Casaubon's Book

And It Is Back…

UN FAO Food Graph to 2010.jpg

The Food Crisis, of course. In fact it really never left – since 2007 we’ve had more hungry people on the planet than ever before in human history, and while we’ve seen brief declines in the numbers of the hungry worldwide, those declines were of such short duration that they were essentially meaningless – earlier this year when the UN trumpeted that the number of the hungry had dropped back below 1 billion, it admitted that this excluded Pakistani flood victims, the impacts of the crisis in the Russian wheat crop and a host of other late-year issues.

On the lists of guests no one ever wants to invite to well…not eat dinner, the food crisis is probably number one, but it has a way of continuing to intrude. The thing about food is that it is both simple and complicated – very simple, in that when people don’t have enough to eat, they die. Very simple in that just because we in the west became preoccupied with our own fiscal troubles doesn’t mean that hungry kids stopped being hungry. Complicated, in the sense that food system responds to a great number of events – and we can expect it to keep on responding.

Why is it back? Well, a combination of factors. First, as we’ve seen over the years, it is simply impossible in our fossil-fuel drenched agriculture to separate out energy and food prices – high food prices and high energy prices go together. We invited the food crisis back to dinner as we began consuming more gas and oil after the recession.

Climate change played a role – consider the role of the drought in Kenya, where 1.3 million people are presently at radically increased risk of starvation. Consider the recurrence of export restrictions, characteristic of the 2008 food crisis, which began in August with the Russia’s ban on wheat exports. 11 other countries now have major exports, including India’s ban on exporting pulses.

The race against environmental degradation offered another invitation – last year the UN special envoy on the right to food observed that China’s ongoing need for ever-increasing food imports is being fed by heavy topsoil loss and over development of good farmland, and of course, those problems are endemic across the developed world as well. Credit Suisse projected Asian food price inflation to hit 15% next year.

Remember, almost half the world’s population spends more than half their income on food – price increases here affect families dramatically. In the US where one in seven (and it will probably shortly hit one in six) families is on food stamps (up from one in ten less than five years ago), it is very clear that food security is one of our vulnerable points, and that rising food prices will affect everyone. But for the world’s most vulnerable, this is a disaster.

If 2008 is any measure, it may be a disaster for a new group of victims – those of globalization. What we saw in 2008 was that while the majority of the starving were stilll the traditional poorest people in the world – the landless or barely landed small farmers in rural districts, who lacked the land base to grow enough food to feed themselves, there was a newly emergent group of hungry. These are people who left their inadequate pieces of land to follow the jobs to the cities, and now found themselves both unable to afford food, and also unable to grow it.

The raging food riots in Tunisia are one logical outcome of rising food prices and the inability of young people to get work and buy food. We should expect more food riots – in 2008, the Egyptian government had to set its army to baking bread for its hungry people, and governments all over the world trembled because hungry people are angry people. World political stability depends on food stability – and climate and energy issues are likely to make food stability a thing of the past.

It may well also be a disaster for more of us than we think, with impacts most of us in the Global North never suspected. In 2008, I wrote an article arguing that much of the economic growth that had trickled back into the developed world over the last decade had been subsidized by profit increases for corporations made in the global south. The emergent middle class in places like China and india were feeding the world’s economic growth. The folks who had new disposable income may not have consumed as much as Americans, but their cell phones and cokes and increased meat consumption and the books and paper they bought for their kids to go to school were an essential part of economic growth. I wrote:

Now it might be worth asking – where are those 175 million new starving people coming from? Before they were starving, who were they? And the answer would be that many of them were the people who left their farms in China and Vietnam and Indonesia and a host of other places to go live in the slums of various cities and work there. They were the people who were just getting by – the ones who sent a daughter to the factories and who did day labor in construction building up the economies. They lived quite close to the edge, and then, they crossed the edge when food prices began to rise. Now these were the lowest level new industrial workers – they weren’t buying cell phones, but they might have bought a few things that they wouldn’t have when they needed every penny for rice or bread – they sent their children, even their daughters to school, and bought clothes and pencils, they might save up for a radio for the family, and all these things, over millions of people, added up. And they produced more than they were paid for the economy as a whole – their work was more valuable than their salaries could account for, as is the way of things. But now they aren’t buying those things – their kids are out of school, there is no money for radios or batteries, and there’s no food – so they are working less, getting sick more, contributing less to the industrial economy, unable to make money selling things to the other people in their neighborhoods, because their neighbors have no extra money for anything either. Not only are they starving, but they’ve stopped adding money into the economy – and stopped spending it on anything but food.

Meanwhile, the next tier up in income were the people who had a little more than just enough – enough and a bit to send back home to their families, to get a cell phone and some jeans and buy meat a bit more often. These people worked pretty regularly at the new jobs – in factories, in building, in making the new globalized economy. And they spent money too and moved it around within their communities, and back into the global economy – the spent a little money buying coca cola, which came back this way. Now they aren’t starving yet, but the rising cost of food has pushed them too – now the coca cola and the meat are gone, except for the holidays, and there won’t be any more jeans. Because now the money goes for food – they have food to eat, but not enough for those other things. And so the money increasingly doesn’t move around that much – because the farmer who grew the rice they are buying spent most of his money buying fertilizer. And so the money is headed mostly back to a few small companies – without a lot of stops around the neighborhood.

It is easy not to pay attention to such small things, and small people – after all, they aren’t spending much money, and their wages aren’t much. But they produce the stuff we need, they move money around – and hundreds of millions and billions of these small personal economies add up to quite a lot. And the money that they made went places – it took trips. The money a poor Chinese worker generated in productivity went a bit into his pocket – and some of that went back to American corporations that made things. And a lot of what he generated went into companies that invested in other things that fed our economy. And some of it went to the Chinese government that used it to buy up dollars and other things that seemed to have some value. It is perhaps not totally surprising, then, that as the Chinese worker got functionally poorer because of rising food prices, there was less money to pour back – times some millions.

And so it goes, down the ladder. The new workers, and the lubrication they provide in the global money system are being systematically impoverished, and what money they do spend goes to an increasingly narrow band of companies – instead of spreading the money around, money goes for very basic things – mostly food, and mostly basic foods. And the farmers who make the basic foods mostly send that money back to a very small number of companies – the ones that produce oil and the ones that produce fertilizer – many of them located in the same countries and places.

What is reducing the amount of productive work accomplished, and moving the money increasingly only into a few pockets? It is the high price of food.

Yesterday, Nicole Foss at The Automatic Earth wrote a piece arguing that the unified enthusiastic assertion that we are in a recovery should make us all nervous – that markets are never more certain than right before they reach a crisis point:

We are now seeing a firmly established received wisdom that recovery is underway and that the Fed has saved the day with quantitative easing. Bullishness is at an extreme. The psychology of the market is the opposite of what it was at the March 2009 bottom. This represents a large red flag, as sentiment extremes are major indicators of approaching trend changes. It takes time for a position to be widely accepted and internalized, and the greater the extent to which that has happened, the closer one is to a reversal. I think we are close to one, but it really doesn’t matter whether the top is this week, next month, or even next year. It is coming soon enough that evasive action is thoroughly warranted now.

Is she right? I don’t know, but I am wary of the euphoric claims that the economic crisis is over – this seems as unlikely as the claim that the food crisis was over. These things have a way of coming back, as we are seeing. Moreover, I would suggest that the very drivers of some measure of recovery are about to be torpedoed. It is hard to grow the economy when it turns out that an increasing number of people have to put all their resources back into simply getting enough to eat. We have entered the territory of the vicious circle, in which the complex intersections between food, energy, economy and environment begin to become horribly clear through repetition.

Sharon

Comments

  1. #1 Jonathan Maxson
    January 12, 2011

    You and readers with an interest in this issue may also be interested in the analysis I published this week: The Predictable and Preventable Food Catastrophe of 2011-2012

  2. #2 Tree
    January 12, 2011
  3. #3 Richard Simons
    January 12, 2011

    I think the situation is likely to become considerably worse as the stem rust strain UG99 spreads to the two major wheat producers, India and China. There, it could reduce wheat yields by 80%. It is hard to imagine what the consequences could be, especially as it seems there have been difficulties in breeding resistant varieties.

  4. #4 Stephen B.
    January 12, 2011

    Indeed this is a vicious circle. One hopes that The Fed has at least engineered a softer landing that what was to become, but I doubt it.

    I don’t know if anybody here caught Stuart Staniford’s recent blog entry highlighting the steady, amazing, and just plain disgusting rise in unemployment for 16-24 yo males. http://earlywarn.blogspot.com/2011/01/employment-for-young-american-men.html

    This huge pool of young men is sitting there and being wasted…..people in their prime of life and energy, and we’ve created an economy in this society that has no use for them. Even IF they spend upwards of $200K on higher education, there are few jobs for them. There is no manufacturing anymore and there can be only so many lawyers, web designers, stock analysts, and web journalists and bloggers.

    Now most of us are pretty familiar with the 50 Million Farmers thesis, and it gets me to wondering, just how this society and economy is going to go from millions upon millions of un and under-employed young people, to utilizing them once again for something useful such as growing food?

    Right now it seems we have an economic and governmental system that taxes the dwindling number of office cubicle and other white collar workers in this country at fairly high rates, and then spreads that $$, at least somewhat, towards the legions of others scrabbling along the bottom, sitting home, maybe playing with a video game. It’s a really gross form of wealth redistribution going on here. It would be far better if we could get real employment doing something useful back to the lower and lower middle class young people of this country. But for now we’re stuck. I guess spreading at least a paltry amount of money to those with nothing to do somewhat delays the next revolution and keeps the Powers That Be in power, longer.

    Of course this system we have also takes large numbers of young men and leaves them nothing to do but take up arms in the Middle East on behalf of The Powers That Be too. It’s just that even that job doesn’t utilize enough idle young men and women as it used to.

    Personally I think we’re here partly because of the fact that most in the US remain aghast at the idea of hands-on, manual work, especially farming as Sharon’s last piece on the Cambodian family in California hit upon.

    We have an idea of where we need to go. How do we help those around us get there?

  5. #5 Prometheus
    January 12, 2011

    Jonathan Maxson@#1

    Are you sure the Russians are feeding wheat to their cattle or did the price of their compound just go up because the barley, sorghum and soy crops were also hit by the drought?

    I can’t think of any compound that uses wheat that is not flour mill or bakery waste (and even that is pig feed). By the time something that rich worked its way through rumen, reticulum, omasum, and abomasum the herds would be dying of thirst and falling over from induced Dysentery.

    I suppose anything is possible but it would be a lot cheaper to buy yellow dent and milo from us than to use wheat as feed.

  6. #6 Liz
    January 12, 2011

    Your description of Chinese workers’ consumption being squeezed by rising food costs actually sounds a lot like what’s happening in the US with rising healthcare costs – many people who used to be able to afford to buy clothing, electronics, and restaurant meals regularly can no longer do so because their healthcare expenses keep growing. Job loss is probably a bigger factor these days, but even before the current recession healthcare costs were eating up a growing share of GDP.

    I hope China doesn’t experience a sharp rise in healthcare costs along with food prices – although with an aging population, that’s what it might be facing.

  7. #7 Greenpa
    January 12, 2011

    All of this is true, of course, but if it was mentioned above, I missed the role the enormously increased speculation in ag “futures” now plays. Of all the factors involved, this is the only one that could actually be rather quickly legislated out of existence. All that would be necessary would be to return to past practices; where only people who actually grew, stored, transported, or used ag products were able to participate in the futures markets.

    Now, a great proportion of futures are owned, bought and sold, by people who never intend to actually take possession of a physical commodity; they’re only in it for the profits in trading paper.

    It serves no one but the speculators. They claim their participation “provides needed liquidity” that makes the markets work better- but in fact, that’s just a big fat lie. The futures markets worked just fine before speculators were allowed in.

    What all that extra “liquidity” does is push prices steadily up. And when some speculator takes his profits? Who pays? Somebody does; and the answer is- the end user. The ones who need to eat.

    I think the only word that comes close, for me, to describing the removal of pennies from the pockets of the hungry, to fatten already bloated Wall Street types is – obscene.

  8. #8 dewey
    January 12, 2011

    I was wondering the same thing as Greenpa – how common were these wild within-year swings in food price before the super-rich accumulated so much money that they couldn’t find enough credit-default swaps to gamble on and started gambling on commodities? It’s not likely to be a normal seasonal phenomenon, since the peak can come at any time of year.

  9. #9 sealander
    January 12, 2011

    In addition to increasing prices, I’ve heard reports of shortages – cabbage in South Korea, where it is eaten daily by most people in the form of kimchi, onions in India – I think Pakistan may have halted exports to India to ensure there are enough for their own citizens, and chilli peppers in Indonesia – the government is recommending people grow their own. None of these reports have indicated exactly what is behind these shortages, though.

  10. #10 Jonathan Maxson
    January 12, 2011

    @Prometheus #5: That’s a great question. I’m going from Lester Brown’s teleconference and transcript. He mentioned Russia, the Ukraine, and Kazakhstan taking hits on wheat, barley, and hay. He explained that there is no international trade in hay because it is so bulky. Here are Brown’s words, per my post: “With less grass for grazing and less hay to carry Russia‚Äôs 21 million cattle through the long winter, farmers will have to feed more grain. In late July, Moscow released 3 million tons of grain from government stocks for use by livestock producers and millers. Supplementing hay with grain in cattle rations is costly, but the alternative is to reduce herd size by slaughtering livestock. This would, however, lead to higher milk and meat prices.”

    @Greenpa and Dewey on speculation: absolutely an issue. I cite an excellent article on this in the 4th item in my post. But Sharon’s analysis is right on the money. It’s the way all these factors are converging that makes this such a “wicked” problem.

  11. #11 Stephen B.
    January 12, 2011

    Jonathan Maxson,

    A small point, but there is international trade with some hay. I know of some horse farms in the Boston, MA area that have bought hay from New Brunswick, Canada. I get what you’re saying that there is no super long distance trade in hay, but I think moving hay even 500 miles is stupid. Still, it some times still moves that far.

    I wouldn’t suspect 500 mile hay is going to happen all that much in the future.

  12. #12 Sharon Astyk
    January 13, 2011

    Greenpa, I did mention speculation very briefly in the article, and I agree with you. The thing is, I think that the speculation is simply a logical result of the fact that energy and food supplies are going to be tight. Like you, I’d like to see playing economic party games with hunger made illegal, but I find it unlikely that it will be, simply because what else do you bet on in an unstable market? I’d sure as heck bet on food to be useful in the future ;-P.

    I don’t see the speculation as separate from supply issues and the economic cycles that come with them – food is going to be an attractive investment for a long time. And I admit, this is the kind of thing that makes me wish Jews believed in hell, so I could consign the people who make food unaffordable to the poor to eternal torment.

    Sharon

  13. #13 hugh owens
    January 13, 2011

    Nice timely article, Sharon. I have made some of your points in some of my recent blogs. I have a few additional thoughts. Most of our food production of course is produced by cheap available diesel. Absent that, food wont be produced, starvation becomes a risk. Remember the French Revolution. Economic inequality was a growing problem in 18th century France but it wasn’t until bread became in short supply that the masses rose up. Food riots are VERY dangerous. When folks have nothing left to lose knowing they are dying………………

  14. #14 Michael L
    January 14, 2011

    Interesting that you mentioned the connection between food and the riots in Tunisia. I listened to a commentary on the unrest on (I think) the BBC and there was no mention of food but when I did a little Googling I see you are correct.

    My wife met her first economic refugees from the USA yesterday. An Australian woman and her US husband. Both lost their jobs and so they came to Australia but he wants to go back. (Something about the tiny shelves in Australian supermarkets in comparison to the USA apparently. Seems everything is bigger and better in the USA.) Anyway, there does not need to be any doubt about the direction in which the USA economy is heading. I suppose you have seen the graph here?:

    http://www.swarmusa.com/vb4/content.php/282-THE-Most-Important-Chart-of-the-CENTURY

    It really says it all. After looking at that there is no need for further discussion. It is simply game over. Any further “stimulus” is actually killing the USA. (Fiat currencies mean we will all end up there eventually.)

  15. #15 dewey
    January 14, 2011

    Michael L, I don’t want to be an excessive bummer for you, but I wouldn’t be inclined to see Australia as a better bet than the U.S. You are getting hit harder and worse by climate change, your soils are older and water supply tighter, and you’re just as fossil-fuel-dependent as we are. I would not be surprised if you ended up poorer than we are in a generation or two. (The advantage you do have is that you seem still to have a culture where many people pride themselves on knowing how to “make do” or at least thinking they do, whereas most Americans feel nothing but outrage at any suggestion that they might have to tighten the belt.)

  16. #16 Michael Lardelli
    January 15, 2011

    Hi Dewey, I never said that Australia was a better bet than the USA (and I did say we will all end up in the same place eventually) I just see it as a little odd that there is still discussion from people thinking that the USA can pull itself out of this mess. Yes the USA is blessed with better soils than Australia and with more water. We are also seeing the Chinese coming in here and buying up our farms. Heaven help us when we run short of food and try to divert the produce from those to our own people. It would be interesting to see someone do a marginal productivity of debt analysis for Australia.

  17. #17 dewey
    January 15, 2011

    I wonder how enforceable all those land-grab contracts will be a few decades past-peak? The closer the exploited peripheral countries are to the imperial center, and the weaker they are, the more likely that military force will be used. I can’t quite see China trying a land invasion and occupation of the U.S., although they might start invading African countries that decide they’d rather feed their own people than China’s. If we just expropriate the land and tell them to go to hell, what can they do?

  18. #18 Greenpa
    January 16, 2011

    And the consequences are here. Interesting to see the WaPo spin on it.

    http://www.washingtonpost.com/wp-dyn/content/article/2011/01/15/AR2011011503157.html

    The only thing here I found surprising was the statement that agricultural equipment is being stolen in Britain, and sold on the continent. Smuggling is an ancient and profitable enterprise for those on both sides of the Channel, but smuggling tractors seems like it would be just a little harder to sneak than smuggling brandy.

    Another reminder for all those contemplating growing their own food; in any form: you really must give serious thought to security; before you spend a year, or 3, growing anything, animal or vegetable.

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