Monday, April 28, 2008

The effect of globalization on world food prices

Mauritania, a country that only produces 30 percent of the food necessary to feed it’s people, is feeling attacked on all sides. Sure, it’s not news that global food prices have risen, some say by 45 percent this year alone. But for Mauritanians months away from the nearest harvest, the Washington Post reports, the situation on the ground is worsening. The story noted a sharp increase in the sale of livestock, meaning farmers are selling wealth – and milk producers – to pay for food.

While poor weather has hurt crop production and the U.S. government’s decision to set aside corn for biofuels has adversely affected food prices, the story ponders what role has been played by globalization. First, globalization has tied food markets together, a mostly positive thing in places like West Africa. On the other hand, it has failed because of the mostly one-sided relationship between rich and poor countries.

Drive the money changers out of the Co-op
For instance, in a recent Spiegel article, questions are being raised about the role being played by commodities speculators. Some say financial investors have crashed the party of the once cloistered world of commodities buyers. They’ve begun taking advantage – and hugely profiting – from commodity pricing mechanisms by temporarily purchasing many futures of say, wheat or rice, at very low prices, driving demand (and prices) up, guarantying the seller a profit, but wreaking havoc in the real world. Their victories have brought other investors on board. With more people now betting on staple foods, even the Commodity Trading Commission has begun to recognize its possible effect on world food prices by driving up demand and (possibly) leading to the hoarding of foodstuffs. In their defense, investors claim that they arrived at the market not to artificially drive up prices but because they saw that world food stocks were not going to meet demand, so they merely “bet” that prices would increase.

Subsidies, anyone?
Another sticky issue remains subsidies, where rich countries continue to protect their farmers through expensive and complicated financial assistance schemes while demanding poorer nations pry open their markets to rich-world manufacturers. In the U.S., the tentatively agreed new five-year farm bill – quick caveat: it is by no means complete or ratified – appears to be retaining the $5.2 billion subsidy program intact along with $1.8 billion in tax cuts at a time that U.S. farmers (or U.S. farm companies who earn most subsidies) are milking big profits from higher food prices. In defense of farmers: The amount of their new profits is debatable: labor, equipment and transportation costs have all risen along with the price of crops.

Trade, the Mauritanian example
Trading mechanisms are also fraught with issues. The Mauritanian government recently signed a fishing deal with the European Union, which agreed to reduce catches in Mauritanian waters by more than 40 percent while dropping its royalty fee 10 percent to €86 million per year for five years. In the meantime, few are asking what will happen to the the country’s fishing stocks – especially octopus and coastal shrimp – which are nearly fully exploited, the legacy of poor resource management in the 1990s when 125 boats trolled the waters for fish. The new agreement sets aside 43 licenses for international trawlers.

As local artisan fishing boats have long played David to international Goliaths, they create a tremendous amount of employment – one estimate has local fishers responsible for creating at 30,000 jobs – and provide nearly €80 million in foreign currency.

Thus, the government of Mauritania is in a wicked predicament: earn much needed cash today while gambling against tomorrow’s fish stocks. At least one environmental group claimed the best way to conserve numbers of octopus is to make them only available for the local fleet, which still employs inefficient methods, but will increase demand for the fish, create many new jobs and bring in boatloads of cash for Mauritanians. Some of the fish could be put aside to better feed the population, which is now under food emergency. Of course, all this will mean tearing up the fishing treaty with the European Union and potentially destabilizing the government’s most profitable foreign export, worth 15 percent of its GDP.

With these issues in mind, the European Union agreed to push out the boundary where its boats can fish; set aside monies to develop the Mauritanian fishing industry. One EU commissioner claimed the treaty will continue to look at fish numbers to insure European boats do not continue to over fish; strengthen monitoring of catches, and help police pirate fishing; Finally, EU ship captains will promise to increase the number of Mauritanian locals employed on their boats.

More aid = less trade?
One economist – Ghana’s George Ayittey, argues that for decades foreign donor schemes hard-headily ignored the importance of agriculture even though roughly seven out of ten Africans earn at least some of their living in this sector. If development actors dealt with farmers at all it was to push them to produce cash crops for sale on the international market, an even more questionable action because between 1972 and 2002 most commodity values fell by 70 percent. Ayittey claims that if farmers are free to grow what they want, and they are given support to upgrade transportation and food processing infrastructure, not only will farming become more profitable, but it will lead to development.

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Semen Rendi said...
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