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Political economy of today's global hunger, food crisis

Please find below an analysis of the current food crisis, by Dr. Jomo Kwame Sundaram, Assistant Secretary-General of UN-DESA. He examines both longer term problems and more recent developments that have contributed to the crisis, including the neglect of the agricultural sector, the impacts of trade liberalization, the growing dominance of fewer and fewer transnational agri-businesses, bio-fuels production etc.

The article was published in the South-North Development Monitor (SUNS) #6510 on 4 July 2008, and is reproduced here with permission.

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Political economy of today's global hunger, food crisis

New York, July (Jomo Kwame Sundaram*) -- Lack of food is rarely the reason people go hungry. Even now, there is enough food in the world, with a bumper harvest this year, but more people cannot afford to buy the food they need. Even before the recent food price spikes, an estimated billion people were suffering from chronic hunger, while another two billion were experiencing malnutrition, bringing the total number of food-insecure people to around three billion, or almost half the world's population.

The recent sharp increases in food prices are likely to drive the number of people vulnerable to food stress even higher, with at least another 100 million likely to be chronically hungry. Even before these price spikes, about 18,000 children died daily on average as a direct or indirect consequence of malnutrition.

The rapid and simultaneous rise in world prices for all basic food crops - corn
(maize), wheat, soybeans, and rice - along with other foods like cooking oils is having a devastating effect on poor people all over the world. The effects have been felt around the world by all except the truly wealthy. Almost everybody's standard of living has been reduced as the middle class becomes increasingly careful about their food purchases, the near poor drop into poverty, and the poor suffer even more. With increased hunger and malnutrition, the young, old, infirm and other vulnerable groups will die prematurely or be harmed in other ways.

LONGER TERM PROBLEMS

It is useful to distinguish between longer term and more recent developments in trying to understand and address the current global food crisis.

The major increases in crop yields and food production associated with the Green Revolution from the 1960s to the 1980s - with considerable government and international not-for-profit support - gave way to new policy priorities in the 1980s. By then, the threat of starvation had receded in most of the world, and the effort in wheat, corn and rice was not extended to other crops, especially those associated with water-stressed agriculture in arid areas of sub-Saharan Africa. Meanwhile, with Europe, the United States and Japan offering their own farmers large subsidies to encourage production, food became abundant worldwide, and prices fell. For the rich countries, these subsidies and associated protection not only ensured food security, but were also a form of social protection for those in the countryside.

Agricultural experts have, for years, warned of the risks of the flagging efforts to boost food output. "People felt that the world food crisis was solved, that food security was no longer an issue, and it really fell off the agenda," Robert S. Zeigler, the director-general of the International Rice Research Institute (IRRI), told the New York Times. (See Keith Bradsher and Andrew Martin, 2008, "World's Poor Pay Price as Crop Research Is Cut". New York Times, May 18.)

As food supply growth slowed, demand continued to grow, and not only due to population increase. Meanwhile, many developing countries, most notably China with its large population, have experienced unprecedented economic growth. With higher incomes, diets have shifted towards greater meat and dairy consumption, with increased requirements for grain for animal feed. From 1970 to 1990, food supply grew faster than the population. But after 1990, the trends have been reversed as the food supply growth rate fell below population growth, according to a US Department of Agriculture source. In recent years, the world has been consuming more grain than it has been producing, cutting into reserves and driving up prices. Early in 2008, as stocks declined further, and investors abandoned their previously preferred financial assets, international grain prices rose sharply.

Having neglected food security and the productive sectors of their economies for several decades, many developing countries' governments now also lack the fiscal capacity to increase public spending in order to increase food production and agricultural productivity. In recent decades, many developing countries have implemented policies recommended or required by the IMF, the World Bank, and even some western NGOs working in the poor countries of the third world. This trend has greatly reduced policy space in developing countries, especially fiscal space.

The problem has been exacerbated by the significant drop in official development assistance for agricultural development in developing countries. Aid for agriculture has fallen in real terms by more than half in the quarter century after 1980. The biggest cutbacks have affected grants to agriculture in poor countries from the governments of wealthy countries and in loans from development institutions that these governments control, such as the World Bank. The Bank cut its lending for agriculture from $7.7 billion in 1980 to $2 billion in 2004.

The Green Revolution had led to the creation of a global network of research centres focusing on agriculture and food production, primarily in developing countries, with 14 institutes in Asia, Africa and Latin America, such as the International Rice Research Institute (IRRI) in the Philippines and the International Maize and Wheat Improvement Centre in Mexico. Known collectively as the Consultative Group on International Agricultural Research (CGIAR), these research centres have experienced significant budget cuts and face further deep cuts.

Agricultural research and development has fallen for all crops in all developing countries, while cuts in agricultural research continue. Adjusting for inflation and exchange rates, rich countries cut such grants by about half from 1980 to 2006, from $6 billion to $2.8 billion yearly, with the US alone cutting from $2.3 billion to $624 million. The United States is cutting, by as much as three quarters, its $59.5 million annual support for the CGIAR network. All this has adversely affected research on crops and pests, as well as agricultural extension programs to help farmers adopt improved farming methods. Instead of trying to stay ahead of rapidly evolving pests and the changing climate to ensure global food security, support for agricultural research has declined disastrously.

As budgets have been cut, spending on plant-breeding programs - needed to improve crop productivity - has declined. IRRI's budget, which comes from governments, foundations and development institutions such as the Asian Development Bank, has been halved - after adjusting for inflation - since the early 1990s. As a result, "[s]everal dozen important varieties of rice have been lost from the institute's gene bank through poor storage. Promising work on rice varieties that could withstand high temperatures and saltier water - ideal for coping with global warming and the higher sea levels that may follow - had to be abandoned".

TRADE LIBERALIZATION

The conventional wisdom holds that a free market economy, with minimal government interference, would function more efficiently, and thus become more productive. Hence, governments should stop subsidizing farmers to purchase fertilizers, stop being involved in the marketing, storage and transportation of food, or credit provision, and just leave farmers alone. Following advice to this effect, including from international development agencies, many developing-country governments reduced their subsidies for small farmers and consumers, making their lives more difficult.

Rich countries have continued to subsidize and protect their farmers, and their agricultural subsidies and tariffs have undoubtedly undermined food production in developing countries. However, cutting farm subsidies will increase food prices, at least initially, while reducing agricultural tariffs alone will not necessarily lead to an increase in food production in poor countries without complementary support. Some food security advocates have called for rich countries to compensate for the adverse consequences of their own agricultural subsidies and protectionism by providing additional foreign aid to the developing world, targeting production efforts that enhance food security.

Since the 1980s, governments have been pressed to promote exports to earn foreign exchange and import food. Although enhanced agricultural production is desirable, much of the recent emphasis has been on export crop production. While this may help a country's balance of payments, export-oriented agriculture does not ensure sufficient food. Export-oriented agriculture can induce investment in producing higher-priced luxury crops, rather than the lower-priced food crops needed to meet the needs of the domestic population.

Instead of developing their own agriculture, many poor countries have turned to the world market to buy cheap rice and wheat. In 1986, Agriculture Secretary John Block called the idea of developing countries feeding themselves "an anachronism from a bygone era," saying they should just buy American. Madagascar President Marc Ravalomana noted that, 25 years ago, Africa had a surplus of exports in cereals, rice, soya beans and other food products. "Over the years, we increasingly shifted toward imports of these products".

Some countries that were previously self-sufficient in food now import large quantities of food. Net food imports are now true for most developing countries, including sub-Saharan Africa. Thus, food security went the way of various other government interventions associated with the earlier period of high growth and rapid development associated with the "Golden Age". But food should not be treated as just another commodity, and governments should develop appropriate policies, infrastructure, and institutions to ensure food security (not to be equated with total self-sufficiency) at the national or regional level.

Following the recent food price hikes, some countries have lowered tariffs to reduce the impact of much higher prices of imported food, but such stop-gap efforts have had marginal impacts at best. Others - mainly, but not only net food importers - have restricted food exports to insulate their populations from rising international food prices by limiting the option of exporting food for higher prices. Such export restrictions have undoubtedly further limited supply to a relatively small international rice trade, thus contributing to price increases, especially for rice.

The World Bank and the WTO still claim that agricultural trade liberalization offers the medium-term solution to the current food crisis even though eliminating food subsidies will raise food import costs in the short term. While higher food prices may make food production in developing countries - for domestic markets and for export - more attractive to farmers, this will not reduce food prices, the root of the current crisis. If food prices do decline, the incentive to continue food production may be undermined once again.

[According to Vancouver's "The Straight" <http://www.straight.com/article-151909/un-trade-expert-targets-wtos-failure-deal-with-food-crisis Jomo Sundaram said in an interview that the WTO is not capable of bringing down food prices. Touting the Doha Round as a solution to the global food crisis is "more than a red herring; it is a deception." Getting a Doha deal has become an end in itself, and with the crisis happening halfway through negotiations, "they just felt they had to give lip service to it." Jomo argued that to alleviate the global food crisis, it is necessary to significantly alter the world's trading systems, to provide "a level playing field." He outlined a "handicap system" envisioned by Nobel laureate Joseph Stiglitz as a possible solution to the world's mal-distribution of wealth. Under such a system, the world's most developed countries would fully liberalize their international trading practices by minimizing domestic agricultural subsides and removing tariffs. Middle-income countries would fully open their markets to poorer countries, but not necessarily to richer countries. And the world's least developed countries would be permitted to maintain or even selectively increase tariffs and subsidies, which could be partially paid for with aid from the most developed countries. - SUNS]

In any case, the complete elimination of agricultural tariffs and non-tariff trade barriers is not on the agenda in the Doha Round. The reduction of such trade barriers is likely to mainly benefit existing agricultural exporters of the Cairns group, rather than most poor developing countries. Also, it is now increasingly acknowledged - e. g. in the "aid for trade" discussion - that new productive capacities and capabilities do not emerge automatically following trade liberalization, but need to be supported by appropriate government support measures. Hence, it becomes necessary to ensure a strong domestic supply response with strong public support for domestic productive capacity building.

OTHER LONGER TERM TRENDS

Other medium and long-term factors have contributed to the current food crisis including:

* The growing demand for meat among those newly able to afford it has increased the use of food crops to feed livestock. Total meat in the world quadrupled from 71 million tons in 1961 to 284 million tons in 2007 (Magdoff 2008). Developed countries have blamed fast growing developing countries, such as China and India, for the food price increases, emphasizing the grain requirements of increased meat production, though FAO trend data do not support this claim.

* Over-fishing is reducing this important animal protein source for many; the consequently higher fish prices thus further burden the poor and the near poor. The problem is acute for both marine as well as fresh water fishing, and the growth of fish farming has proved to be problematic for both ecological as well as nutritional reasons. There is relatively limited progress towards resolving the very complex issues involved.

* Weather has also adversely affected agriculture in many parts of the world. Climatic changes associated with accelerated greenhouse gas emissions are believed to have exacerbated water supply problems, speeding up desertification and water stress, and worsening the unpredictability and severity of weather phenomena, e. g. the decade-long drought in Australia.

* Forests have long been an important source of food (e. g. forest fruit, ferns, tubers, fauna) for many rural dwellers living close to subsistence. Continued deforestation for logging, agricultural land cultivation and other purposes have not only reduced the natural carbon sink potential - thus accelerating climate change - and biodiversity functions they have long contributed to. The international community has failed to develop equitable deterrents to deforestation and incentives for forest conservation.

* Another reason is the loss of farmland to other uses. Growing population pressure, urbanization, other non-agricultural uses of land as well as the attraction of non-food agricultural production (e. g. for horticulture) have reduced farm acreage available for food production, while agricultural land is increasingly used to produce commodities other than food, such as bio-fuels.

Finally, fewer and fewer transnational agri-businesses now dominate marketing, production, and inputs. This comes largely at the expense of small farmers and consumers, particularly the poor, who are forced to trade in a less competitive environment in situations of asymmetric power. Transnational corporations processing agricultural commodities, manufacture and sell food as well as agricultural inputs enjoy increasingly monopolistic and monopsonistic market power, enjoying attendant rents. Moreover, with less government support, rural credit has often become prohibitively expensive. Although a few agri-businesses have encountered specific problems, most have been profiting exceptionally with the recent price increases.

As such, longer term trends exacerbated over recent decades, the stage was being set for a food emergency.

RECENT DEVELOPMENTS

The acceleration of growth in developing countries in the last half-decade has been associated with high primary commodity, especially energy prices. Ocampo and Parra (2008) have emphasized that the boom has mainly involved minerals, particularly oil, rather than agriculture, also pointing out that recent price increases have barely reached the average post-war prices in most cases. The prices of the sixty agricultural commodities traded on the world market increased 14 per cent in 2006 and 37 per cent in 2007 (New York Times, 19 January 2008). But even among agricultural commodities, world food prices have risen since 2006, especially since early 2008, following the flight of investment from other financial assets to agricultural futures.

Corn prices began their rise in the third quarter of 2006 and soared by some 70 per cent within months. Wheat and soybean prices also skyrocketed during this time and are now at record levels. The prices for cooking oils (mainly from soybean and palm oil) - an essential foodstuff in many poor countries - have rocketed up as well. Rice prices have also more than doubled in the year ending in the first quarter of 2008 and have almost tripled in recent times. Some of the other reasons for these rising food prices will be mentioned below.

The increase in oil prices has affected food prices. In the United States, Europe and elsewhere, crops are increasingly being grown to produce bio-fuels. Thus, producing corn for ethanol or soybean and palm oil for bio-diesel undermines the use of these crops for food. In 2007, over 20 per cent of the entire US corn crop was used to produce bio-ethanol, although the process does not yield much additional energy over what goes into producing it! Large-scale commercial agriculture uses a great deal of oil and natural gas for running machinery, producing chemical fertilizers and pesticides, drying crops and transportation.

Some bio-fuels are clearly far more cost-effective and energy-efficient than others, while different bio-fuel stocks have very different opportunity costs for food agriculture (e. g. sugar has not experienced any significant price increase). Developed countries have provided generous subsidies and other incentives for such increased bio-fuel production within their boundaries while developing countries encouraging bio-fuel production have provided far less "market-distorting incentives" to farmers.

According to Brazil's President Lula, sugar cane cultivation only takes up 1% of the country's total arable land, with only half of that for ethanol production. He also claimed that ethanol production in Brazil does not encroach on the Amazon where only 21,000 ha are planted with sugarcane on previously degraded pasture land. India, on the other hand, claims to be developing bio-fuels using non-cereal biomass, crop residues and cultivating jatropha on degraded land. On the other hand, the United States claims that only 2-3% of the 43% global food price increase forecasted is due to bio-fuels. Hence, the debate over bio-fuels in relation to food availability needs to be far more nuanced, differentiated and specific if we are not to throw the baby out with the bath-water of some undoubtedly poor bio-fuel policies in recent years, especially in the wealthy economies.

Speculation and hoarding are also contributing to the food price spikes. In addition, more securitization, easier online trading, and other financial market developments in recent years have facilitated greater speculative investments, especially in commodity futures and options markets, including those affecting food. As the US sub-prime mortgage crisis deepened and spread in early 2008, speculators started investing in food and metals to take advantage of the "commodities super cycle" as the greenback's decline relative to other currencies has induced investment in commodities instead. Falling asset prices in other financial market segments, following the sub-prime mortgage meltdown in the United States, may be more important for explaining the recent surge in food prices than supply constraints or other factors underlying longer-term gradual upward price trends.

WASHINGTON VERSUS ROME

As is clear from the above, the World Bank has been central to the fate of food security and agriculture over the last three decades, especially by reducing funding for investments in agricultural infrastructure, support institutions and research as well as by promoting trade liberalization. The mid-2007 publication of the 2008 World Development Report on agriculture for development was therefore remarkable for various reasons. Notably, it was the first World Development Report - the World Bank's flagship publication - on the subject after more than a quarter of a century.

This is not the place to try to summarize or criticize the entire report. The report offers a comprehensive review of many aspects of agricultural production and distribution, even addressing previously unaddressed or poorly addressed issues - for the World Bank - such as peasant organizing, political voice, unequal market power, ecological concerns and gender equity.

Surprisingly, the report lacks historical perspective and does not have much to say about the decline of agricultural production in many developing countries. However, the report does acknowledge policy mistakes, making careful references to the consequences of structural adjustment programs (e. g. p. 138).

Importantly, chapter 4 of the WDR acknowledges that trade liberalization generates winners as well as losers, and acknowledges that "the overall effect of trade policy reform on farm incomes of food staple producers in the poorer developing countries is likely to be small" (p. 112). The trade openness discussion focuses on export expansion with little acknowledgment of the problems associated with import growth. With no reference to the 1948 Havana Charter's commitment to trade reform to accelerate growth and create employment, it equates trade reform with trade liberalization, and presumes that trade must be liberalized; in this view, governments are expected to compensate the losers but the report does not specify any mechanisms for international compensation for lost revenue as well as productive and trade capacities and capabilities due to trade liberalization, thus taking a step backward in the aid for trade dialogue.

WDR 2008 acknowledges that transnational corporations dominate a number of agricultural markets, and that "growing agribusiness concentration may reduce efficiency and poverty reduction impacts" (p. 135). It has little to say about corporate power although it acknowledges asymmetric market power and the differential impacts of policies on different segments and strata of agrarian populations. "Concentration widens the spread between world and domestic prices in commodity markets for wheat, rice, and sugar, which more than doubled from 1974 to 1994. A major reason for the wider spreads is the market power of international trading companies" (p. 136). While apparently sympathetic to peasant organizing and enhanced political voice at the national level, it is silent about the challenges posed by asymmetric and undemocratic economic and political power at the international level.

Agricultural financing has begun to recover recently at the World Bank, perhaps due to the preparation and publication of the 2008 World Development Report on agriculture as well as the current food crisis. The Bank has already agreed to double lending for such programs in Africa, and with the ongoing food crisis, it is likely that such institutions will be expected to commit more to supporting a revival of food agriculture.

The 3-5 June 2008 food summit in Rome saw the articulation of many different possible solutions to the world food crisis in the short and medium term. The starkest difference was probably between Food and Agriculture Organization (FAO) Director General Jacques Diouf on the one hand and the alliance of the Washington-based international financial institutions, the World Trade Organization (WTO) and the Organization for Economic Cooperation and Development (OECD), led by World Bank President Bob Zoellick, with the former calling for a renewed commitment to food security as the latter urged agricultural trade liberalization as the solution.

At the Rome meeting, Diouf also criticized the failure of rich country governments following the 1996 World Food Summit despite the preparation of many agricultural plans and programmes by many developing countries as well as regional organizations. Consequently, aid for agriculture has fallen in real terms by more than half from $8 billion in 1980 to $3.4 billion in 2005. He noted the existence of a carbon market worth $64 billion in developed countries, but with no funds to prevent deforestation of an average of 13 million ha annually. In addition to protective tariffs, $11-12 billion were provided as bio-fuel subsidies in 2006, diverting 100 million tons of cereal from human consumption to bio-fuels.

According to Diouf, OECD countries provided $372 billion in subsidies for agriculture in 2006; in one country alone, food worth $100 billion was wasted annually; excessive consumption by the world's obese costs $20 billion annually while the world spent $1.2 trillion on arms purchases in 2002.

The World Bank's Independent Evaluation Group (IEG) has assessed the development effectiveness of Bank assistance in addressing constraints to agricultural development in Africa over the period 1991-2006 in a pilot for a wider assessment of Bank assistance to agriculture worldwide. The study's central finding is that agriculture has been neglected by both governments and the donor community, including the World Bank.

The Bank's strategy for agriculture has been gradually subsumed within a broader rural focus, which has diminished agriculture's importance. As much food agriculture in developing countries is deemed to have limited export potential compared to other cash crops, food crops have generally been especially neglected. Like other advocates of trade liberalization, the commitment to food security has been substituted in favour of the notion of "global food security", with developing countries encouraged to maximize export earnings to pay for food imports and other requirements in a new, ostensibly welfare-maximizing international division of labour.

Both due to and contributing to this, the technical skills needed to support agricultural development adequately have also declined over time. The Bank's limited - and, until recently, declining - support for addressing the constraints on agriculture has not met the diverse needs of a sector requiring coordinated intervention across a range of activities and efforts.

Bank lending has been thinly spread over various agricultural activities - such as research, extension, credit, seeds, and policy reforms in rural space - with little recognition of the synergy among them to effectively contribute to agricultural development. Although there have been areas of comparatively greater success, results have been limited because of weak linkages, e. g. of research with extension, and the limited availability of complementary and critical inputs such as fertilizers and water.

Hence, the Bank has made little contribution to African agricultural progress in particular as the original Green Revolution's focus on rice, wheat and corn ignored most African food crops, especially those suited to water-stressed conditions, increasingly prevalent in much of the continent.

[* Dr. Jomo Kwame Sundaram is Assistant Secretary-General of UN-DESA. The above is based on his address at the 2008 Wall Summer Institute for Research workshop, Vancouver, Canada on 23 June. The text of the address, with footnotes and references, will soon be available at http://www.jomo.ws ] +

 


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