The Global Food Crisis








In April 2008 Josette Sheeran, executive director of the UN World Food Program, spoke publicly of a silent tsunami, "that threatens to plunge more than 100 million people on every continent into hunger…. 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." Prices have risen rapidly for grains, rice, and maize, which are the main sustenance of poor people, accounting for 63 percent of caloric intake in low income Asian countries, half of all calories in sub-Saharan Africa, and only somewhat less in Latin America. In a large number of these poor countries, where people subsist on less than 2,200 calories a day, food imports account for a large part of their diet so higher prices and less food aid means starvation. In the U.S. Americans in 2005 spent less than one-seventh of their income on food (down from a quarter of average income in the 1960s, including food eaten out). In poor countries, however, food accounts for over one-half of the consumer price index; in places like Bangladesh and Nigeria, over two-thirds.

In early 2008 the president of the World Bank, Robert Zoellick, warned that there were at least 33 countries at risk of social unrest due to rising food prices. A look at the causes of this crisis and the purported solutions has much to tell us about what is wrong with the economic model of recent decades.

First, as noted, agribusiness globally is organized to maximize profit and there is no profit in providing food to hungry people unless someone else pays you to do it. Second, agribusiness has an incentive to take land which has fed poor people and put it into producing export crops to sell to richer people in the Global North and to the middle class in so-called "emerging markets." Indeed we are likely to witness a significant expansion in large agribusiness production. Third, it is in the interest of agribusiness transnationals to minimize competition from other producers, including farmers in poor countries who have little economic and political clout. These trans-nationals prevail on their governments to set up favorable rules and procedures at the expense of the majority of the world’s population that strives to make a living producing food. Fourth, industrialization of food production has created an unhealthy commodity consumption pattern as manufactured food is poor in nutritional value.

Globally, food is a far more concentrated sector than one might think. A small number of huge transnationals dominate each stage of the industry, from food retailers like Wal-Mart, Ahold (the Dutch firm which in the United States owns Giant Supermarkets, Stop & Shop, and others), the French giant Carrefour (which operates in Europe, Brazil, Argentina, South America, North Africa and Asia), to the UK’s Tesco and Germany’s Metro Group, which are similarly global. The largest five U.S. food retailers had 24 percent of the market in 1997, 46 percent in 2004, and likely over half the market today. Retail concentration is far higher in Europe and the top grocery retailers are concentrating distribution globally.

Among the oligopolistic food manufacturers is Nestle—maker of Shredded Wheat, Taster’s Choice (in Argentina its coffee is Ecco; in Uruguay, El Chana; in Greece, Loumidis, and so on around the world). The list goes on, as it does for such transnational food giants as Unilever. Even companies we think of as one-trick ponies like PepsiCo own many other familiar brands, such as KFC, Taco Bell, and Pizza Hut.

Moving down the supply chain to the processors who buy and process farm output and livestock are the giants Cargill, Archer Daniels Midland (ADM), Tyson, as well as the seed and chemical companies that dominate pesticide and fertilizers sales—Monsanto, Dow, DuPont. Consider Cargill. It is the largest privately-held company in the U.S., the third largest food company in both Europe and the U.S., as well as the largest in South America and Asia, and the world’s largest grain dealer.

More than 80 percent of the corn exported from the United States is handled by three firms and two-thirds of soy beans are handled by the same three firms. In 1990 the largest 4 beef packers (Tyson, Cargill, Swift, and National Beef Packing) had among them 72 percent of daily slaughtering capacity; in 2005, 83.5 percent. In July 2008 the Brazilian beef packer JBS Swift awaited U.S. Department of Justice permission to buy National Beef Packing and Smithfield Foods beef operations. Bill Bullard of a Montana cattle group, speaking before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, told the legislators such an outcome would all but end competitive beef buying in the U.S. and, thus, the price the consumer pays for beef in the supermarket would grow. Pork packing concentration with 3 of the same firms in the top 4 had 34 percent of daily capacity in 1989, but 64 percent in 2005.

Large corporations such as ADM can leverage their position of power to exert pressure on smaller firms to sell on favorable terms. It can offer its distribution system and its capacity to make patents and other resources available for partnerships with producers in more competitive market segments, helping them grow in exchange for a significant share of the revenues. The strategic partnership between ADM and Novartis is such a strategic partnership, in this case with genetically modified crops. Genetically modified seed has aroused concerns about long-term health effects, impact on plant diversity, and the cost of the agricultural model on which they are premised. But genetic modification is also part of a strategy of claiming more of the growers’ value.

Traditional seed not only produces crops, but more seed of the same variety that can be used. The seed companies work hard to prevent farmers from reproducing seed to plant the following year. The answer they came up with: hybrid seed, which does not reproduce the same hybrid. The second generation loses yield and is more variable, so farmers need to purchase new seed each year. This strategy does not work for all crops and hybrid seed is not always better. Seed genetically modified to produce a crop, but not germinate, conveys something of the companies’ intent. Bioengineered seed contains traceable DNA which allows determination of the origin of a crop and allows for the enforcement of a standard contract in which the farmer signs away all property rights to the next generation. Once farmers go down this road, turning back is difficult.

Seed standardization can be a serious issue in developing countries where it can involve selling inputs suited to industrial agriculture, which are often inappropriate to small scale producers. For example, seed companies’ well-advertised and aggressively distributed products are often not as effective as traditional seed varieties, which can be cheaper and more tolerant of local conditions. But the inferior seeds are nonetheless pushed on farmers. In opposition Oxfam has held seed fairs in poor countries and offered consultation with women’s groups (women are a majority of the farmers in most countries), other farmers’ groups, and civil society organizations. On a large scale such programs could make a big difference.

This brings us to actual farming and the treatment received by farmers and the policies of governments to constrain agriculture in the Global South. The most obvious is the use of tariffs applied to agriculture, food processing, and fishing when the Global South is able to compete effectively with core producers. Some of these protective tariffs are 100 percent and cover products as varied as chocolate, meat, and milk. Developing countries have long faced tariff escalation, so that, for example, coffee, which is not produced in the North, is readily admitted, but coffee in cans faces high tariffs to protect Northern-based producers who have serious political clout with their governments (40 percent of coffee is traded by just 4 companies and 45 percent roasted by only 3 companies). Coffee prices, like most agricultural commodities, are quite volatile and when new supplies come on the market older producers face severe price declines, devastating to small producers. The amount of the supermarket price that goes to producers is a small part of the final price. This is the case for most agricultural commodities. For example, in the case of bananas, producer countries receive 12 percent and plantation workers only 2 percent of the retail price.

Indeed, rural wage workers tend to get forgotten in the discussion of food, as do the landless of the Global South who sell their labor power as best they can in a labor surplus environment. These workers desperately want their own land. In Brazil, for example, despite generations of politicians promising land reform, 1.6 percent of the land owners control close to half of the arable land (46.8 percent). Three percent owns two-thirds. In this reality the Landless Peasants Movement (MST) has peacefully occupied unused land and established cooperative farms. It has won titles for over a third of a million families. Indeed, there is a worldwide movement for a different kind of agriculture from the corporate model, suggesting a two-front conflict between peasant agriculture and agribusiness, between the small-scale producer and the giant transnational food manufacturers, and between the governments of the South and the North.

To be shipped by the huge corporate middlepeople, agricultural commodities need to be standardized and produced in volume. This favors large-scale producers in both the Global South and North. The push to specialize in a few export crops squeezes small growers who lack capital. The pattern of extreme specialization results in the importing of cheap, subsidized food staples, which has a catastrophic impact on local food producers—exacerbating rural poverty and inequality, increasing the need for foreign aid. However, such assistance is far from adequate. In money terms it is a small fraction of the agricultural support rich country governments give their agribusiness corporations to produce the food that is dumped on the markets of poor countries.

Rich countries protect their agriculture from more efficient producers in the Global South even as they offer charity to offset some of the damage their policies impose. For example, the U.S. provides aid to sub-Saharan Africa, but gives 3 times as much to its domestic cotton producers, about 10,000 of them, mostly large businesses. This lowers the global price of cotton, undercutting the incomes of ten million more efficient West African cotton farmers. It is U.S. producers who cannot compete without these enormous subsidies in global cotton markets. Such contradictory policies occur because of competing interests sharp divisions about where discussions of global problems are held. With regard to food, in one set of venues, the United Nations and international fora sponsored by agencies in the UN system, there is agreement that the right to food is inalienable. There is agreement that all people at all times should have access to sufficient, nutritious food to maintain health and activity. These are venues where expressions of high minded solidarity are added to resolutions and agendas for change. Parallel to such fora are the far more powerful global state governing institutions, such as the International Monetary Fund and the World Trade Organization, which set and enforce requirements on weaker countries to conform to the neoliberal agenda and privatization of state functions.

While agriculture was formally part of the General Agreement on Tariffs and Trade in 1947 (GATT), in the 1950s the United States won protection for its agricultural producers in a waiver from GATT obligations. EU countries also benefitted. They were able to expand a system of production without limit on the subsidies provided. In the new century there was the first serious effort at reforming the gross injustices of an agricultural regime that favored rich countries to the detriment of the South. Agriculture employs 70 percent of the people in the poor counties versus 4 percent in the rich ones. Having been forced to dismantle and defund programs for rural development by neoliberal commands, the expectation that the free market would replace "inefficient government interference" was frustrated. As in other areas, such as the provision of water to poor people, there was no incentive for private enterprise to serve people who could not afford to pay market prices.

The shift from small-scale farming for local markets to export-oriented agriculture favors those with capital. This plantation agriculture, however, did not create enough jobs to meet the need of displaced local producers. Additionally, a significant portion of agribusiness profits flow abroad. "Efficiency" in a labor surplus economy leaves more people worse off. In Mexico after NAFTA, for example, more than a million farmers lost their livelihoods as the country became a net importer of maize.

The rich countries continue to provide over a billion dollars a day in domestic subsidies. The total aid to farmers in developing countries is 3 percent of the direct payments to rich country farmers. A global perspective would question other subsidies that allow food to be transported great distances. It would question the cost in non-replenishable fossil fuel and calculate the costs of global warming being paid in lost agricultural production from flooding and drought. It would tally the cost to millions of Africans from climate change related to water shortages and effects on food security. In some parts of Africa by 2020 it is predicted that crop yields for rain-fed agriculture could decrease by 50 percent as a result of climate change. The legacy of the now rich countries’ past contribution to climate change makes a mockery of calls for China and India to reduce their carbon footprint along with the rich countries. It is like going to after a lavish banquet, but being served only for coffee and dessert, then being told you must pay your share of the bill for the entire meal.

Other policies of rich countries, such as subsidizing biofuels, may account for as much as 75 percent of food price increases, according to a suppressed (and then leaked) World Bank study. The Bush administration’s public figure was that ethanol had increased food prices by 3 percent. Most evaluations were closer to Lester Brown’s: "We are witnessing the beginning of one of the great tragedies of history. The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before." The U.S. 2007 Energy Bill mandated a five-fold increase in biofuel production by 2022 (which would then require setting aside as much as half the corn crop to this purpose). Ethanol production seemed a better solution to U.S. politicians than legislation to increase gas mileage. It had the added advantage of currying favor with voters in corn growing districts and collecting large contributions from agribusiness interests through generous subsidies that were said to "level the playing field" for this new source of fuel.

Archer Daniels Midland is the largest beneficiary of the federal ethanol subsidy and was instrumental in getting the legislation passed by contributing millions of dollars in "soft money" to Republicans and Democrats, favoring the former by a two-to-one margin. In the 1992 election cycle, to cement its ethanol subsidies, ADM was the largest donor to the Republican Party. The Gingrich-led historic retaking of the House of Representatives, long in Democratic Party control, had a great deal to do with ADM bankrolling Gingrich’s GOPAC, the nonprofit organization that paid for air travel, mail, and speech writing, among other expenses. In return the company did quite well when the Republicans swept to power. The libertarian Cato Institute declared ADM "the most prominent recipient of corporate welfare in recent U.S. history." When an outcry at the ethanol subsidy pork barrel giveaway threatened to revoke the program, ADM was credited with bankrolling its survival. The rate of return for this investment in government policymakers was quite high. Between 1980 and 1997 ADM received over $10 billion in subsidies from tax credits. As James Bovard of Cato wrote: "Federal policy is not designed to simply ‘level the playing field,’ or even tilt the playing field in ethanol’s favor. Instead, the program amounts to nothing less than buying the entire playing field and giving the title directly to ethanol producers. Ethanol, as far as it is used for gasoline, is a political concoction."

Over the years, whenever producers in the Global South threaten U.S. interests, Washington has interceded to protect its own, whether it is the Louisiana catfish industry telling Congress to exclude Vietnamese catfish (endangering the livelihood of 15,000 Vietnamese families who had invested their life savings in buying floating cages needed for production) or U.S. beekeepers restricting Argentina’s honey from entering the country (Argentina has become the world’s leading exporter of honey) or domestic fruit growers demanding Washington reimpose the tariff on imports of canned pears from South Africa (in violation of the African Growth and Opportunity Act). At the same time the U.S. subsidy program has grown more generous, destroying the chances of many farmers in the Global South to compete. In 2007-8, as the world food crisis emerged as a major disaster for 100 million poor people around the world and with food prices at record highs, the U.S. Congress passed what the New York Times called "a disgraceful" farm bill, the editorial writers declaring, "The bill is an inglorious piece of work tailored to the needs of big agriculture." They noted that the bill included the usual favors like tax breaks for racehorse breeders—pushed by Senate minority leader Mitch McConnell (R-KY)—costing over $300 billion at a time when net farm income was up by 50 percent.

Around the world the Europeans and Americans have forced open local markets to their heavily subsidized agriculture making life more desperate for local producers. The American Farm Bureau has been calling for trade sanctions against China unless it opens its markets to U.S. agricultural exports. Opening China’s markets to heavily subsidized farm products would have potentially catastrophic impacts on the huge number of farmers there who grow corn and wheat. China has joined the IBSA countries—India, Brazil, and South Africa—demanding an end to the subsidy-agricultural dumping pattern of rich countries, signaling a shift in power relations within the World Trade Organization and bringing the Doha Round to a standstill.

There are a number of issues that get confused in the discussion of such subsidies. Most obviously these subsidies have gone overwhelmingly to the largest agribusiness interests and have not preserved small family farms in the United States, whose number continues to decline.

Demanding the general principle of "free markets" in agriculture is another story. It would mean "accepting the elimination of billions of noncompetitive producers within the short historic time of a few decades," as Samir Amin writes. "What will become of these billions of human beings among the poor, who feed themselves with great difficulty?" The destruction of peasant agriculture and the harm to already undernourished farm families could be addressed instead by subsidizing seed, fertilizer, extension work geared to local conditions, and addressing the bias favoring agribusiness so as to restore the possibility of food security.

What about the immediate crisis? In the short run emergency aid is needed. As the IMF’s managing director Dominique Strauss-Kahn warned in late June, some countries were at "a tipping point" because of rising food and oil prices where they will no longer be able to feed their people and maintain the stability of their economies. Similarly, Robert Zoellick, World Bank president, has made comparable appeals for greater food aid, saying in early July, "We are entering a dangerous zone" as a result of the "double jeopardy of food and duel prices…[t]hreatening to drive over a hundred million people into extreme poverty." In June Oxfam estimated 290 million people required immediate assistance in food and cash to survive. In a briefing paper Oxfam estimated that $14.5 billion was needed immediately to help address the food crisis.

In terms of how aid should be used there is a sharp contrast between the usual formula of dumping food on local markets by giving it away, which further undermines local agriculture, and giving money so hungry people can buy food in local markets, which encourages greater production, along with aid for infrastructure to get crops to market and subsidizing fertilizer and seed. CARE has cut back free food from donor nations, which they say would undermine the prospects of countries being able to feed themselves. CARE takes a position that "local purchase is a complex undertaking. A greater understanding of local markets and potential risks and unintended consequences is necessary before engaging in local purchase on a significant scale." In the long run it will take more than charity, which would have to be on a scale unrealistic to imagine happening.

While there is rightfully concern regarding rich country subsidies, agribusiness, like its peers in other sectors, is moving offshore and globalizing its production venues. Agribusiness looks to Brazil’s savannah where 250 million acres could be brought into export production, with another 200 million acres in Venezuela, Guyana, and Peru. Other potentially available land for major crops includes 100 million acres in the former Soviet Union and 300 million acres in sub-Saharan Africa—land that is often underutilized by subsistence farmers. How much acreage goes to the landless and how much to transnational agribusiness will be the outcome of struggle. Feeding the world will require more production in poorer countries and less food exported to them from rich ones.

The real issue is building the capacity of all countries to feed themselves, to provide food security and slow the growth of dysfunctional mega-cities in the Global South by raising living standards in the countryside, producing a more even pattern of development. It requires rejecting transnational capital’s demand for an extensive division of labor, which produces dependency on volatile international markets and exposes economies, and especially the poor, to dramatic dislocations when prices of necessities rise dramatically as they are now doing. Transnational agribusiness and industrial food producers and distributors are a powerful coalition in favor of extending the existing system.

But real change is possible and necessary. Given the existing system and the current crisis, help is needed to prevent widespread starvation. The current crisis is a human made disaster created by agribusiness’s international food regime. Rich countries need to step up and address this disaster, making good on past aid promises and facing the costs their use of fossil fuel has imposed in the consequences of global warming on the Global South, the damage of ethanol subsidies, and their agricultural policies generally.

Z


This article is based on a talk given at the conference on "The Global Food Crisis" at the Brecht Forum, New York City, July 12, 2008. I am grateful to Fred Magdoff for pointing me to information sources and for helpful comments on earlier drafts of this essay.