World economy: Why have food prices reached a record high?

Price hikes cause riots and struggles for higher pay

World food prices are at an all time high. The Food and Agriculture Organisation of the United Nations, FAO, has warned of the possibility of serious social unrest and food shortages. Why are food prices rising now? And what will be the consequences?

The Economist’s food price index is at its highest level since it began in 1845! The FAO has also warned of the potential for food shortages for the first time since the

1970s due to the increases in prices.

The price of food has become one of the most important issues in most countries. China saw the biggest food price rises last year of 18% (up to November), but eggs and meat increased in price by almost 50%. In Sri Lanka the price of food increased by 17%, Pakistan and Indonesia 16%, Russia and Latin America, more than 10%. However without government intervention prices would have increased even more.

Killed in protests

In China, three people were killed in a stampede when a supermarket offered cheap cooking oil for sale. Increased food prices have also caused riots and mass protests in Mexico, Yemen, West Bengal in India, Burkina Faso and Senegal. In Morocco, 50 people were injured by the police on a protest against rising food prices.

This new food crisis is taking place at a time when 854 million, one in six of the world’s population, already do not have enough food. In the midst of capitalist globalisation and a boom in the world economy in recent years, another four million people annually join the ranks of the starving and malnourished.

Worst hit during last year were the poor in countries that import a big proportion of their food. For example, Mauritania where the cost of imported food has doubled this year. One person was killed and 17 wounded in riots in Mauritania in November. Globally, the cost of imported food increased 21% last year. Other countries with high proportions of imported food are Nepal, Bangladesh, Bolivia, Jamaica and Sub-Saharan Africa. From all these countries, reports warn of the danger of increased hunger for the population.

The biggest and most spectacular price increases have been on grains and pulses. From May to September 2007, the world price for wheat doubled, from $200 per tonne to $400. The price on maize increased 50% last year, rice 20% to an all time high and soya beans also 20%. The price of dairy products is also on the rise by 10% in many European countries.

Why are prices rising?

There are several coinciding reasons that have caused the price hikes.

One is biofuels. One third of the maize harvest last year in the US, which is the biggest food exporter in the world, went to the production of biofuels instead of food. A full tank of ethanol in an SUV uses the equivalent amount of maize that would produce bread and food for one person for a year, according to the World Bank. This underlines that capitalism is about production for profit not human needs.

Secondly, the climate crisis. Catastrophic floods hit 57 countries in 2007. Drought and fires have reduced harvests in some countries, for example in Australia and parts of Brazil. Drought and the spread of deserts it is predicted will halve the harvests in the worst hit countries in Africa in the next 12 years. Empty promises made by governments that in fact are in the pocket of big business will not solve this gigantic crisis.

Thirdly, the price of oil has rocketed. The increased price of oil is affecting the cost of food production, transport and the price of fertilisers.

Fourthly is the factor of increased demand, particularly in China and India. For a number of years, cheap commodities from China have lowered world prices and kept inflation down (something central banks have wrongly been credited for). Now, China’s strong demand is instead raising world prices for oil and raw materials, including food. Meat consumption in China, according to the Economist, has increased from 20 kilos per capita a year in 1985 to 50 kilos in 2007.

Governments have no answer

Discontent over increasing food prices has caused riots and protests, and demands for higher wages and for governments to resign. In Russia, food price increases were banned over the election period, from November to January, to assist Putin’s election campaign. In Venezuela, private food companies deliberately caused shortages of food in the period leading up to the referendum in December, and this was one of the factors that led to Chavez not winning a majority.

Governments are powerless to impose price restraints as long as the multinational corporations continue to control production, trade and prices. In Zimbabwe, President Mugabe’s attempt to simply stop the three-digit inflation by a decree completely failed – the result was empty shelves in the shops. Even the Chinese government was forced to raise fuel prices as a result of a sabotage campaign by the state-owned oil companies.

In many countries, governments have been using up their stockpiles of food which are now at their lowest levels in 35 years. These measures will only have a short term impact, holding back price increases for a limited period whilst the depletion of these stockpiles means these governments will face further problems trying to deal with future crises.

Neo-liberalism has given even greater powers to the huge multinationals. In many parts of the world local food production facilities have been closed down and poor countries which used to export food have now become major importers. Investment in food production has fallen. As with pharmaceuticals, the poor that cannot pay are left without the necessities for life. Food has become another commodity for the super rich to speculate on and make huge profits, whilst millions die from hunger.

Rising food prices are an important factor behind the world-wide increase in inflation.

Euro-zone food inflation was 4.3% in November, while it was 4.8% in the US. With the growing fear of a financial crash and a sharp drop in the value of the dollar, central banks now face a dilemma. Banks and speculators (“investors”) are demanding lower interest rates to cut the costs of their borrowings. However this raises the risk of increasing inflation even further. Whatever the central banks decide to do, we will see crises in the next period during which governments around the globe will place the burden onto the working class and poor. As with global warming, it is the capitalist system itself that is responsible for the increases in the price of food and the shortages.

To control the price and supply of food requires democratic planning. This can only take place if the food multinationals are publicly owned. Then resources could be distributed so that everyone could have access to affordable nutritious and healthy food and the environment would not be destroyed by the production and distribution methods of the profit hungry food multinationals. Workers in all countries face similar issues and challenges – we need a global struggle against capitalism, for democratic socialism. New workers’ parties and democratic mass organisations of the working class must be created to form a global rank and file movement for democratic socialist planning. Today’s struggle against food price hikes – strikes, hunger marches, and political revolts – is part of the struggle to build a new workers’ movement globally.

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January 2008