Features » July 23, 2008
Let Them Eat Free Markets
How deregulation fuels the global food crisis
Agriculture and food markets aren't like markets for clothes or automobiles. Food is a daily essential
In April, crowds of angry Haitians – reduced to eating mud cakes to staunch hunger – erupted in deadly protests against high food prices, forcing the prime minister to resign. The price of rice, a staple of the Haitian diet, had risen 16 percent on the world market last year, then shot up 141 percent from January to April.
Around the world, similar riots – or fears of them – have pushed governments to restrict exports, reduce tariffs, attack hoarding and take other desperate measures as prices of virtually all major food commodities have spiked – and often fluctuated wildly.
But in the months since Haitians hit the streets, leaders of the major international financial organizations – the World Bank, the International Monetary Fund (IMF), the World Trade Organization (WTO) – as well as the Bush administration and European Union (EU) have responded weakly to the crisis. Mainly, they’ve issued underfunded appeals for emergency aid and for speedy conclusion of the latest round of WTO free-trade negotiations. For the world’s poor, that’s like lifting a drowning man out of the water, only to tie weights around his ankles and shove him back in.
When world leaders met in June for a U.N. Food and Agricultural Organization summit, says Steve Suppan, senior policy analyst for the Minneapolis-based Institute for Agriculture and Trade Policy (IATP), a research and advocacy group, “there was an urgent recognition of the food crisis but a more urgent sense of the need to salvage neoliberalism.”
And Raj Patel, author of the recent book, Stuffed and Starved: The Hidden Battle for the World’s Food System (See review on page 40), adds, “It’s preposterous that the Bush administration and EU are pushing us toward precisely the policies that got us into this mess.”
Many developments may have triggered the food price crisis, including bad weather conditions (from droughts in Australia to more recent floods in the Midwest), oil price increases, and rising biofuel and consumer demand.
But the current food crisis ultimately stems from over-reliance on deregulated global markets and increasingly concentrated corporate control of an ecologically unsound world food system. Pushing free-market fundamentalism harder will only intensify the fault lines, setting the stage for even more serious crises in the future.
All markets are not the same
Agriculture and food markets aren’t like markets for clothes or automobiles. Food is a daily essential, which consumes as much as two-thirds of the income of the poorest half of the world.
Many of those poor people are also peasants who rely on food production for their livelihoods. Farming depends on the whims of nature and slowly adjusted, seasonal plans. Agriculturalists don’t merely turn out a product for the market; they play a major role in environmental conservation or degradation and the definition of people’s cultures.
What’s more, wide disparities in power, financial resources and information exist between the many small producers and the handful of giant multinationals that control grain trade (like Cargill), hybrid seeds (like Monsanto), chemicals (like DuPont), wholesale markets (like Archer Daniels Midland) and retail markets (like Wal-Mart or Carrefour).
Add to that the distortions of markets in favor of the giants through governmental policies and the growing role of huge speculative investors.
“The markets are not perfect, and they can’t be,” says Sophia Murphy, senior adviser on trade for IATP. “The orthodoxy that drove liberalization of agriculture didn’t take account of the way markets don’t behave the way a neoclassical model of the economy behaves, and didn’t allow for regulation that needs to make up for agricultural market failures.”
But the rush to free-market fundamentalism has stripped governments of many of the tools they need – such as maintaining grain reserves – to produce price stability, equity, environmental sustainability and widespread human social development.
Haiti is a case in point. In the early ’80s, Haiti, though a poor country, produced nearly enough rice for its own population. But when a popular uprising overthrew Jean-Claude Duvalier’s dictatorship, the new government turned to the IMF for loans. However, the IMF conditions for loans – and later “structural adjustment programs” – included cutting tariffs on rice.
Heavily subsidized rice from the United States flooded into Haiti, bankrupting many small farmers. Then U.S. food aid further undermined Haitian agricultural self-sufficiency.
Haiti now has among the fewest trade restrictions in the Americas, and produces only about 18 percent of its domestic rice needs, making its population – four-fifths living on less than $2 a day – extremely vulnerable to global price run-ups. However, Haiti’s tiny rich elite prospers as the middlemen in this grain trade.
‘Laughing all the way to the bank’
The story is similar throughout the developing world. From roughly 1950 to 1972, the U.S. government opened up markets and created dependency on global grain purchases by providing subsidized, low-cost surplus grain. Governments could pay with their local currencies, rather than dollars, and the United States used that soft-money income to finance its global, Cold War political and military objectives. The governments of developing countries willingly accepted the aid, hoping to pacify their urban poor while keeping wages low for new industries.
At around roughly the same period, the “green revolution” took place, which replaced traditional polyculture – farming many food products from small plots – with larger monoculture of crops that are more dependent on fertilizer, purchased hybrid seed and irrigation. The shift raised rice yields per farmer but did not increase pounds of food produced per acre, according to Eric Holt-Gimenez, executive director of Food First, an Oakland-based research and advocacy group. It did, however, concentrate land ownership, move poor farmers onto marginal lands and increase the role of multinational agribusinesses.
Then, in the ’80s, World Bank and IMF loans, as well as structural adjustment programs, required that countries not only reduce tariffs and other trade barriers but also dismantle grain reserves, marketing boards and other government institutions designed to stabilize food prices.
Free-trade agreements in the ’90s locked in and further dismantled regulations of farming and food markets, especially in developing countries, even as farmers in Europe and the United States were able to keep many of their protections.
As countries tried to repay their foreign debts and buy imported food, they were forced to turn to commercial agriculture, most often large, industrial agricultural enterprises owned by foreign corporations.
With the world supposedly awash in cheap food, there was a sharp decline in international and national investment in agriculture for the local market, including basic research, often under budget-cutting pressure from the IMF.
Also over the past decade, governments, again under IMF prodding, have let grain reserve stocks drop to the lowest point in several decades.
Millions of small farmers were pushed off the land and into cities or into international migration – 2 million in Mexico alone, since NAFTA was implemented in 1994.
Many developing countries that had earlier fed their own populations became less self-sufficient. In Africa, governments, international investors, and organizations financed the import of grain and the export of specialty crops. But they failed to invest in roads, refrigerated storage and other technology to get local food to urban markets, Suppan says, leaving 40 percent of all food produced to rot in the fields – depriving urban dwellers of food, farmers of income and nations of potential for homegrown economic development.
Meanwhile, big corporations continue to rake in huge profits. “The industry is not in crisis at all,” Holt-Gimenez says. “They’re laughing all the way to the bank.”
The global grain trade was supposed to take the place of governments with their reserves stored for hard times, such as when an Australian drought in recent years reduced rice and wheat exports to Asia.
“But the private market has very little interest in managing a reserve,” Murphy says. “Why would they? They don’t care about the price. They don’t eat food; they sell it to the highest bidder. They’re only interested in getting food before the competition does.”
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David Moberg, a senior editor of In These Times, has been on the staff of the magazine since it began publishing in 1976. Before joining In These Times, he completed his work for a Ph.D. in anthropology at the University of Chicago and worked for Newsweek. He has received fellowships from the John D. and Catherine T. MacArthur Foundation and the Nation Institute for research on the new global economy. He can be reached at firstname.lastname@example.org.