19 October 2008

Double-Edged Prices

'There is nothing in the pot. We have no food for a meal. Often a pot is put on the fire so children think a meal is being prepared. It gives them hope. If we told them there was no food they would start crying and there would be nothing we could do. This way they just go to sleep quietly.' – Aliou, a mother from a rural village in Mauritania

Not that the current financial meltdown isn't important - it is mostly for the failed mentality that it represents - but let's not let it distract us from what is urgent. This is admittedly difficult when anti-interventionist governments move astronomical sums to prop up their banking systems while ignoring their own commitments to curb world hunger. "...in stark contrast with the response to the current financial crisis, where huge financial resources have been mobilised by the international community in a matter of days... countries suffering from the food crisis received promises of just $12.3bn at the Rome FAO conference in June 2008, well short of UN estimates of the $25bn–$40bn needed (and five months on, little more than $1bn has been disbursed)."

Oxfam International just published a briefing paper aimed at bringing us back to this reality. It is called "Double-Edged Prices, Lessons from the food price crisis: 10 actions developing countries should take". Basic staple prices have recently risen and this should have been wonderful news for countries with economies focused on agriculture, and for the small farmers themselves. However, as the report states, "decades of misguided policies by developing country governments on agriculture, trade, and domestic markets – often promoted by international financial institutions and supported by donor countries – have prevented poor farmers and rural workers from reaping the benefits of higher commodity prices. As a result, the crisis is hurting poor producers and consumers alike, threatening to reverse recent progress on poverty reduction in many countries. To help farmers get out of poverty while protecting poor consumers, developing country governments, with the support of donors, should invest now into smallholder agriculture and social protection."

During the last year, the price in staple foods around the world have risen from 30 to 150%. Even before the current food crisis, over 850 million people lived in hunger and approximately 30,000 children died daily from related causes. The title of the Oxfam report refers to the false dilemma created when donor institutions ask themselves whether they should support consumers by lowering prices or producers by raising them. This leads to food donations from rich countries on one hand, and on the other, structural adjustments to economic policies aimed at directing the agricultural sector of a nation towards producing what can be sold on the international market, even if it can't be eaten by local communities. For example, cacao prices have increased dramatically since this crisis began (people eat more chocolate in times of anxiety), so Ecuador is expanding cacao production as well as other similar products like flowers, bananas and shrimp and seeking to open new export markets. Meanwhile staple food prices in Ecuadorian markets have risen 8% over the past year. In these cases, people buy cheaper foods, that usually have less nutritional value, rather than buying less food.

Higher fuel prices have led to increases in critical agricultural inputs like nitrogen-based fertilizers, insecticides, pesticides and seeds. In fact, Monsanto, the world's largest seed (genetically modified) and agrochemical company has seen a 26% increase in revenue during the past year. Vanity Fair recently carried a major feature article on the mafia-like tactics of Monsanto in its pursuit of total domination of various facets of agribusiness aimed at consolidating corporate power even in the face of increasing food shortages.

The report concludes that in general, "those countries that have invested in smallholder agriculture and social protection policies have proved to be more resilient to the crisis. Conversely, where countries have opened their markets too widely or too rapidly to food imports and have failed to invest robustly in their agricultural sectors, they have fared far worse." Mexico is a perfect case in point.

"In the 1980s, Mexico was reeling under massive foreign debt. In 1988, interest payments made up 57 per cent of federal expenditure and, following World Bank and IMF recommendations, the country set about reducing public spending and dismantling a system under which the State subsidised agricultural inputs, provided loans and technical assistance, regulated imports, set guaranteed prices for producers, and subsidised the price of tortilla.

"State marketing committees and the National Company for Popular Subsistence (CONASUPO, a body which retained 15–20 per cent of production for distribution to remote areas) were also eliminated. Control of the market was usurped by a handful of agribusinesses and intermediary companies. Currently, Cargill, Maseca, ADM, Minsa, Arancia Corn Products, and Agroinsa among them control 70 per cent of Mexico’s corn imports and exports.

"A further blow to domestic agriculture came with the signing of the North American Free Trade Agreement (NAFTA) in 1994, under which Mexico agreed to liberalise its corn sector. Subsidised US corn began to flood the market and the price of corn in Mexico fell by more than 70 per cent in real terms, pushing thousands of corn farmers out of production and reducing overall output. After more than 4,000 years, Mexico became a net importer of corn."

The report provides a general action guide in the form of 10 recommendations. They are well thought out from the perspective of the more vulnerable countries. However, it gives too much importance to the IMF and the World Bank, which simply need to cease to exist or be completely transformed into institutions that are democratically accountable and which move resources to mitigate the effects of and ultimately eliminate poverty and wealth extremes.

This report succeeds at providing a timely and clear analysis of the current food crisis that it hopes will make a "difference to the millions of poor people hit by the current crisis, and build resilience to future shocks."

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