Global Food Prices Hit Record High
By Andre Damon
19 January, 2011
WSWS.org
Food prices have hit
record highs due to a string of crop failures together with an upsurge
in speculation, resulting in rising living costs.
The UN’s Food and Agriculture Organization recently
announced that the food price index has now broken a previous record set
in 2008, when food prices nearly doubled over the course of 18 months,
leading to popular upheavals in dozens of countries.
Rising food prices, which have shot up 25 percent in
the past year, have precipitated riots and demonstrations in Tunisia,
Morocco, Algeria, Jordan, Mozambique and Yemen in recent weeks.
Skyrocketing costs were a contributing factor in the
popular upsurge in Tunisia that toppled the dictatorship of Zine El
Abidine Ben Ali last week. In Algeria, at least three people have been
killed in clashes with police after the government slashed food
subsidies.
Over the past year, the commodity food price index
for corn has risen 52 percent, for wheat 49 percent and for soybeans 28
percent. Non-staple cash crops have also risen dramatically, with coffee
up by 53 percent and cotton 119 percent.
The sharp rise in food prices is partly attributable
to a bad crop year, exacerbated by a series of natural disasters.
Droughts in Argentina and Russia, both major food producers, have
decreased output, while recent floods in Brazil and Australia have
completely wiped out some crops.
But the rise in commodity prices is not confined to
agricultural products, although the increase is most dramatic there.
Brent Crude oil hit nearly $100 per barrel last week, and has increased
in price by 26.54 percent from a year ago, when it was trading at $75
per barrel. Copper, meanwhile, is up 30 percent over the past year.
Increased energy prices are a factor in rising food
prices, as agriculture consumes large amounts of fossil fuels during
harvesting and transport, and petrochemicals are the main component of
industrial fertilizers. The increasing use of ethanol, a corn-based
alcohol, in gasoline in the US and elsewhere has also cut into supplies
of corn available on the food and animal-feed markets.
The rising cost of food and fuel have led to
declining living standards for masses of working and poor people. In
countries like Egypt and Ethiopia, household expenditures on food
constitute as much as 50 percent of a family’s budget. In Mozambique,
households spend on average 75 percent of their incomes on food. For
these people, the 25 percent increase in food prices over the last year
means the difference between survival and starvation.
In the United States, rising food and fuel prices
are forcing families to live without adequate heat in the wintertime,
forego needed medications, and cut back on nourishment, with devastating
consequences for the health of children and the elderly.
In some cases, governments have sought to cushion the blow by extending
subsidies or announcing export controls.
China and Indonesia have announced measures to curb
food prices, and the Indian government said last week that it would
“impose controls on exports and ease restrictions on imports, including
tariff reduction where necessary, to improve domestic supplies.” Russia
recently extended its export ban on grains until July 2011.
Despite these measures, food prices continue to climb, as world markets in
food commodities are unregulated.
The US Commodity Futures Trading Committee proposed
limits last week on the size of commodity bets taken by speculators, as
part of the Dodd-Frank financial reform bill. The proposal, which
amounts to little more than a public relations exercise, will be voted
on after a two-month “comment period.” Two of the four commissioners who
voted in favor of the proposal have indicated that they would not vote
to put the measure into law, meaning that it will never come into
existence.
The world’s major food suppliers are experiencing
record profits from the price hikes. Cargill, the largest global trader
of food commodities, saw its profits triple in the fourth quarter of
last year, up to $1.49 billion from $489 million in 2009.
While unfavorable crop conditions no doubt have
played a role in driving up food prices, this cannot explain the fact
that the price of crude oil and copper have increased at the same rate,
and in some cases faster, than staple foods.
In December, it was revealed that a single anonymous
investor controlled 90 percent of the copper supply in the UK, in an
attempt to corner the market. Suspicions loomed at the time that the
mystery trader was JPMorgan Chase, the US bank, or UK-based HSBC. The
firms denied holding the position and the investor remains unknown.
Speculation, which has played a major role in rising
food prices, is itself dependent on the supply of ready cash. Thus, a
major reason for the surge in global prices is to be found in the Obama
Administration’s monetary policy. The US has kept the federal funds
interest rate, the rate at which banks charge each other for loans, as
close to zero as possible. At the same time, it has undertaken
unprecedented moves, called “quantitative easing,” to expand the money
supply even further. These measures, which come on top of the vast
government bailout that transferred trillions of dollars into US finance
companies, have served to flood the market with cash, fueling
speculation.
Liberal New York Times op-ed columnist Paul Krugman,
writing on his blog, has sprung to the defense of the White House. Last
month he insisted that the vast expansion of the money supply, a policy
that he supports, has nothing to do with the run-up in speculation. He
concludes, “America is, for the most part, just a bystander in this
story. …[R]ising commodity prices are basically the result of global
recovery. They have no bearing, one way or another, on U.S. monetary
policy.”
Instead, he argues that the run-up in food prices is
driven by “fundamentals” of the global economic recovery. “What the
commodity markets are telling us is that we’re living in a finite world,
in which the rapid growth of emerging economies is placing pressure on
limited supplies of raw materials, pushing up their prices.”
Krugman’s argument is contradicted by the fact that
many potential vehicles for speculation, even those not tied to any
recovery, have risen in the recent period. More specifically, US stock
values have grown in the recent period, despite the absence of any
recovery in production. The US NASDAQ is up by over 20 percent over the
past year, and the S&P 500 is up 13.84 percent. Yet this is despite
the fact that, over the past year, the US economy has created 500,000
fewer jobs than the amount required to keep up with population growth.
http://www.countercurrents.org/damon190111.htm
[Non-text portions of this message have been removed]
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