Across the globe, working people are facing a disastrous surge in the price of food. Prices for basic staples such as maize, rice, and wheat have more than doubled over the past year. Widespread protests against the growing threat of mass hunger in many underdeveloped countries has raised concerns by the mouthpieces for big business in the rich countries that these protests could explode into mass social rebellions.
“If food prices go on as they are today, then the consequences on the population in a large set of countries, including Africa, but not only Africa, will be terrible. Hundreds of thousands of people will be starving. Children will suffer from malnutrition, with consequences all of their lives”, Dominique Strauss-Kahn, the International Monetary Fund managing director, told an April 12 press conference in Washington. He warned that governments would see “their legitimacy facing the population destroyed”, adding that the global food crisis is “not only a humanitarian question. It is not only an economic question. It is also a democratic question. Those kind of questions sometimes end into war.”
In an interview published on April 15 in the French daily Liberation, Jean Ziegler, the UN Special Rapporteur on the Right to Food, warned: “We are heading for a very long period of rioting, conflicts (and) waves of uncontrollable regional instability marked by the despair of the most vulnerable populations”. He noted that, even before the present crisis, hunger claimed the life of a child under the age of 10 every 5 seconds, and 854 million people in the world were seriously undernourished. What was now posed, Ziegler warned, is “an imminent massacre”.
On April 22, Josette Sheeran, executive director of the UN World Food Program, painted an even bleaker picture, referring to a “silent tsunami” that threatens to plunge more than 100 million people on every continent into hunger, adding: “This is the new face of hunger–the millions of people who were not in the urgent hunger category six months ago but now are.”
What’s the cause of this catastrophic inflation of food prices? According to the First World corporate elite it’s due to growing scarcity fuelled by rising demand in the Third World. “Everyone wants to eat like an American on this globe. But if they do, we’re going to need another two or three globes to grow it all”, Daniel Basse, president AgResource Company, told the March New York Times. AgResource analyses crop prices for farmers and wealthy speculators on the food commodities markets.
The claim that demand for food is outstripping supply, and that this is responsible for the doubling of food price over the last 12 months has no basis in fact. According to the UN’s Food and Agriculture Organisation, enough food is produced in the world to provide over 2800 calories a day to everyone – substantially more than the minimum required for good health, and about 18% more calories per person than in the 1960s, despite a significant increase in total population since that time.
The price of food of course is linked to the price of petroleum. Cereal crops like maize can be made into ethanol – a substitute for petrol – and rising crude oil prices also affect the cost of producing food. Artificial fertilisers are made from petroleum and natural gas, and petrol and diesel are used in planting, harvesting and shipping food. It’s been estimated that 80% of the costs of growing maize are fossil fuel costs – so it is no accident that food prices rise when oil prices rise.
Since the US-led invasion of oil-rich Iraq in 2003, there has been a 400% increase in the price of crude oil, feeding into rapidly rising food prices. As with surging food prices, the corporate elite and its media outlets have blamed rising demand for oil in the Third World, particularly China and India, for the surge in oil prices. But, again, this claim has no basis in fact. Global demand for crude oil is running at 84 million barrels a day, but output is 87 million barrels a day. i.e., supply is still outstripping demand.
Under corporate capitalism, the price of oil, is not determined by the demand-and-supply “laws” of the “free market”. It is controlled by the four major Anglo-American oil companies (ExxonMobil, Royal Dutch Shell, Chevron and BP) that dominate the sale of refined oil in the biggest markets – the developed capitalist countries of North America and Western Europe, and by an elaborate financial system dominated by huge Western trading banks and hedge funds.
The international oil exchanges in New York – the Nymex – and in London – ICE Futures – set the global benchmark oil prices via oil futures contracts on two grades of crude oil – West Texas Intermediate (WTI) and North Sea Brent. But as William Engdahl, author of A Century of War: Anglo-American Oil Politics and the New World Order, noted in a May 2 article on the Global Research website, “All this is well and official. But how today’s oil prices are really determined is done by a process so opaque only a handful of major oil trading banks such as Goldman Sachs or Morgan Stanley have any idea who is buying and who selling oil futures or derivative contracts that set physical oil prices in this strange new world of ‘paper oil’. With the development of unregulated international derivatives trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in oil prices... A June 2006 US Senate permanent subcommittee on investigations report on ‘The Role of Market Speculation in rising oil and gas prices’, noted, “there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices’...
“In the most recent sustained run-up in energy prices, large financial institutions, hedge funds, pension funds, and other investors have been pouring billions of dollars into the energy commodities markets to try to take advantage of price changes or hedge against them. Most of this additional investment has not come from producers or consumers of these commodities, but from speculators seeking to take advantage of these price changes...
“The large purchases of crude oil futures contracts by speculators have, in effect, created an additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum.
“Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well who speculate.” In June 2006, oil traded in futures markets at some US$60 a barrel and the Senate investigation estimated that almost half of this price was due to pure financial speculation.
In his May 2 article, Engdahl observed that for the “huge US or EU pension funds or banks desperate to get profits following the collapse in earnings since August 2007 and the US real estate crisis, oil is one of the best ways to get huge speculative gains. The backdrop that supports the current oil price bubble is continued unrest in the Middle East, in Sudan, in Venezuela and Pakistan and firm oil demand in China and most of the world outside the US. Speculators trade on rumor, not fact. In turn, once major oil companies and refiners in North America and EU countries begin to hoard oil, supplies appear even tighter lending background support to present prices.”
Along with soaring oil prices, increased financial speculation is also what is driving up food prices. Futures contracts on food crops have become a haven for corporate financial investors fleeing from other paper assets following the collapse of the US housing bubble. “Fund money flowing into agriculture has boosted prices “, Standard Chartered Bank food commodities analyst Abah Ofon told the April 12 Toronto Globe and Mail. “It’s fashionable. This is the year of agricultural commodities.”
In an article in the April 17 British New Statesman, Iain Macwhirter, political columnist for Britain’s Sunday Herald, noted factors such as the drought in Australia and Washington’s subsidising of US farmers to grow maize for the production of ethanol rather than food have helped push up food prices. But he also noted that the food crisis has developed over “an incredibly short space of time–essentially over the past 18 months”, which these other factors cannot explain. “These long-term factors are important”, Macwhirter wrote, “but they are not the real reasons why food prices have doubled or why India is rationing rice, or why British farmers are killing pigs for which they can’t afford feedstocks. It’s the credit crisis...
“The reason for food ‘shortages’ is speculation in commodity futures following the collapse of the financial derivatives markets. Desperate for quick returns, dealers are taking trillions of dollars out of equities and mortgage bonds and ploughing them into food and raw materials. It’s called the ‘commodities super-cycle’ on Wall Street, and it is likely to cause starvation on an epic scale...
“Just like the boom in house prices, commodity price inflation feeds on itself. The more prices rise, and big profits are made, the more others invest, hoping for big returns. Look at the financial web sites: everyone and their mother is piling into commodities... The trouble is that if you are one of the 2.8 billion people, almost half the world’s population, who live on less than $2 a day, you may pay for these profits with your life.”
Much of the international speculation in food commodities takes place on the Chicago Stock Exchange, where corporate investors buy futures contracts on foodstuffs to be delivered at a fixed date in the future, in anticipation of making big profits if the price of the commodity rises significantly between the time of the investment and the time of delivery. But, as Macwhirter noted, such financial speculation itself is driving up food prices, guaranteeing the investors big returns, while the world’s poor are driven into starvation.
Food is not just another commodity – it is absolutely essential for human survival. An economic system that cannot feed people in the midst of an abundance of food production is not only socially irrational, but socially bankrupt. That’s why Venezuelan socialist President Hugo Chavez was absolutely right when on April 24 he described the global food crisis as “the greatest demonstration of the historical failure of the capitalist model”.