Posted by: r.m. | May 4, 2011

once again, it is the irrational, capitalist economy…

Once again, it is the irrational, capitalist, unregulated economy…And forgive me for the repetition. Capitalism is inherently irrational.

Last week, Foreign Policy published an article entitled ‘ How Goldman Sachs Created the Food Crisis

The verdict (long overdue and not surprising): Wall Street is to blame for the rising food prices.

Demand and supply certainly matter. But there’s another reason why food across the world has become so expensive: Wall Street greed. It took the brilliant minds of Goldman Sachs to realize the simple truth that nothing is more valuable than our daily bread. And where there’s value, there’s money to be made. In 1991, Goldman bankers, led by their prescient president Gary Cohn, came up with a new kind of investment product, a derivative that tracked 24 raw materials, from precious metals and energy to coffee, cocoa, cattle, corn, hogs, soy, and wheat. They weighted the investment value of each element, blended and commingled the parts into sums, then reduced what had been a complicated collection of real things into a mathematical formula that could be expressed as a single manifestation, to be known henceforth as the Goldman Sachs Commodity Index (GSCI).

…  Hard red spring wheat, which usually trades in the $4 to $6 dollar range per 60-pound bushel, broke all previous records as the futures contract climbed into the teens and kept on going until it topped $25. And so, from 2005 to 2008, the worldwide price of food rose 80 percent — and has kept rising. …

The more the price of food commodities increases, the more money pours into the sector, and the higher prices rise. …

Today, bankers and traders sit at the top of the food chain — the carnivores of the system, devouring everyone and everything below. Near the bottom toils the farmer. For him, the rising price of grain should have been a windfall, but speculation has also created spikes in everything the farmer must buy to grow his grain — from seed to fertilizer to diesel fuel. At the very bottom lies the consumer

It is an article worthy of being read in full.


A few years before that article was written, I co-authored a report on food security in the Arab World ( ‘Development Challenges in the Arab Countries: Food Security and Agriculture.’ Volume 2. December 2009. League of Arab States and UNDP.)

. We argued then: “that the following factors have impacted the food price crisis, but the extent to which each of these factors, independently, has impacted the crisis is subject to a heated international debate:

•Strengthening linkages among international markets of oil and food; Soaring oil and energy prices, impacting fertilizers and pesticides, fuel for agricultural machinery, and transportation costs;
•Increased demand due to rise in global population and, more predominately, significant income growth in some developing countries, particularly China and India, which led to an increase in meat, egg, and dairy production and hence in proportion of the world’s grain consumed by animals; (example: More than 30 percent of the world’s grain is now fed to animals. Farming one hectare of decent land can produce 154.4 kg of protein from grain, but one acre devoted to beef farming produces only 22.2 kg of protein.)
•Droughts in grain-producing areas resulting in decrease in grain stocks and rapid decline in stock to utilization ratios (FAO, 2008)
•Competition of biofuels with food for feedstock and arable land; Expanded production of biofuels such as ethanol and biodiesel has a strong effect on prices because biofuel production draws largely on agricultural products (example: increased biofuel demand in 2000–07 is estimated by IFPRI to have contributed to 30 percent of the weighted average increase of cereal prices. Incorporating new developments in supply and demand as well as actual biofuel investment plans (IFPRI, 2008)),
•Weak and ill conceived agricultural policies in most developing countries, based on IMF and World Bank policy formulas, over the last three decades (UNCTAD, 2008). (Example: The market policies supported by the World Bank and the International Monetary Fund, which led to a decrease in government-subsidized agricultural inputs, price supports, state marketing boards, and extension services, have also been blamed for the rise in food prices. This unilateral liberalization of agricultural trade has also led to the destabilization of peasant producers. These policies, coupled with extensive free trade agreements, led to a shift in numerous countries from exporters to importers of food staples.)
And of course:
•A dramatic increase in speculative trading in agricultural commodities.

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  1. It is very nice how the whole world looks like a rich man’s world, after all we see of the world’s richest people and how all the food prices have been increasing in a frightening way. But what we don’t know is that very few people have been able to live up with those conditions. Unfotunately, it’s not only rich people that are out there. There article says something about how everything concerning food has been priced and turned into a mathematical equation to give back more money, so that the companies can generate more and more of the billions they already garnered. But what of the people ? What of those who are priced out of the food market ? Do they deserve the problems that will show if they don’t eat their necessary daily food ? If the increase in prices is accomanied with an icrease in the Income Rates of peolpe, then i would have shut my mouth and not even considered writing this comment, but what we are seeing is an increase in the gap between the rich and the poor, with the latter containing a much bigger number of individuals. What is happening is not right, and there should be more talk about it. A solution to the problem may reside in handing the resources to governments so that the prices would be handled, regulated and controlled in a safe and just way. that way farmers and consumers would be able to live a good life.

  2. Rising prices for food are more likely to boost inflation in countries where growth is strong and unemployment is low. This price hike is pushing millions of people into poverty. In addition, we should not only consider poverty alone, i.e. if we shift the consequences further we see that price hikes for cereals and other staples can force them to cut back on the quantity or quality of their food. This may result in food insecurity and malnutrition. Thus, undernourishment increases disease and mortality, lowers productivity and can have severe lifelong effects, particularly for children!!

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