Elusive Commodities, Starving Masses and Ruthless Speculators

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In recent months, the food crisis has increasingly been in the news. There have been riots in many different countries all over the world including Mexico, Egypt, India and Yemen due to the increase in food prices. Even though these riots have only happened recently, the increase in food prices has been building since 2005. Between 1974 and 2005, food prices actually dropped 75 percent and have since increased by 75 percent, according to Fritschel in an article published in Open Democracy. In the last year, wheat prices have increased by 130 percent, soy beans by 87 percent and rice by 74 percent, say McKir and Stewart in The Observer. April 2008. Prices for other staples such as sorghum and cassava have also risen considerably, greatly affecting developing countries.

Many economists believe that prices will keep rising for the foreseeable future due to five main factors: high speculation in commodities markets, the lack of availability of cheap oil, rising meat consumption in developing countries, biofuels and lastly, climate change.

Speculation in Commodities Markets

Food prices have risen due to speculation, but it is extremely difficult to measure. Speculation means that many investors are putting money into commodities, creating a market that is likely to fluctuate – and remain in their control, skewing market forces. Many people believe that speculation is not happening because food reserves are at extremely low levels and speculation tends to promote hoarding of resources. According to the Food and Agriculture Organization (FAO), food reserves are at their lowest in 35 years. However, in spite of this, there is still evidence that speculation is increasing food prices. Investments in corn, soy, wheat and cattle have increased to $47 billion now from $10 billion in 2006, according to Hanim Adnan, news editor of StarBiz. Because of this, some countries, including India, are now prohibiting futures trading in food commodities. This action is thought to decrease food price inflation. However, this is but a temporary measure. In the short term, investors should stop chasing too few commodities and invest money in true TBL-based initiatives instead.

The Effects of High Oil Prices

Food prices increasingly follow oil prices – which have skyrocketed in recent years. A barrel of oil now costs approximately $130; in January of this year, oil cost $100 per barrel. A Food Policy Report by the International Food Policy Research Institute (IFPRI) states that since 2000, oil and wheat prices have tracked each other. Both increased three times what they were before.

Many scientists and economists believe that we have already reached peak oil, meaning that there will be a point at which oil production will start to decline and prices will increase indefinitely due to this. In the last 145 years, the world has used between 2 and 2.5 trillion barrels of oil, which is approximately half of the supplies available; in the next 40 years, it is expected that the other half will be used because of the rise in consumption from countries such as India and China. In addition, 98 percent of the oil the world uses comes from just 45 countries and half of these have reached peak production, according to a report titled ‘Peak Oil and Food Security: Fuelling a Food Crises’ by the Pacific Ecologist.

In the developed world, this has already started to be a problem for food prices, mainly due to the fact that much of the food bought there comes from supermarkets, which tend to use Heavy Goods Vehicles (HGV) that require a lot of gas. In addition, the type of industrial farming done in the developed world uses 50 times more energy than traditional farming, according to the report. This is due to increased use of pesticides and nitrogen fertilizers, the latter of which require 2 litres of diesel for every kilogram. In addition to increasing the food crisis, this has also led to a decrease in the quality of soil and a degrading in the quality of water. As oil depletes, the developed world should move toward farming with less fossil fuels.

Meat Consumption

As the developing world has grown stronger economically, demand for meat and other luxury items has also grown. In China, meat consumption has risen
150 percent since 1980, state McKie and Stewart. In the last 15 years, meat consumption in India has risen 40 percent.

Because cattle are mainly fed grain, more grain has been fed to cattle instead of humans, creating a shortage. In addition, as meat consumption rises, so do prices. Since May 2007, meat prices have risen 12 percent. It is important to note that the production of meat is a big contributor to climate change. According to the New Scientist, “a kilogram of beef is responsible for more greenhouse gas emissions and other pollution than driving for 3 hours while leaving all the lights on back home.” Thus, if meat consumption continues unabated, both food prices and the climate will suffer. The developed world should set an example and start eating less meat. In fact, if just one-seventh of calories in the U.S were shifted from red meat to chicken, fish and vegetables, more greenhouse gas emissions would be saved than if all food was bought from local sources. So much for food miles calculations.

Biofuels: Fuelling Cars, not People

Biofuels were once viewed as a way to decrease emissions and increase energy independence for the developed world; however, it has become clear in recent months that biofuels are in fact a contributor to high food prices. Some organizations such as the International Food Policy Research Institute believe that biofuels account for as much as 25 to 33 percent of food price inflation; however, the FAO believes that it may only account for 10 to
15 percent. The main reason why biofuels have contributed so much toward food price inflation is because the U.S is the world’s largest exporter of corn and much of the corn harvest in recent months has gone towards biofuels. In 2007, when the U.S experienced a record corn harvest, one-third of the crop was diverted to biofuels, according to the Financial Post.. Since then, the price of corn has risen
44 percent.

However, this has been very beneficial for farmers who have begun growing corn for biofuels – not food.

In addition, even if 20 percent of the corn in the U.S was diverted for biofuels, it would only be enough for 2 percent of U.S car use, according to The Guardian, UK.
Biofuels are also affecting other parts of the world such as Indonesia. The European Union (EU) has a mandate that by 2020, biofuels will contribute 10 percent of transport fuel. Much of the EU biofuel will come from palm oil, which is being grown in Indonesia and other tropical countries. Unfortunately, the best place to grow these palm trees is in cleared rainforest, which contributes to greenhouse gas emissions. Partly due to palm, Indonesia’s rainforest will be 98 percent gone by 2022. Many farmers’ lands have also been confiscated by palm oil companies, contributing to poverty.

Climate Change

In recent years, the changing climate has affected crops all over the world. In Australia, an ongoing drought has decreased the rice harvest by a staggering 98 percent. This is an unfortunate situation because much of the rice grown today grows very close to sea level and these fields may become flooded as a result of rising sea levels. Already, floods in China have destroyed many rice as well as corn crops. In addition to rice, many other crops will be affected by higher temperatures. By 2020, it is expected that agricultural yields in the developing world will drop by 20 percent, according to the World Situation Report by the International Food Policy Research Institute, December 2007.

Next Steps?

The food crisis clearly has many causes. It is not enough to just tackle one area, but there are some short term steps that can be taken. Firstly, developed countries have to contribute more money towards emergency food needed for the World Food Programme, which is now asking for $755 million because of rising food prices, according to a United Nations press statement made in April 2008.

Although many countries such as the U.S. and Canada prefer to give food instead of money, money is a better asset in this case because it can be used to purchase food grown locally, which decreases greenhouse gas emissions. Some countries including Vietnam and India, have begun to ban exports. However, some countries that are even poorer import much of their food such as Haiti, Liberia and Zimbabwe which import 40 percent of their food, states Fritschel. If exports continue to be banned, poor countries will suffer.

In the long term, diets will have to change. As the developing world becomes richer, their lifestyles are often modeled on the developed world, which consumes a large amount of red meat. In the U.S., the average person consumes 41.8 kilograms of beef per year while the Chinese only eat 5.4 kilograms and India just 1.3, according to Lloyd Alter in treehugger, May 2008. The consumption of beef has many implications; firstly, it increases greenhouse gas emissions, which the planet cannot afford. It also increases the price of corn, which people in developing countries cannot afford. If increasing amounts of corn are diverted toward biofuels and for feeding cattle, there will be hardly any left for growing populations in the developing world. And of course, red meat is very high in cholesterol, and contributes to ever growing rates of heart disease.

The food crisis is now having an impact on many countries all over the world, both developed and developing. The corporate sector has a large role to play because many large multinational corporations are reaping the profits of this devastating impact.

Archer Daniels Midland, which processes soy, corn and wheat, has reported a 42 percent increase in earnings in just 2008 alone. This money should be fed back to developing countries that are struggling with food supply. Many policies in the developed world such as subsidies for biofuels must end as well so that families can feed themselves first, and cars second. As the food crisis becomes ever more evident, countries must work together to find solutions.

References

1. Heidi Fritschel “The Price of Food: Ingredients of a Food Crisis” http://www.opendemocracy.net/article/globalisation/ the_price_of_food_ingredients_of_a_global_crisis

2. Robin McKie and Heather Stewart “Hunger. Strikes. Riots. The Food Crisis Bites” p://www.guardian.co.uk/environment/2008/apr/13/food.climatechange

3. Hanim Adnan “Speculation wreaking havoc on food prices” http://biz.thestar.com.my/news/story.asp?file=/2008/5/22/business/21321147&sec=business

4. BBC News “Oil hits $100 barrel”

5. Joachim von Braun “The World Food Situation: New Driving Forces and Required Actions” http://www.ifpri.org/pubs/fpr/pr18.pdf

6. Caroline Lucas, Andy Jones and Colin Hines “Peak oil and Food Security: Fuelling a Food Crisis” http://www.pacificecologist.org/archive/14/peak-oil-part-one.pdf

7. Alia McMullen “Forget Oil, the New Global Crisis is Food” http://www.financialpost.com/story.html?id=213343

8. Lloyd Alter “Why do Americans Think they Deserve to Eat More than Indians?”

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    Author Information

    Miriam Katz is a freelance writer and English teacher, currently based in Tokyo, Japan. She has many interests including climate change, renewable energy and food issues. Miriam has an Honours BA from the University of Toronto in political science and environmental studies. This fall, she will attend York University in Toronto for her Master's in environmental studies.

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