may wonder how and why these abstruse financial products were created, and what their connection was and is with the material goods and services created in the 'real' economy.
At the other extreme, the supply of the most basic of products, whose necessity to life is understood by all but is acutely felt only by the majority whose needs matter the least under our present global system, has also descended into crisis. For decades the price of food, along with the prices of other basic commodities, was falling; never becoming so cheap that it was not still a struggle for most people to feed themselves and their children; but cheap enough that many local producers could not compete. After the decline in prices ended, the situation only briefly stabilised; since 2006, food prices have been rising beyond the means of hundreds of millions of people.
An otherwise very informative briefing article in the Economist magazine on 17th April was headed: “Global food shortages have taken everyone by surprise. What is to be done?”
This depends on what is meant by 'everyone'. Very recently, prompted by events in the Third World including riots and the imposition of export controls on rice, leaders of rich countries have turned their attention to the global food crisis. But it was over twelve months ago that Fidel Castro began writing a series of articles pointing to the worsening food situation as an urgent problem with catastrophic consequences, and identifying some of the immediate causes. President Castro's position was allied to that of expert opinion in the USA and other Western countries. Further, as President Museveni of Uganda has noted, Fidel Castro has for many years been speaking about the global trends which have led to the current phenomenon.
All of a sudden, the analysis which was made by the communist former president of Cuba is no longer controversial; it is espoused by capitalist politicians and the most capitalist of journals. On 9th of April, Prime Minister Gordon Brown sent a letter to Japanese Prime Minister Yasuo Fukuda, who will be hosting the July 2008 G8 summit; the letter was copied to UN Secretary General Ban Ki Moon, Dominique Strauss-Kahn of the IMF and Robert Zoellick of the World Bank. ENS newswire quoted:
"Increased wealth and growing populations in developing countries contribute to steadily increasing global demand for grains, for food and animal feed, aggravated by rapidly increasing biofuel production," Brown wrote.
"Meanwhile, recent crop failures in major producing countries are reminders of the expected consequences of climate change, as the frequency and severity of extreme weather events increase in years to come," he wrote. "And the World Food Programme has highlighted that the increase in food prices will accentuate the food needs for the world's poorest people."
In its briefing article, the Economist differed only slightly from that evaluation:
The [food] prices mainly reflect changes in demand—not problems of supply, such as harvest failure. The changes include the gentle upward pressure from people in China and India eating more grain and meat as they grow rich and the sudden, voracious appetites of western biofuels programmes, which convert cereals into fuel. This year the share of the maize (corn) crop going into ethanol in America has risen and the European Union is implementing its own biofuels targets. To make matters worse, more febrile behaviour seems to be influencing markets: export quotas by large grain producers, rumours of panic-buying by grain importers, money from hedge funds looking for new markets.
Already in 2006, approximately 820 million people existed in circumstances of starvation or semi-starvation. Since then, an estimated 100 million others have also been precipitated into such conditions. Their dreadful plight- or more accurately, the likely political consequences of their plight- has prompted a distinct change in the discourse of key Western opinion-formers. Instead of the assertion that capitalist growth resulting from the extension of the world 'free' market leads to prosperity for all, we have what are close to admissions that an increasing income for some under global capitalism is leading to misery for others; that the fruits of technological progress in the hands of transnational companies in alliance with the governments of the USA and the EU are contributing to the disaster; and that the response of the markets including the speculative activities of the hedge funds is making matters even worse.
No concensus
As for 'what is to be done?' there is no concensus, either among the developed or the developing countries. In his letter to Japan, the leader of Britain's 'centre-left' Labour Party government reinforced his position that the way forward lies in the global market, which should be made even more free and thus supposedly more fair, by reducing the subsidies which wealthy countries pay to their farmers. As ENS reported:
"We should surely redouble our efforts for a WTO trade deal that provides greater poor country access to developed country markets and cuts distortionary subsidies in rich countries," he [Brown] wrote to his Japanese counterpart.
The 'centre-right' government of France, on the other hand, is seizing the moment to push in the opposite direction. On April 11th, French government ministers issued a statement suggesting that the EU should respond to the food shortage by increasing agricultural subsidies, thus boosting production.
Michel Barnier, France's Minister of Agriculture, followed up by denouncing the negative role of the market:
Blaming spiralling food costs on “too much trust in the free market”, French Agriculture Minister Michel Barnier called upon Europe to resist further cuts in agricultural subsidies - a key demand of India, Brazil and China at ongoing talks at the World Trade Organisation (WTO) in Geneva.
“We must not leave the vital issue of feeding people to the mercy of market laws and international speculation,” Barnier said at the meeting of the EU Agricultural and Fisheries Council.
The contrasting ideological stances of the governments of these rich nations are firmly grounded in their own economic interests. Britain, as a food importing country with a small agricultural sector, suffers a net financial loss through the payment of the European Union's Common Agricultural Policy (CAP) subsidies. France is a food exporter with a much larger agricultural sector; it is a net gainer from the CAP subsidies. Of course, the politicians of both countries frame their opposing arguments in terms of the welfare of the poor people of the world.
For very sound reasons, the less developed countries have been generally united in seeking an end to the 'distortionary' agricultural subsidies received by farmers in the rich countries. The poorer states have been more vulnerable to the pressure from the international institutions which have insisted that they remove or reduce their own farming subsidies; and in any case, their financial circumstances do not permit them to match the hundreds of billions of dollars which the EU, the USA, Japan and other wealthy OECD countries use to support their farmers. Nevertheless, through the laws of the world market, food products made in rich and poor countries must compete as if the 'playing field' were level.
But the Third World countries face an even deeper problem- that of access to technology.
Recent remarks by Lula da Silva, the President of Brazil, illustrate some of the complexities and dilemmas which Third World governments have to deal with. Brazil, while opposed to rich country agricultural subsidies, is closely engaged with the USA in its involvement in the biofuels drive, which is dependent on rich country subsidies. Passionately defending his country's policy at a meeting of the UN Food and Agriculture Organization on 18th April, President Lula made some very important points. A brief transcript and commentary from the Real News report of the event reads as follows:
Luiz Inacio Lula da Silva, the president of Brazil, sharply criticized developed nations on Thursday for their role in bringing about the food crisis. Speaking at the UN's Food and Agriculture Organization, da Silva said expensive fertilizers, manufactured in wealthy countries, make farming expensive in the developing world.
But da Silva rejected the notion, recently supported by the UN, that biofuels are harming food production by occupying agricultural production that would otherwise be used for food. Brazil is the world's largest exporter of sugar-based ethanol.
VOICEOVER: Addressing a regional meeting of the UN's food and agricultural organization on Wednesday, Brazil's president, Luiz Inácio Lula da Silva, sharply criticized developed nations for their role in bringing about the food crisis.
LUIZ IGNÁCIO LULA DA SILVA, BRAZILIAN PRESIDENT: Even when poor countries harvest their own products, they cannot pay for the fertilizers bought from multinationals, which are usually based in rich countries. We either speak frankly about the situation we are facing, or we continue creating these emergency policies like it did in Haiti, and sending a little bit of food every time a crisis erupts. We are only feeding the hunger of these people momentarily and awaiting another crisis.
VOICEOVER: But da Silva rejected criticism that biofuels are implicated in the current global food crisis. Brazil leads the world in the exporting of sugar-based ethanol for fuel.
DA SILVA: Biofuels are not the villains threatening the food security of poor nations. On the contrary, if they are developed in accordance with each country's limitations and reality, they could be essential tools for economic growth and energy independence.
This was a transparent debating trick- the biofuels programme can be both a villain threatening global food security, and also a means by which some countries seek to attain growth and meet their energy needs; these are not mutually exclusive categories. But Lula da Silva had little option but to use such rhetorical devices. On the international stage, it is simply not possible for Brazil's leader to admit that the conversion of food crops into fuel is a grave threat to the food security of hundreds of millions of people, yet the governments of Brazil and other countries still feel that they must 'get in on the act' of the US-sponsored biofuels programme in order to achieve economic growth.
For the USA and its rich allies on the other hand, the drive to supplement petroleum with ethanol derived from maize and other crops is motivated largely by a strategic consideration- to reduce Western dependency on the Middle East, Russia and other unreliable Third World countries as energy sources.
Nevertheless, in deflecting blame from his own government, Lula correctly identified the main culprits - the developed nations and the multinational companies; and one of the two most important underlying issues: the control of technology- of which the production of biofuels and fertilizers are instances.
The other main underlying issue, as the French- for their own reasons- have correctly pointed out, is the arrangement of world production and trade on the basis of the market: an unplanned, inherently unstable arrangement, liable to booms and slumps; and which works, to the extent that it does work, by making individuals, production units and countries compete with one another for survival and enrichment.
Some Third World countries, most notably China and India, have expanded greatly in overall production under the regime of 'free trade' globalisation in the last quarter-century, benefiting from the outsourcing of industrial and service processes from the rich nations. Even there, the gains have been made at the cost of increasing inequality, reduced security for agricultural and urban workers, and environmental degradation. In other Third World countries, these costs have not been balanced by significant benefits from globalisation.
It must be noted also, that the 'free trade' regime pits producers in the less developed countries not only into competition with producers in the 'West', but also into competition with each other. For example, mass production of cloth and clothing had by the end of the 20th Century almost entirely disappeared in the rich parts of the world; along with other relatively low-skill industrial sectors, it had migrated from high-wage to low-wage countries. One of the key factors allowing these low wages to be tolerated by industrial workers in Third World countries was the general decline in food prices which took place from the 1970s until 2004.
Since the abolition of the Multi-Fibre Agreement in 2005, the textile industries of Bangladesh and the Philippines are now engaged in intense rivalry with the textile industries of China, India, Pakistan, Cambodia, Indonesia and Vietnam; leading to a big reduction of the workforce in the Philippines, and a series of strikes and militant demonstrations by workers in Bangladesh in 2006 and 2007, as they sought to defend their already miserable wages and conditions. The participants in the 2008 food riots in Bangladesh were mainly textile workers, whose low wages have been overtaken by the steeply rising price of rice.
In agriculture on the other hand, the rich 'triad' of North America, the EU and Japan have remained as very strong producers. Among the main reasons for the survival and development of this most basic economic sector, despite the high wages enjoyed in the triad, is the highly advanced technology employed, which has displaced almost all of the manual labour which was previously required.
The technology gap
Farming in the rich countries involves, to give a few examples, the use of advanced machinery for tilling, planting and harvesting; the latest seed varieties, fertilizers, pesticides and herbicides; and the distribution of water by mechanical irrigation and sprinklers. The full array of these inputs results in a very high productivity for agricultural labour, but they are extremely expensive; due to their 'limitations and reality', few farmers in poor countries can afford them; indeed, without state subsidies, many farmers in rich countries could not afford them.
To consider the effect on production per worker of the huge global gap in the application of agricultural technology, one can take the examples of the USA and Malawi. In only two respects is there a close comparison between the farming sectors in these two countries: the first is the number of people who work in the sector. The United States has about three million people working in agriculture; Malawi has about four million. The parallel does not quite end there- both countries currently have a net sufficiency in food- the 3 million in the USA feed the rest of the population, with some left over for exports; and the 4 million in Malawi feed the rest of the population (though with not such an abundance of calories and protein) and there is some left over for exports. That is the end of the parallel.
Using advanced technology, the 3 million in the USA's farm workforce, approximately 2% of the total labour force of the United States, produce agricultural products worth an annual $166,126 million. Each worker, including proprietors, produces around $55,000 worth of products per year.
Using mainly hand tools and recyled seeds, the 4 million in Malawi's farm workforce, approximately 90% of the total labour force in Malawi, produce agricultural products worth an annual $1,284 million. Each worker, including proprietors, produces around $320 worth of products per year. Agricultural labour in the USA is almost 130 times more productive than it is in Malawi. However, agricultural commodities from Malawi must compete with agricultural commodities from the USA as if they were produced on an equal basis.
Yet Malawi's agricultural sector is rightly considered something of a success story. Two years ago, the government of that country successfully resisted pressure from the World Bank, and re-introduced a subsidy on fertilizers; the subsidy had been phased out several years ago under the instructions of the Western-dominated international institutions. Due to the re-introduction of the subsidy, farmers became able to use fertilizers, with the result of a substantial improvement in productivity. In 2007, Malawi ended its dependence on international food aid and even contributed products for food aid to other African countries.
Despite this success, Malawi is a small country with a low level of development even when compared to other Third World nations, and which makes little imprint on the world market. The reader may therefore wish to look at other examples. One that might be considered, a medium-developed country by non-OECD standards, is the Philippines. Agriculture in the Philippines has suffered during the last decade from a lack of investment from the state and the private sector. The state did not invest because of the 'laissez faire' policies of the government, which enthusiastically followed the prescriptions of free market economics; the private sector did not invest because, given that grain prices were on a long term downward trend, investments in agriculture would not yield as big a profit as investments in manufacturing or services. Thus the acreage of land used for farming diminished and, although 12 million people work in agriculture in the Philippines, the the productivity of the remaining farms (at around $2,250 annually per worker) has failed to keep pace with population growth; the gap was met by imports.
Lawrence Ong reported for the BBC on 6th April:
Over the past 20 years or so, the country lost nearly half of its irrigated land to rapid urban development.
Jaime Tadeo from the National Rice Farmers' Council showed me a few areas just north of Manila where shopping malls, condominiums, and golf courses have taken over precious farm land.
"There is still time. The Philippines has the vast potential to attain rice self-sufficiency if all land suitable is used to plant rice under the best technological and farm management conditions.
Now that the global price of rice has risen sharply, the effect on the Philippines has been calamitous.
Long term lack of investment in agriculture has also afflicted many other Third World countries, including those in Asia. As John Samuel of the charity Action Aid told Reuters:
"This is a crisis that has been brewing for years... Although there has been substantial economic growth right across the region, this has been in the industrial and service sectors; investment in agriculture has stagnated or even declined in real terms. Unless there is concerted investment in agriculture in Asian countries, food price hikes will become a perennial problem."
That must be part of any medium to long term solution. Meanwhile, the concerted investments in agriculture are creating products that supply the energy needs of motor vehicles, not human beings.