Food Prices, Food Crisis and the Absurdity of Market Rationality

By Hamid Sodeifi
New Socialist
Thursday, 19 May 2011

Humanity is facing a severe and worsening food crisis. Three billion people, nearly half of the world’s population, are malnourished. Over a billion suffer from “continual and severe hunger” while millions die each year because they lack access to even the most minimal amount of food. Every five seconds a child dies due to hunger or hunger-related diseases.

This would be a great tragedy if it were caused by factors beyond our control. But while production of food is becoming an increasingly serious problem, the reasons for which will be explored below, we can in fact produce enough food to provide an adequate and healthy diet for every woman, man and child on earth. The food crisis and its consequent misery, starvation and deaths are not, therefore, inevitable but are rather the necessary and rational outcomes of a socio-economic system whose sole objective is the creation of profits.

That the situation is worsening is evidenced by the fact that over the last year prices have spiked to the spectacular peaks reached only three years earlier (2007-8), when food riots spread right across the globe. According to the World Bank, since June of 2010, “an additional 44 million people fell below the $1.25 [extreme] poverty line as a result of higher food prices.” Conservative estimates suggest that each one percent increase in food prices will push more than one million people into absolute poverty. To put this into perspective, consider that over the last year food prices have risen, on average, by 36%, with certain key staples at significantly higher rates: corn has increased by an astounding 74%, wheat by 69%, soybeans by 36% and sugar by 21%.

While these price increases negatively impact all working people across the globe, the effect on those in low- and middle-income countries is particularly devastating as they spend a greater share of their income on food. In Mexico, to use only one example, an index measuring the share of people who cannot afford the most minimum basket of food increased by 5% within a six month period between the second and fourth quarters of 2010. In addition, many commentators have alluded to the fact that food prices were not an unimportant factor in the recent uprisings and revolutions in North Africa and the Middle East (see box 1).

The dramatic increase in food prices in recent years is the result of both short term developments and long term trends. The immediate causes include severe weather events in such key grain producing regions as Russia, Kazakhstan, Pakistan, Argentina and Australia in the second half of 2010 as well as concerns that drought may ruin much of the current wheat crop in China. The rise in the price of petroleum (up by nearly 25% over a year ago), a key input in agricultural production and distribution, also played a role in the rising price of food. Prices were also pushed up by speculators, like Goldman Sachs, who saw an opportunity to take advantage of the “commodities super cycle” and make a killing in the market for, among others, agricultural products. More significant, and more menacing, long-term trends were also at work both at the supply-production side and the demand-consumption side of the food-cycle equation.

Production of Food as Commodity

In the decades following the Second World War, the application of modern technology, including use of fertilizers, pesticides and herbicides together with heavy machinery and irrigation, resulted in spectacular rates of growth in production of foodstuff (dubbed the “green revolution”). Between1960 and 1990, growth in global yields of staples averaged about 3% per year, outstripping the global population growth rate of 1.8%. However, rate of growth in food production began to decline in the 1990s as further applications of technology (“technological fix”’) failed to significantly increase production of food. Globally, the average rate of growth in yields for staples has declined to about 1%, trailing the population growth rate of around 1.4%.

Years of intensive agriculture and petrochemical use has significantly depleted natural soil nutrients, and destroyed the microscopic life forms that are critical to healthy plant growth. As a result, with each cycle the use of fertilizers has increased, as well as pesticides to battle increasingly resistant pests. So, while the application of fossil fuels, particularly the use of nitrogen fertilizers derived from natural gas, together with irrigation and various pesticides dramatically augmented food production in the second half of the 20th century, by the beginning of the 21st century we require an ever increasing amount of fossil fuels to produce our food. In China, for instance, the use of fertilizers has risen by about 40% since the 1990s while overall output has remained stagnant. Today, we need about 10 calories of fossil fuel to produce and deliver each calorie of food, dramatically illustrating the degree to which the price of fossil fuel impacts the price of food.

For the few transnational corporations in the fuel and petrochemical industries that profit from the production of these products, our ever-growing dependence on them is, of course, wonderful news. But from the perspective of sustainable agricultural production to satisfy human needs with healthy and nutritious food, this is a disaster. It is also a disaster from an environmental perspective as air, land and water (including the underground water-table) is polluted with toxins which will stay around for decades, if not centuries. One clear example is the “dead zone” of the northern Gulf of Mexico, the result of the flow of fertilisers used in the American Midwest down the Mississippi.

As the benefits of further technological fixes have declined, there is now a scramble for a “spatial fix” as private equity funds, corporations and countries roam the world looking for agricultural land to lease or purchase in what has been called a “new colonialism.” Cash-strapped poorer countries, particularly on the African continent, are especially vulnerable to this new form of capitalist-imperialist incursion. According to the World Bank, these “land grabs” account for anywhere between one-eighth to one-third of total available land (depending on what estimate is used to determine how much arable land is left on the planet).

As these lands are taken over by global capitalist interests, large numbers of indigenous farmers are driven off their lands, and their agricultural practices, formed over generations to adapt to local conditions and crops, are replaced with intensive production practices and the heavy use of chemicals associated with modern capitalist agriculture. The result is twofold: on the one hand, within a short time-period, fertile soil is turned to a chemically-dependent and degraded land, requiring enormous amounts of fertilizers and water for cultivation. On the other hand, as former farmers are made redundant, in line with the most “efficient” capitalist practices, and driven to the slums at the outskirts of major cities, we see a historic mass migration from the country to the cities across the globe.

Once capitalist farming takes hold, it unleashes a series of, quite literally, deadly, consequences. In order for the smaller farmers to survive and compete with the cheaper chemically-induced products, they have to adopt the same “modern, scientific” practices. Those who do, find themselves increasingly under the control of banks that lend them money and the big corporations which not only sell them seeds, but also the fertilizers that go with those particular seeds, as well as the necessary pesticides and herbicides. The large corporations thus do not simply sell one item, but a basket of products. To make the investment worthwhile, there needs to be a large piece of land cultivated to take advantage of economies of scale. This requires utilization of heavy machinery, which also needs to be purchased.

Most farmers, especially in poorer countries, simply cannot afford to participate in this game and are eventually driven off their land. The farmers who make the investment find themselves in debt to the banks, and their production decisions motivated by the cultivation of “cash crops” that can generate income. Invariably, this means that the focus has to be put on the cultivation of a single crop, driven by the demands of domestic or foreign markets, leading to mono-culture agriculture and loss of biodiversity. No longer does it make sense for a farmer to raise a few cattle, a dozen or so chickens, a few fruit trees, some herbs and potatoes along with the cereal crop that may be the main product.

With mono-culture, farmers face a host of new problems, not the least of which is the depletion of the land’s natural nutrients and organic matter. If the market price of the single product goes down or yields are lower than expected, the farmer is ruined. Each year, in India alone, tens of thousands of farmers commit suicide as they find no way of escaping this trap. This capitalist system of agricultural production is killing the very people who produce our food while increasingly concentrating food production under the control of profit-driven large corporations.

Moreover, as the price of fuel increases, so does the cost of producing fuel-dependent agricultural products. This not only results in an increase in the price of food; it also exacerbates farmers’ debt problems. It also has another, classically capitalist, consequence, complete with its perverse logic.

As the price of fuel increases, it makes sense to divert the cultivation of foodstuff to biofuels. Indeed, this has been one of the contributing factors to the rise in the price of food. Once agricultural products are turned into commodities, their particular use-value, or qualitative useful aspect, is no longer of primary importance. It does not matter if they are used as food or fuel, so long as the exchange-value -- the money that can be obtained for them in the market -- is the same. In the United States, for instance, one quarter of the total grain harvest—enough to feed 125 million Americans, or a half billion people in India—is now diverted to biofuel production. So, if as a result, global food supplies are limited, their prices go through the roof and a few million people starve, so be it: It would be illogical to forego the potential income and profit, not to mention the government subsidies that go with them, by doing it any other way. This is market rationality at work.

The production of biofuels , such as ethanol made from maize or sugar, is a very big problem. With the market for such fuel significantly greater in value than that for food, it is also a very big business. Consider some recent targets: the European Union, Japan, Brazil and Indonesia all state that biofuels must account for 10% of energy demand for transportation by 2020 while the U.S. aims to reach a target of 30% by 2030.

Consider, also, that almost 40% of the U.S.’s enormous maize crop is currently being redirected to produce a mere 8% of its fuel for transportation. In other words, tremendous amounts of food need to be turned into fuel to meet these targets, limiting global supplies, dramatically raising prices and increasing poverty, hunger and death, as a consequence. What is particularly obscene is that all of this is done to achieve only 1.5 units of energy output from ethanol per unit of input, as is currently the case in the U.S.

There is another side to the commodification of food that needs registering. As the use-value of food becomes subordinate to its exchange value, quality is compromised in favour of quantity as “efficiency” becomes the end-goal: the more “efficient” the production technique, the bigger the profit that is earned. Not surprisingly, the quality of food, in terms of nutrients and flavour, has greatly deteriorated over the last few decades while the potential harmful aspects from various toxins has increased.

Capitalist production, moreover, always implies the search for ways of reducing turn-over time -- the time it takes for capital to go from initial investment to production to final sale in the market so that it can start the process anew. If, within a given time frame, the number of cycles can be increased, then the total profit will increase. Reducing production and distribution time is one way capital extracts more profit. This is the case in a factory, in the service sector, and also in agriculture. In part, this is why genetically modified organisms, or GMOs, are employed. GMO food is designed not only to resist various diseases, but also to grow bigger, faster -- in many cases while actually in transport as food is increasingly produced for distant markets. The long-term impacts of GMOs and various hormones can, of course, be “externalized” by capital. In other words, while these practices enhance profits in the short run, their long-term consequences and costs (in the form of health care costs, etc.) are for the consumer, or the society as a whole, to deal with at some future point.

Once the goal becomes “efficiency” through speed, then natural growth patterns need to be disrupted, not only for plants but also for animals. If the time for the production and delivery of meat products to market is reduced, the number of cycles can be increased, enhancing profits. This need to compress production periods explains why so much grain is fed to cattle, for example, which normally graze in open fields, thereby reducing the availability of those grains to humans. Capitalist efficiency also requires that animals be penned inside the most limited space possible, and that body parts (teeth, beaks, etc.) be removed to prevent them from hurting each other (i.e., hurting the commodity) in those confined spaces. Animal cruelty, in short, is a necessary and logical aspect of capitalist farming aimed at producing maximum profits.

Food prices are also affected by the increasing cost of irrigation and disruption to weather patterns caused by global warming, itself partly a product of agricultural practices. Modern agriculture requires enormous amounts of water — more than two thirds of the world’s fresh water is used for agriculture. As our water supplies come under pressure from over-use, it is putting upward pressure on prices. Millions of irrigation wells around the world are drawing water from our underground tables faster than rainfall can replenish them. Recent estimates suggest that about 4200 cubic kilometres of water can be used without depleting the supplies. Currently, we use 4500 cubic kilometres. According to Lester Brown, President of Earth Policy Institute, the result is “falling water tables in countries populated by half the world’s people, including the three big grain producers—China, India and the U.S..” In India, for example, water tables have fallen from a couple of metres below the surface to, in some cases, hundreds of metres down. As China’s water tables have fallen, so has its wheat production, by 8% since its 1997 peak. The World Bank, not exactly a bastion of radical pronouncements, warns of “catastrophic consequences” if this pattern is not brought under control.

Thanks to global warming, itself a by-product of our dependence on fossil fuels, weather patterns are becoming increasingly volatile. As the temperature on the surface of the planet increases, it creates all types of extreme weather conditions from droughts to floods. As a result, food systems that were developed over centuries and adapted to local weather patterns and conditions, lose their ability to function. People who have survived on land for generations can no longer depend on it. Global warming, therefore, has a direct effect on our food supply. According to the US National Academy of Sciences, every one degree Celsius rise in surface temperature will reduce wheat, rice and corn yields by a whopping 10 percent. Yet we are facing global temperature increases of between 4 and 5 degrees Celsius this century, if we do not change the way we do things. The impact will be – and is already -- particularly hard on developing countries, no more so than in sub-Saharan Africa.

Consumption of Food as Commodity

Despite the issues raised here concerning food production, all of which need to be addressed in very short order to avoid a catastrophe, we nonetheless already produce enough food -- about 300 kg of grains per person per year, more than the 230 kg required for an adequate diet. The United Nations Food and Agriculture Organization (FAO) figures suggest that we also produce more than enough food to meet the required 2700 calories-a-day amount for every person on Earth. As Abhijit Banerjee of MIT has put it, “We live in a world that is capable of feeding every person that lives on the planet.”

This, however, requires an equitable distribution of wealth and resources. The poor die not because there is not enough food, but because they are poor. In other words, they lack “effective demand” (i.e., demand backed by cash). A key aspect of any attempt at finding a solution to the food crisis is to deal with the issue of poverty more generally. Food security is directly connected to income security and, consequently, to the economic system that produces such grotesque inequalities in distribution of income and wealth.

While those without effective demand, the “superfluous” population, die of starvation, others consume too much food. Commodification and over-consumption of food has led to a crisis of obesity in the richer parts of the world. Marketing, the spread of processed foods, and increasing use of hormonally and genetically modified foods have led to a very unhealthy diet on a mass scale. Mass-processed food is more easily accessible, much more actively marketed and more convenient than healthy food items. It is also often cheaper, thanks to capitalist mass-production methods, and therefore an easy sell, especially to members of the working classes with limited income.

Intensification of the pressures of work and life, and the reduction of “free” time, all consequences of capitalism (particularly in its neoliberal phase) have also increased dependence on mass-produced and processed fast foods, as homes shifted after WWII from production units to consumption centres. But, capitalists are not satisfied simply to see the switch from home-made foods to factory-produced food-like substances. (I call them “food-like substances” because they tend to lack nutritional value.) They want to sell an ever-increasing amount of these for an increasing amount of profit and will thus shatter any barrier that stands in their way. If the barrier is natural satiation – the fact a person is no longer actually hungry -- then capitalists apply their marketing prowess to induce consumers to overcome their natural limits with various snacks throughout the day, and with over-sized meals at lunch and dinner. Within a very short time, capitalism has produced a whole generation of people who regularly consume significantly more food than they need, giving rise to a variety of obesity-related ailments.

So what may appear contradictory and strange from a rational human perspective—polluting the environment and rapidly depleting the resources of the very planet that sustains us, driving farmers off their lands and turning them from producers of food to impoverished hungry mouths on the fringes of society, transforming food to fuel for vehicles and then transporting food thousands of kilometres in those vehicles rather than producing it locally, 1.2 billion people living in extreme poverty and hunger at one end and over-feeding segments of the population to the point of disease at the other—are in fact the necessary and rational outcomes of the capitalist system.

These problems did not emerge overnight, nor are they the result of a technical error here or a policy-mistake there. They are the culmination of the logical tendencies of a system of production and distribution whose primary objective is growth in profits, not meeting human needs. Everything that has emerged is completely rational and internally logical—so long as we accept the logic and rationality of the market. This is why Marx was able to see so clearly, in the second half of the 19th century, that “the entire spirit of capitalist production, which is oriented towards the most immediate profit, stands in contradiction to agriculture, which has to concern itself with the whole gamut of permanent conditions of life.”

This is also why the solution does not rest with technical shifts or scientific reorientations—though we desperately need a change in approach in these fields. Science and technology are themselves driven by the logic of our capitalist system. They are, in other words, the servants, not the masters of our socio-economic system. Nor can we fool ourselves with the idea that the answer is a shift in our individual consumption behaviour—though that too would be a good thing (consume natural foods, go organic, local and seasonal, eat less meat, etc.). The idea of “consumer sovereignty” peddled by bourgeois economists is simply a hoax, designed to confuse people into thinking that it is the people as consumers who really call the shots, instead of the capitalist system.

The only way out of the current crisis, a crisis that will surely get worse over time, is to honestly acknowledge that the historic mission of the capitalist system has reached its final point. It has moved from being a dynamic stage in human development that dramatically raised our collective productivity to become not only a fetter on further development, but to resemble a malignant cancer whose removal is indispensible if humanity, and indeed our planet, is to survive much longer.

By Hamid Sodeifi is a supporter of the New Socialist Group_____________________________________________________-
Box 1.
At 66 million metric tons, Arab countries are among the biggest importers of cereal, especially wheat. So, increases in global cereal prices have a huge impact on them. The price of cereals increased by 16% in Egypt, to take one example, within six months between June and December, 2010. But the extra cost does not stop there. A survey of ten Arab countries has revealed that their overall logistics costs (port handling, inland transport, storage, etc.) are about twice that of some European countries at $36/ton for wheat as compared to, for example, the Netherlands at $18/ton. There is also a great deal of susceptibility to price shocks. During the 2008 food price spike, for instance, Tunisia paid a 91% premium over the already elevated international spot price of wheat.