Features » July 23, 2008

Let Them Eat Free Markets

How deregulation fuels the global food crisis

By David Moberg

As the food crisis in Haiti worsens -- and rice and bean prices have increased 100 percent -- many turn to clay 'biscuits' as a source of food. The clay is mixed with salt and vegetable fat, then dried in the sun.

Agriculture and food markets aren't like markets for clothes or automobiles. Food is a daily essential

In April, crowds of angry Haitians — reduced to eating mud cakes to staunch hunger — erupted in deadly protests against high food prices, forcing the prime minister to resign. The price of rice, a staple of the Haitian diet, had risen 16 percent on the world market last year, then shot up 141 percent from January to April.

Around the world, similar riots — or fears of them — have pushed governments to restrict exports, reduce tariffs, attack hoarding and take other desperate measures as prices of virtually all major food commodities have spiked — and often fluctuated wildly.

But in the months since Haitians hit the streets, leaders of the major international financial organizations — the World Bank, the International Monetary Fund (IMF), the World Trade Organization (WTO) — as well as the Bush administration and European Union (EU) have responded weakly to the crisis. Mainly, they’ve issued underfunded appeals for emergency aid and for speedy conclusion of the latest round of WTO free-trade negotiations. For the world’s poor, that’s like lifting a drowning man out of the water, only to tie weights around his ankles and shove him back in.

When world leaders met in June for a U.N. Food and Agricultural Organization summit, says Steve Suppan, senior policy analyst for the Minneapolis-based Institute for Agriculture and Trade Policy (IATP), a research and advocacy group, “there was an urgent recognition of the food crisis but a more urgent sense of the need to salvage neoliberalism.”

And Raj Patel, author of the recent book, Stuffed and Starved: The Hidden Battle for the World’s Food System (See review on page 40), adds, “It’s preposterous that the Bush administration and EU are pushing us toward precisely the policies that got us into this mess.”

Many developments may have triggered the food price crisis, including bad weather conditions (from droughts in Australia to more recent floods in the Midwest), oil price increases, and rising biofuel and consumer demand.

But the current food crisis ultimately stems from over-reliance on deregulated global markets and increasingly concentrated corporate control of an ecologically unsound world food system. Pushing free-market fundamentalism harder will only intensify the fault lines, setting the stage for even more serious crises in the future.

All markets are not the same

Agriculture and food markets aren’t like markets for clothes or automobiles. Food is a daily essential, which consumes as much as two-thirds of the income of the poorest half of the world.

Many of those poor people are also peasants who rely on food production for their livelihoods. Farming depends on the whims of nature and slowly adjusted, seasonal plans. Agriculturalists don’t merely turn out a product for the market; they play a major role in environmental conservation or degradation and the definition of people’s cultures.

What’s more, wide disparities in power, financial resources and information exist between the many small producers and the handful of giant multinationals that control grain trade (like Cargill), hybrid seeds (like Monsanto), chemicals (like DuPont), wholesale markets (like Archer Daniels Midland) and retail markets (like Wal-Mart or Carrefour).

Add to that the distortions of markets in favor of the giants through governmental policies and the growing role of huge speculative investors.

“The markets are not perfect, and they can’t be,” says Sophia Murphy, senior adviser on trade for IATP. “The orthodoxy that drove liberalization of agriculture didn’t take account of the way markets don’t behave the way a neoclassical model of the economy behaves, and didn’t allow for regulation that needs to make up for agricultural market failures.”

But the rush to free-market fundamentalism has stripped governments of many of the tools they need — such as maintaining grain reserves — to produce price stability, equity, environmental sustainability and widespread human social development.

Haiti is a case in point. In the early ’80s, Haiti, though a poor country, produced nearly enough rice for its own population. But when a popular uprising overthrew Jean-Claude Duvalier’s dictatorship, the new government turned to the IMF for loans. However, the IMF conditions for loans — and later “structural adjustment programs” — included cutting tariffs on rice.

Heavily subsidized rice from the United States flooded into Haiti, bankrupting many small farmers. Then U.S. food aid further undermined Haitian agricultural self-sufficiency.

Haiti now has among the fewest trade restrictions in the Americas, and produces only about 18 percent of its domestic rice needs, making its population — four-fifths living on less than $2 a day — extremely vulnerable to global price run-ups. However, Haiti’s tiny rich elite prospers as the middlemen in this grain trade.

‘Laughing all the way to the bank’

The story is similar throughout the developing world. From roughly 1950 to 1972, the U.S. government opened up markets and created dependency on global grain purchases by providing subsidized, low-cost surplus grain. Governments could pay with their local currencies, rather than dollars, and the United States used that soft-money income to finance its global, Cold War political and military objectives. The governments of developing countries willingly accepted the aid, hoping to pacify their urban poor while keeping wages low for new industries.

At around roughly the same period, the “green revolution” took place, which replaced traditional polyculture — farming many food products from small plots — with larger monoculture of crops that are more dependent on fertilizer, purchased hybrid seed and irrigation. The shift raised rice yields per farmer but did not increase pounds of food produced per acre, according to Eric Holt-Gimenez, executive director of Food First, an Oakland-based research and advocacy group. It did, however, concentrate land ownership, move poor farmers onto marginal lands and increase the role of multinational agribusinesses.

Then, in the ’80s, World Bank and IMF loans, as well as structural adjustment programs, required that countries not only reduce tariffs and other trade barriers but also dismantle grain reserves, marketing boards and other government institutions designed to stabilize food prices.

Free-trade agreements in the ’90s locked in and further dismantled regulations of farming and food markets, especially in developing countries, even as farmers in Europe and the United States were able to keep many of their protections.

As countries tried to repay their foreign debts and buy imported food, they were forced to turn to commercial agriculture, most often large, industrial agricultural enterprises owned by foreign corporations.

With the world supposedly awash in cheap food, there was a sharp decline in international and national investment in agriculture for the local market, including basic research, often under budget-cutting pressure from the IMF.

Also over the past decade, governments, again under IMF prodding, have let grain reserve stocks drop to the lowest point in several decades.

Millions of small farmers were pushed off the land and into cities or into international migration — 2 million in Mexico alone, since NAFTA was implemented in 1994.

Many developing countries that had earlier fed their own populations became less self-sufficient. In Africa, governments, international investors, and organizations financed the import of grain and the export of specialty crops. But they failed to invest in roads, refrigerated storage and other technology to get local food to urban markets, Suppan says, leaving 40 percent of all food produced to rot in the fields — depriving urban dwellers of food, farmers of income and nations of potential for homegrown economic development.

Meanwhile, big corporations continue to rake in huge profits. “The industry is not in crisis at all,” Holt-Gimenez says. “They’re laughing all the way to the bank.”

The global grain trade was supposed to take the place of governments with their reserves stored for hard times, such as when an Australian drought in recent years reduced rice and wheat exports to Asia.

“But the private market has very little interest in managing a reserve,” Murphy says. “Why would they? They don’t care about the price. They don’t eat food; they sell it to the highest bidder. They’re only interested in getting food before the competition does.”

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• Reader Comments

  What is needed to help re-localize food systems quickly and on a large scale is a franchise-ready sustainable farming system. That is the concept behind SPIN (S-mall P-lot IN-tensive ) Farming. SPIN farmers work plots less than an acre in size, utilize relay cropping to increase yield and achieve good economic returns by growing only the most profitable food crops tailored to local markets. SPIN’s growing techniques are not, in themselves, breakthrough. What is novel is the way a SPIN farm business is run. Contained in the seven SPIN Guides, which can be purchased online and downloaded for immediate access, is everything you’d expect from a good franchise: a business plan, marketing advice, and a detailed day-to-day workflow. In standardizing the system and creating a reproducible process it really isn’t any different from McDonalds. And SPIN-style farming removes the two big barriers to entry – sizeable acreage and significant start-up capital. By offering a non-technical, easy-to-understand and inexpensive-to-implement commercial farming system, it allows many more people to farm, as long as there are markets to support them

  In addition to being a farming system, SPIN is also a “brand”, creating an identity for those who practice it. While this is an oversimplification, here is a way to look at it: In the developed world SPIN is providing those who are already equipped with marketing and business savvy with a growing system that can help them become successful farmers. In the developing world, SPIN can provide those who possess farming skills with the marketing and business expertise to make them successful entrepreneurs. The long-term potential is the common ground SPIN can provide for these two disparate groups to be - and interact - as equals - by providing a platform for collaborative problem solving and innovation.

  Most importantly, SPIN is serving as a catalyst for a sub-acre farm movement that is gathering momentum without major policy changes or government support. It is entirely entrepreneurially-driven. And while this new corps of first-generation farmers who are taking food production into their own hands is now concentrated in the U.S. and Canada, SPIN-style farming has the potential to be global in reach.  As pointed out, there are many obstacles to entrepreneurial farming in the developing world, but among the largest is the opposition and restrictions imposed by local authorities who regard agriculture as a hindrance to progress and modernization.  No policy or institutional support will be forthcoming until farming is viewed as an asset and accorded the status and respect of other industries. By transforming farming from a marginal occupation for the downwardly mobile to that of a mainstream entrepreneurially-driven occupation, SPIN is helping to redeem the image of farming. If people in the developed world, who have options and who are not losers, are choosing to farm, then those who don’t have as many options, and who farm, won’t be regarded as losers either. This can give rise to a multi-national farming class that can unite behind a new kind of farming that spans geography, culture and ideology., and stimulate further inventive activity that will “right size” agriculture for an urbanized century and make local food production a viable business proposition once again.

  Posted by Roxsen on Jul 23, 2008 at 4:41 PM

  Since there are no truly free markets on earth because of intrusive and overbearing government regulations, you can’t really sit there and complain about something that doesn’t exist. 

  As history has shown, most shortages are caused by government regulation, not by “free” markets, or partially free markets, as we actually have.

  The most current example, after such past marxist attempts of control such as the windfall profits tax on oil in the 1980’s, is the current shortage of corn as food. The US government in its blindness decided to mandate production of ethenol.  Thus a shortage of corn for food which impacted other areas looking for a replacement.

  Free markets would actually solve shortages, because ultimately, no one can repeal the law of supply and demand.

  Posted by saintknowitall on Jul 24, 2008 at 4:13 PM

  So they problem is NOT free markets, but the government “running” of those “free markets”.  So the proposed solution, according to the article, is MORE GOVERNMENT CONTROL?!  You’re joking, right?

  Some bureaucrat, with no experience in agriculture (but with greased palms from beltway dealings) is going to force me to: farm a certain crop, in a certain way, sell to a certain buyer, at a certain price, and throw me in jail if I don’t comply?  So when it actually costs me $100 to produce 1 pound of a certain crop, the government will FORCE me to sell that crop at $10 for 1 pound?

  Why farm?  I’ll wait for someone else to feed me.  Wait, won’t that decrease the collective supply of whatever I’m producing?  Won’t that make people wait longer to receive the crop at $10 a pound?  No wonder why the bread lines were so long in The Glorious Worker’s Paradise of Mother Russia!

  The Solution is to get the government 100% out of the equation and ALLOW people to grow their own food without fear of government reprisal if they happen to sell the surplus from a bumper crop to a neighbor who is willing to pay for it.

  When I see, as quoted in the article: ‘What’s needed, says Murphy, is “not just a redistribution of wealth but a new model of agriculture and a new model of consumption.” ‘, it sends shivers down my spine.  This statement reveals that someone else has plans, not only for how much money I’m ‘allowed’ to make, but they plan to ‘allow’ me to spend it in certain ways, they also plan on ‘allowing’ me to eat in a certain fashion.

  Sounds like Socialism/Communism.  That worked REALLY WELL in the The Glorious Worker’s Paradise of Mother Russia.  Oh, yeah! the The Glorious Worker’s Paradise of Mother Russia went bankrupt because of their Socialism/Communism based economy.

  Capitalism my be unfair to some, but it’s less unfair than the alternatives which are unfair to everyone but the ruling class.

  Posted by Craig Gorsuch on Jul 24, 2008 at 6:22 PM

  Speculators belong in jail. People die and wars have started as a result of speculators.

  The timing of the start of the Korean War may have come about as a result of soy bean speculating by Chiang Kai Shek, Syngman Rhee and their friends in the U.S. 

  Almost 60 years later and this “stuff” still goes on. This “stuff” makes me #@$%#@ sick.

  Posted by drobe on Jul 25, 2008 at 3:06 AM

  Agricultural markets have price inelasticity.  They lack “price responsiveness” on both supply and demand sides.  This is understood by agricultural economists.  Search “Daryll E. Ray,” “Price Respons,” Wallace.

  In the New Deal farm bill government stepped in in a limited way to make up for the supply and demand failures of the Great Depression.  (So too with the National Family Farm Coalition today.)

  They managed supply and used price floor loans to bring prices up above costs.  They used strategic reserves and price ceilings to protect processors, livestock production and consumers.  The programs made millions for the government on interest, and we had no depression after World War II. 

  Knowing the economic facts, conservative corporate think tanks (like the Committee for Economic Development’s “An Adaptive Program on Agriculture,”) nevertheless chose to lobby to drive prices down below costs.  So they chose, in effect, for you to sell it for that “$10” while it cost you that “$100,” only not those actual numbers. 

  Government modestly managing those markets worked successfully, for example 1942-1952, but not as conservative corporate special interests increasingly took over 1953 through today. 

  Ok, the conservative alternative, as it started under Eisenhaur and especially grew under Nixon and Earl Butz, with a big boost from Reagan/Block, and then with (Clinton and) Gingrich’s Contract for America (Freedom of Farm), was to make up for the massive market losses (lack of price responsiveness) by just having the government pay massive subsidies for most of the losses.  Democrats helped along the way.  Conservatives like Farm Bureau love to call it “a safety net.”

  That’s the record.  So actually the politics of farm subsidies (as America exported farm “program commodities” at massive losses for a quarter of a century and more, pouring our wealth out to foreign countries-processors-livestock-consumers,) is just the reverse of recent comments.  Go look at farm bill voting records.  It’s all there in black and Republican red.  Republican conservatives were the “Socialism/Communism” utopians for “The Glorious Worker’s Paradise of Mother Russia.” 

  We did see Mitt Romney’s support for farm subsidies, er “safety nets,” right?  Did it send shivers down your spines?

  Ahhh but we’re saved by the market.  Too ignorant to put in a real stimulus package like the Steagall Amendment that prevented America from losing money on farm exports, we basically get credit cards.  We get stimulus checks of borrowed money that has to be paid back later.  But now we have a rare farm price spike.  That will help our economy tremendously, if it lasts.  So Comrade Daughter Amerika (under these antibusiness export loss policies) probably won’t go belly up like Mother Russia.

  You can go to USDA ERS for data on prices vs. full costs.  We lost money virtually every year 1981-2006 with low/no price floors on corn, wheat, rice, cotton, soybeans, grain sorghum, barley, oats.  We lost $180 billion.  Going farther back and in 2007 constant dollars, and in comparison to a decent profit, the shortcomings mount into the higher hundreds of billions and then trillions by my figures.  It’s easily a multi Trillion dollar scandal (that’s TRILLION with a T) when economic multiplier effects are considered. 

  Imagine OPEC trying to massively lose money on oil exports, then just making up for the market by subsidizing the industry with “safety nets!”  And here we were with 60% to 90% of corn and soybean world market shares!

  It’s all for Cargill, ADM, Kelloggs, etc. Tyson & Smithfield each got more than 2.5 billion in below cost gains 1997-2005 according to a Tufts University study using conservative figures.  I estimate that Cargill often got a billion a year in below cost gains just on U.S. corn exports, (not on all commodity exports world wide plus all processing plus all animal factories and feedlots).  And against the folks eating clay “biscuits.”

  Posted by Brad Wilson on Jul 26, 2008 at 8:51 PM

• extended discussion >>>Continued...

  Discussions with more than 5 comments are continued on our special discussion page to encourage continuity and ease of use. There are currently 7 posts.

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