Lies and truth about food prices

- John Edmundson

Nobody trying to pay their bills recently could have failed to notice the way basic foods have increased in price. In New Zealand, we’ve suffered massive increases in the price of staple items like bread, milk and other dairy products. Turn on the news and it is immediately obvious that this is a global problem. Food riots and protests from countries as far removed as Haiti and Egypt make it clear that the world is faced with a major food crisis.

Globally, food prices have risen by a staggering eighty three percent in the last three years. Grain costs in particular have skyrocketed. Rice has doubled in price in the past twelve months. Corn has risen in price by seventy percent while wheat and soybeans have similarly hit record prices. These costs have then flowed on to other foods as well. With a large proportion of the world’s cattle being grain fed, dairy and meat prices have also been affected. Globally, the cost of cooking oil has gone up. In New Zealand, with inflation pushing at the Reserve Bank’s upper limit, our rulers’ response has been to tell New Zealand workers not to push for “inflationary” wage increases. In other words, New Zealand workers and the poor should bear the burden of rising food prices.

Biofuels and beef

The causes presented to us are many and varied, and all of them are contributors to the overall problem. The most high profile cause is the rise of biofuel production. Production of biofuels has affected food prices in two ways. Firstly, increased demand for existing food crops such as maize for use as biofuel rather than for human consumption or as animal feed pushes up prices. As long as there is unfulfilled demand for the product, the price is able to continue to rise above its real value. Secondly, when the return from growing crops for biofuel is greater than for growing food crops, farmers operating in a free market environment will switch to growing biofuel crops. Both of these trends have come together, contributing to the rising price of food. In the USA today, between twenty and twenty five percent of corn production is for the purpose of ethanol production. The International Food Policy Research Institute in the US estimates that somewhere between twenty five and thirty three percent of the rise in food prices can be attributed to ethanol production.

The other cause being trumpeted in the media is the increased consumption of meat by the burgeoning middle classes in India and China. Because it takes approximately six or seven kilogrammes of grain to produce one kilogramme of beef, increased meat consumption means the diversion of grain production into animal feed, rather than the feeding of people. Blaming foreigners, especially foreigners in the third world for eating meat is a purely moralistic argument. The reality is that there is enough food produced every year to feed everyone. (1)

Drought and other extreme weather has been a factor in the reduction in food production. Australia, which used to export enough rice to feed twenty million people, has seen its rice exports fall by ninety eight percent, largely due to the six year drought there. The 2007 cyclone in Bangladesh devastated that country¹s rice crop, wiping out $US600 million of rice.

Real cause of price rises

But neither the weather, nor carnivorous Asians are the real cause of the price rises however. The “law” of supply and demand is a product of the capitalist system. Prices only rise in times of scarcity if the economic system is based on profit rather than the meeting of need. The policies which encourage price increases are the policies of the rich elite whose need for profit drive the economy. A major contributor to spiraling food prices is speculation in grain futures in the wake of the crisis in the mortgage sector. Food has become the new gold as investors have looked for new sources of sure profit in the wake of the sub-prime mortgage crisis. On April 27th, The Washington Post reported that “Investors fleeing Wall Street’s mortgage related strife [have] plowed hundreds of millions of dollars into grain futures, driving prices up even more”. Or as World Bank President Robert Zoelick put it, “As financial markets have tumbled, food prices have soared”.

The soaring food prices are not a product of natural phenomena. They are a direct result of an economic system that prioritises the profits of an increasingly small minority over the needs, and increasingly, the health of the vast majority. Rather than whinging about Chinese people eating more meat, or blaming the weather, we should be placing the blame squarely where it belongs, with the capitalist system that puts profit before the needs of the people.

So what does the capitalist system have to say for itself? Phil O’Reilly, chief executive of Business New Zealand, declared that “employers are sympathetic to rising costs faced by workers,” but added that “price increases for companies means they will have less capacity to increase wages.” Meanwhile, in his latest policy statement, Reserve Bank Governor Alan Bollard warned that if workers wage demands “respond to the current short-term price shocks, there is a risk they will simply perpetuate the inflation pressures.” The message, loud and clear, is that workers should accept cuts in their real incomes in order that companies can maintain profits. Any worker greedy enough to ask for a pay increase will be causing inflation!

What should we do? We need to ask ourselves what this system has to offer. During the past few years, while the economy was in a growth phase, workers were told to exercise restraint in order that the growth was not threatened. In periods of reduced or nil growth, workers are told to exercise restraint in order that inflation is managed. Something just doesn¹t seem right in this formula. Workers should not be intimidated by such attacks on their livelihoods. Workers’ pay increases clearly are not the main cause, nor even a major cause of inflation. Problems like the current food crisis, with its accompanying price rises is not the fault of workers and, long term, can not be solved within the capitalist system, which prioritises profit over need. To rid the world of food shortages, we need to rid the world of capitalism. In the mean time, workers should not accept arguments from business for restraint and belt tightening, since they are simply using the food crisis to further attack workers’ living standards.

(1)“More than enough food is produced to feed a healthy global population. Distribution and access to food is a problem ­ many are hungry, while at the same time many over-eat.” “Saving Water: From Field to Fork ­ Curbing Losses and Wastage in the Food Chain, “Stockholm International Water Institute, Food and Agriculture Organization, International Water Management Institute. (May 14th 2008 )

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