They Bet Your Life, and They Won

The world’s wealthiest speculators set up a casino where the chips were the stomachs of hundreds of millions of innocent people. They gambled on increasing starvation, and won.

Johann Hari writes: How Goldman gambled on starvation. As he describes:

It starts with an apparent mystery. At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn’t afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it “a silent mass murder”, entirely due to “man-made actions.”

…

Most of the explanations we were given at the time have turned out to be false. It didn’t happen because supply fell: the International Grain Council says global production of wheat actually increased during that period, for example. It isn’t because demand grew either: as Professor Jayati Ghosh of the Centre for Economic Studies in New Delhi has shown, demand actually fell by 3 per cent. Other factors – like the rise of biofuels, and the spike in the oil price – made a contribution, but they aren’t enough on their own to explain such a violent shift.
…
… through the 1990s, Goldman Sachs and others lobbied hard and the regulations were abolished. Suddenly, these contracts were turned into “derivatives” that could be bought and sold among traders who had nothing to do with agriculture. A market in “food speculation” was born.

…

Here’s how it happened. In 2006, financial speculators like Goldmans pulled out of the collapsing US real estate market. They reckoned food prices would stay steady or rise while the rest of the economy tanked, so they switched their funds there. Suddenly, the world’s frightened investors stampeded on to this ground.

So while the supply and demand of food stayed pretty much the same, the supply and demand for derivatives based on food massively rose – which meant the all-rolled-into-one price shot up, and the starvation began. The bubble only burst in March 2008 when the situation got so bad in the US that the speculators had to slash their spending to cover their losses back home.

…

As Professor Ghosh points out, some vital crops are not traded on the futures markets, including millet, cassava, and potatoes. Their price rose a little during this period – but only a fraction as much as the ones affected by speculation. Her research shows that speculation was “the main cause” of the rise.

So it has come to this. The world’s wealthiest speculators set up a casino where the chips were the stomachs of hundreds of millions of innocent people. They gambled on increasing starvation, and won. … What does it say about our political and economic system that we can so casually inflict so much pain?

As Hari begins his story:

By now, you probably think your opinion of Goldman Sachs and its swarm of Wall Street allies has rock-bottomed at raw loathing. You’re wrong. There’s more. It turns out that the most destructive of all their recent acts has barely been discussed at all. Here’s the rest. This is the story of how some of the richest people in the world – Goldman, Deutsche Bank, the traders at Merrill Lynch, and more – have caused the starvation of some of the poorest people in the world.

Read the entire article, which explains what happened more clearly and in greater detail: How Goldman gambled on starvation.

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To my regular readers, apologies for being absent lately. We are having a major reorganization at my work, and at the same time, major activity with the farms in Ghana. This may keep me fairly busy for another week or two, but for now the major portion of my work on these projects is done.

 

Global food crisis 2008

Hulpverlening Amerika komt op gang

Relief Americas is under way
(I believe this image is by Patrick Kicken www.kicken.com)

Reports such as these, or pieces of them have been coming in for awhile. Kate Smith and Rob Edwards have done as complete and concise a summary as I have found. I have picked out some key points:

A perfect storm of food scarcity, global warming, rocketing oil prices and the world population explosion is plunging humanity into the biggest crisis of the 21st century by pushing up food prices and spreading hunger and poverty from rural areas into cities.
. . . The increasing scarcity of food is the biggest crisis looming for the world.
. . .
As well as being rural, the profile of the new hungry poor is also urban, which is new. There is food available in the markets and shops – it’s just that these people can’t afford to buy it. This is the new face of hunger.” The food shortages will also affect western industrialised nations.

. . .

(The World Bank) points out that global food prices have risen by 75% since 2000, while wheat prices have increased by 200%. The cost of other staples such as rice and soya bean have also hit record highs, while corn is at its most expensive in 12 years.

The increasing cost of grains is also pushing up the price of meat, poultry, eggs and dairy products. And there is every likelihood prices will continue their relentless rise, according to expert predictions by the UN and developed countries.

High prices have already prompted a string of food protests around the world . . .
. . .
If prices keep rising, more and more people around the globe will be unable to afford the food they need to stay alive, and without help they will become desperate. More food riots will flare up, governments will totter and millions could die.
. . .
The rise in global temperatures caused by pollution is also beginning to disrupt food production in many countries. According to the UN, an area of fertile soil the size of Ukraine is lost every year because of drought, deforestation and climate instability.
. . .
The UN Intergovernmental Panel on Climate Change has predicted that, over the next 100 years, a one-metre rise in sea levels would flood almost a third of the world’s crop-growing land.
. . .
The world’s grain stocks are at their lowest for 30 years . . .
. . .
Another key driver is the soaring cost of oil . . .
. . . oil makes crop fertilisers more expensive . . .
. . . fertiliser prices have risen 150% in the past five years.
. . .
The global drive for a new green fuel to power cars, lorries and planes is worsening world food shortages and threatening to make billions go hungry.
. . .
The biofuels surge makes things worse by adding high demand on top of already high prices and low stocks . . . Ethanol and biodiesel produced in the US and European Union don’t appear to be delivering on green promises either, making them very controversial.
. . .
It’s very hard to imagine how we can see the world growing enough crops to produce renewable energy and at the same time meet the enormous demand for food.
. . .
The idea that you cut down rainforest to actually grow biofuels seems profoundly stupid . . .
. . .
You could feed a person for a whole year from the grain that produces just one tank of fuel for a sports utility vehicle (SUV).

The US grows 60% of the world’s export crop of maize. At present one-sixth of the US grain harvest is going into the tanks of cars. So far the US has no serious programs in place to increase fuel efficiency or invest in public or alternative forms of transportation. And the US is talking about tripling the use of grains for biofuel. This isn’t just a problem for the rest of the world. It will soon be a huge problem for the US with its suburban sprawl. With fuel prices going up, will people be able to afford to get to work? How much will they have to give up eating in order to drive?

At the same time this is happening, the developed countries are still keen to ram trade deals down the throats of the developing world that are highly destructive to the support and development of local agriculture. Growing food locally, and eating food grown locally, wherever people can do this, is the best way to fight back against these global shortages. Most current research indicates this is the healthiest way to eat as well. But when local farmers in the developing world are being undersold at home by heavily subsidized crops from the developed world, it is not possible to support and sustain local agriculture.

Food import surges following “liberalization” of trade are devastating farmers and agricultural production in the developing world.

GENEVA, Mar 7 (IPS) – Food import surges have had devastating consequences for the rural poor and local economies in Africa. Such surges have taken place with alarming frequency in the past decade or two.
. . .
Import surges follow in the wake of liberalisation of trade. Liberalisation brings into play multiple factors that are often beyond the control of importing countries. These include firstly the domestic support and dumping policies of exporting countries. The products in which import surges occur most frequently are also the products which receive the highest subsidies from the EU and the U.S.

Other factors are: currency fluctuations in third countries; dumping of food aid when it is not required; and policy whims of exporting countries, such as destocking exercises which cause surges on the world market.

. . .

In Ghana rice imports increased from 250,000 tonnes in 1998 to 415,150 tonnes in 2003. Domestic rice, which had accounted for 43 percent of the domestic market in 2000, captured only 29 percent of the domestic market in 2003. In all, 66 percent of rice producers recorded negative returns, leading to loss of employment.

Tomato paste imports from the EU increased by a staggering 650 percent from 3,300 tons in 1998 to 24,740 tons in 2003. Farmers lost 40 percent of the share of the domestic market and prices were extremely depressed.
. . .
When Ghana reduced its rice tariffs from 100 to 20 percent as a result of the structural adjustment policies enforced by the World Bank, rice imports doubled.

Poultry imports have surged in Ghana, 300% in Cameroon, and 650% in Cote d’Ivoire in this 21st century.

There are countless more such cases which FAO and others have documented: dairy, maize and sugar in Kenya; rice and vegetable oils in Cameroon; onions and rice in the Philippines; rice and soy in Indonesia; maize, sugar and milk in Malawi; rice, dairy and maize in Tanzania; poultry in Jamaica; oilseeds in India; onions and potatoes in Sri Lanka; tomato paste in Senegal; soy and cotton in Mexico; rice and poultry in the Gambia; rice in Haiti and so forth.
. . .
These cases, documented by the FAO, should lead negotiators to exercise caution in the current Doha talks on the special safeguard mechanism. Import surges are already happening, even before yet another round of liberalisation as is under negotiation in the current Doha Round.

Effective measures should be made available to developing countries if food security and rural livelihoods are to be given priority.

Of recent Doha talks, and Economic Partnership Agreements, EPAs, Ken Ukaoha writes:

Like the Millennium bug, the most dreaded 31st December 2007 deadline ‘fever’ for the conclusion and possible signing of the EPAs has come and gone without the expected casualties.
. . .
. . . thumbs up for the West African negotiators, especially for the ECOWAS Commission.
Credit must essentially be given to the Nigerian government and to the West African civil society that kept mounting irresistible mobilization and pressure on the regional institutions to look towards no other direction but to a development friendly EPA.
. . .
At least, and essentially for our EU colleagues, the lesson may not be forgotten in a moment; and the lesson is that ‘times have changed’. It is no longer a Master-servant (colonial) relationship where the under-dog could always easily be cowed into swallowing hook and sinker all demands and claims that are placed on the table.

Mr. Ukaoha seems optimistic that the EU and ECOWAS have an opportunity to move forward in a fashion that actually is development friendly and mutually beneficial. I hope he may be right. There are huge economic storms brewing, and environmental storms with profound economic effects headed our way.

 

Food versus fuel – How high will prices go? How many will go hungry?

It turns out the food or fuel competition over corn may be a much more serious and immediate problem than anyone realized. Lester R. Brown of the Earth Policy Institute writes:

World May Be Facing Highest Grain Prices in History

Investment in fuel ethanol distilleries has soared since the late-2005 oil price hikes, but data collection in this fast-changing sector has fallen behind. Because of inadequate data collection on the number of new plants under construction, the quantity of grain that will be needed for fuel ethanol distilleries has been vastly understated. Farmers, feeders, food processors, ethanol investors, and grain-importing countries are basing decisions on incomplete data.

The U.S. Department of Agriculture (USDA) projects that distilleries will require only 60 million tons of corn from the 2008 harvest. But here at the Earth Policy Institute (EPI), we estimate that distilleries will need 139 million tons . . . half the 2008 harvest projected by USDA.
. . .
This unprecedented diversion of the world’s leading grain crop to the production of fuel will affect food prices everywhere. As the world corn price rises, so too do those of wheat and rice, both because of consumer substitution among grains and because the crops compete for land. Both corn and wheat futures were already trading at 10-year highs in late 2006.

The U.S. corn crop, accounting for 40 percent of the global harvest and supplying 70 percent of the world’s corn exports, looms large in the world food economy. Annual U.S. corn exports of some 55 million tons account for nearly one fourth of world grain exports. The corn harvest of Iowa alone, which edges out Illinois as the leading producer, exceeds the entire grain harvest of Canada. Substantially reducing this export flow would send shock waves throughout the world economy.
. . .
And this soaring demand for corn comes when world grain production has fallen below consumption in six of the last seven years, dropping grain stocks to their lowest level in 34 years.
. . .
The grain it takes to fill a 25-gallon tank with ethanol just once will feed one person for a whole year. (emphasis mine)
. . .
Soaring food prices could lead to urban food riots in scores of lower-income countries that rely on grain imports, such as Indonesia, Egypt, Algeria, Nigeria, and Mexico.

Already, the price of Mexico’s staple food, corn tortillas, has increased 400%.