Wednesday, April 23, 2008

An Inconvenient Truth about the Global Food Crisis

Whenever I worry that investigative journalism is having its teeth systematically extracted by the power-brokers of mainstream media, I remember that Frank Hornig is still on the job and that I can read his dispatches through SPIEGEL ONLINE. I have probably not done him sufficient justice by citing him only three times on this blog:

  1. For his report with Gabor Steingart on the global regulation of hedge funds
  2. For his really perceptive "Outsourcing your Personal Life" article
  3. Most recently for the "What's Really Driving the Price of Oil?" piece that he prepared with Beat Balzli

However, given the current significance of the global food crisis, the analysis he prepared today (again with Balzli) may be the most important follow-up to their (or any other) analysis of the oil crisis. The significance lies in the extent to which these problems arise from the same cause. Just as the price of oil has nothing to do with supply and demand (or even how OPEC regulates the supply) and everything to do with what is happening in commodities trading pits, the same is true for the price of food. Yesterday Emily Buchanan prepared an excellent report on the United Nations World Food Programme, which I saw broadcast on BBC World Service News. In that report Josette Sheeran, who runs the program, described the crisis as "A silent tsunami which knows no borders sweeping the world." Just as important, however, was an off-hand remark on the broadcast, which did not appear in the print version, that called the price of food "an inconvenience for the rich."

I have written in the past about the speciousness of that old cliché from the days of the first Reagan Presidential campaign about a rising tide lifting all boats; but we now have to confront increasing evidence that the rising tide of speculative investment (driven by nothing more than the greed of "haves" wanting to "have more") could well sink many (most?) of the boats in the sea, particularly where food (commodities futures trading), shelter (trading on the anticipated income from loans), and even clothing (heavily dependent on the price of petrochemical products) are concerned. Whatever the traders may be doing or saying, Balzli and Hornig took the trouble to get out of the trading pits; and, as far as both farmers and food producers are concerned, the commodities markets are "broken." This brings us to the heart of the argument that Balzli and Hornig have developed:

Biofuels and global warming have been blamed for shortages driving up the price of food, and both trends have played their role. The planet's grain reserves are almost empty for a number of reasons, including global population growth and greater prosperity in some countries like India. Feed corn is in short supply because industrialized nations have used it for ethanol. Droughts -- in Australia, for example -- have devastated rice and wheat harvests. Wheat reserves worldwide are only sufficient right now to cover about 60 days of demand.

This helps to explain why commodity prices have rallied since early 2006, with the price of rice ballooning 217 percent, wheat 136 percent, corn 125 percent and soybeans 107 percent.

But classic supply and demand theory offers only a partial explanation. Sudden price hikes since last January have been alarming. The UN estimates that at least $500 million (€312 million) in immediate aid will be needed by May 1 to avoid serious famines. Agricultural scientists at the world body's Educational, Scientific and Cultural Organization (UNESCO) have presented a report on the world food crisis. And criticism is growing that hedge funds, index funds, pension funds and investment banks bear part of the blame.

Unfortunately, the Balzli-Hornig analysis gives little indication of there being any light at the end of the tunnel. At best we may candidates in the coming election trying to turn up the heat on commodities speculators; but, when campaigns are financed heavily by those speculators, can we expect that heat to be anything more than hollow rhetoric? More likely we are witnessing the emergence of yet another battle in the War Against the Poor, in which case it may be time for those waging this war to reflect (if that is within their cognitive capacities) on just why this war was waged in the first place. What good is having all the marbles, if you can no longer do anything with them? What good will come of enslaving the poor, if they have become too enfeebled by the lack of food, clothing, and shelter to do the will of their would-be new masters? Iraq has taught us that it is possible to wage a war without clear logic, so it may well be that the basis for the War Against the Poor is nothing more than the product of the illogic of greed. Unfortunately, recognizing that the mess we are in is little more than a side effect of what Susan Jacoby has called "the age of American unreason" does little to inform us about getting out of that mess!

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