Henry Kissinger once said that whoever controls food controls people. In other words, everyone surrenders when they see their children starve. That is how the U.S. government subdued the American Indians defending their lands, by exterminating the bison that provided them food and instead handing out food on reservations. The British government did the same to subdue the Boer republics in South Africa by forcing the Boer civilian population into the first concentration camps ever and letting them starve.
International cartels now use their control over the global food supply to make huge profits. There are six major corporations that control the purchase and sale of agricultural products: Cargill, Kraft, Bunge & Born, ADM (Archer Daniels Midland), Nestlé and General Mills. Food prices are set at exchanges in Chicago, New York and London.
Some countries shield their population from commodity speculation on basic foods by restricting the export of their agricultural staples until domestic demand is satisfied. This has a clear and legitimate purpose: to stabilize domestic prices and ensure supply for their own people. Domestic prices are also an uncomfortable testimony of real prices and temper full international market control over pricing.
On January 22, agriculture ministers from 50 countries met in Berlin, to examine the rise of international prices of commodities during the second half of 2010. Before the assembly, World Trade Organization (WTO) director, Pascal Lamy, earned merits with the global food cartels by attacking export restrictions. No doubt hoping that the cartels will hire him when he loses his present position, Lamy attributed the record high international prices of agricultural products to the export limits that some countries apply. His claim was a classic case of sophistry—a distortion of the truth with a false arguments.
“Export restrictions are a prime cause of current and recent surges in global food prices, and countries should find other ways to secure domestic supplies,” the WTO chief said. “Export restrictions lead to panic in markets when different actors see prices rising at stellar speed,” he added.
Mr. Lamy illogically ignores the fact that a sudden rise in agricultural commodity prices, as reported three weeks ago by the UN Food and Agriculture Organization (FAO), cannot be attributed to controls that have always been there. Those controls, as he acknowledges, are imposed to assure supply to the population of the producing countries and, although Lamy did not say it, also to stabilize national and to an extent, international agricultural prices. This last point is very annoying to the cartels that dominate international food trade.
After attacking export restrictions, Mr. Lamy stated that exporting countries seek other ways to assure their own national supply. But here his proposals for a different approach are misleading. Lamy called for an increase in global food production, “more social safety nets, more food aid and food supplies and …humanitarian aid exempt from export restrictions.”
Let’s look first at the call for an increase in global food production. Countries that now must import food used to feed themselves until free trade and the export subsidies of rich countries ruined their farmers. The WTO unfairly allows subsidies in some countries and prohibits them in others. More production in countries that subsidize exports would worsen the rural crisis in the Third World.
Furthermore, high prices will not in this case spur more production because they do not obey demand, which is relatively stable, and the price increase does not reach producers. Speculators and price manipulators are the ones who profit from those sudden rises. An increase in food production to stabilize prices would be beneficial only if it happens in those countries that lost their self-sufficiency in agriculture. For that, it is necessary to eliminate export subsidies and other aids that distort agricultural prices.
Lamy also called for an increase in food aid. Food aid has historically played an important role in crippling local food production, functioning as a tool to displace and destroy local farms. There are cases in which food aid is imposed as an import quota; for example, Guatemala is forced to accept a share of “help” it does not need. Another example is Honduras, which was self-sufficient in rice before Hurricane Mitch. The natural disaster opened the gates to thousands of tons of U.S.”aid” rice, subsidized at 80%. Prices tumbled and killed domestic production. Finally, the case of Haiti is now notorious because President Bill Clinton acknowledged his guilt in the destruction of Haitian agriculture by imposing U.S. food aid “manu militari” and forcing the Haitian government to obey the prescription of the IMF to lower its rice tariff from 35 % to 3%. All these experiences seem lost on Mr. Lamy.
Lamy summed up his attitude toward the challenge of rising food prices: “Globally, what we would be likely to see as a result of Doha [WTO Round] is more food being produced where this can be done more efficiently.” It is very unlikely that the Doha Round will ever acomplish this goal. The Doha Round was accepted by developing countries because of the mandate to eliminate subsidies that distort agricultural prices. But negotiations are stuck because rich countries do not want to reduce their subsidies, and yet demand more openness to their exports, more concessions on intellectual property and services, and a drastic reduction in the space for national economic policies.
The IMF ordered fiscal austerity for those European governments that ruined themselves by paying off the debts of private banks, but it has failed to mention the subsidies of the European Common Agricultural Policy (CAP). Neither does the new Republican majority in the U.S. Congress mention farm or export subsidies when they ask for public spending cuts. The problem is not subsidies but who receives them–giant food transnationals make huge profits off these subsidies. Instead of analyzing the impact of these subsides, the IMF continues to recommend austerity measures focused on removing protections against poverty at a time when there is a steep rise in food prices and unemployment.
We are seeing an increase in global impoverishment caused by practices that enrich bankers and global commodities speculators. Mr. Lamy and the members of the G-20 who accuse export restrictions for rising food prices should take a closer look at the impact of speculation and turn their attention to the means and tools that are at the bottom of the rising prices. Yet at the meeting, they pointedly did not even mention speculation.
Economic theory says that prices follow the law of supply and demand. As long as human beings have a single stomach, there cannot be a sudden increase in demand for food. We may begin to hear, as in 2008, the tale that prices rose because of grain demand to produce ethanol. The argument has been proven false as an explanation for the sudden price hikes. There was no increase in ethanol production and grain prices fell as fast as they rose without an increase on agricultural activity. It is clear that the starving and suffering of billions in 2008 was the work of greedy price speculators.
The mainstream media tends to do little research and repeats whatever comes out of the mouths of those on high. Droughts and floods are not the leading cause of spikes in global food prices. Nor are export restrictions. The spikes are the work of manipulation in commodity markets where global prices are set. The physical existence of a commodity is not even necessary to create a price, because real goods are not always bought or sold or delivered, even though their prices are listed in mercantile exchanges.
Listings are typically based on the index commodity funds, which are bets on the mercantile exchange performance of a specific agricultural commodity. Handling is coordinated between institutional brokers, financial institutions and global merchants. They bet on the rise or fall of a specific product and then manipulate the price to win the bet. To make a profit it is enough to sell options without ever actually owning an existing product somewhere. Speculators don’t only make a profit when prices rise; they can also bet and make a profit when commodity prices collapse, by so-called “short selling. “
From 2006 to 2008 commodity prices rose scandalously, especially rice, wheat and corn. A tonne of rice rose from $600 in 2003 to $1,800 in 2008. After causing popular unrest in the world, prices fell as quickly as they climbed. Further proof that the cause was not supply and demand.
The current crisis looks even worse. The last FAO report states that cereals price rose 32% in the second half of 2010 and the composite price index of sugar, meat, milk, cereals and oilseeds in December exceeded 2008 levels. If speculation is left unchecked, this time there will be riots in Europe as well.
The Dollar’s Role
A fundamental cause of price instability is the weakness of the dollar. A currency that has devalued 400% against gold and 60% against the Swiss franc in only four years cannot be the reference for commercial value. The dollar devaluation caused loss of purchasing power to all wages, pensions and fixed incomes in the world, but also the actual reduction of all dollar-denominated debts. Therefore, it is not admissible that the most indebted country in the world ensures the stability of values in international trade or the stability of anything.
It is a situation that has gradually gotten worse since 1971, when the United States defaulted on its debts and repudiated the gold standard. The total amount of dollars and dollar-denominated securities issued since then by the Federal Reserve and by the financial institutions supported by the Fed, surpasses the U.S. GDP and even the World Gross Product. It is a debt that cannot be paid.
The only way to obtain price stability and start a global economic recovery is to drop the dollar, assume a more rational value for reference, and discipline the operation of financial and mercantile exchanges in London, New York and Chicago. That is what the Davos gathering of international leaders should have considered, but did not. Instead they focused, as always, on recipes for maintaining their own immediate and exclusive prosperity in a starkly unequal world.