Speculators make food too costly for the poor

Aekapol Chongvilaivan, Straits Times 24 Sep 08;

THE figures are enough to make anyone lose his appetite. The world food price index has increased 86 per cent since 2000, according to the International Monetary Fund. The average world maize price has climbed 25.1 per cent above last year's level, wheat by 88.5 per cent and soya bean by 59.6 per cent.

The United Nations' Food and Agriculture Organisation (FAO) estimates that 854 million people worldwide are suffering from hunger. Economic principles would seem to suggest that it is a case of too many mouths chasing too little food. 'It is estimated that probably 100 million more people have fallen into extreme poverty,' says Mr Olivier De Schutter, the UN Special Investigator on the Right To Food.

Sharply soaring oil prices, growing populations in some large developing countries such as China and India, and global warming and climate change have also contributed to the crisis.

But according to the FAO, the world's food supply is at least 1.5 times the current level of demand, and the growth rate of world food production has been persistently higher than global population growth over the past few decades.

So what is pushing 100 million more people back into hunger, malnutrition and poverty?

The answer is simple: The poor cannot afford the food on the shelves. Skyrocketing food prices have inflicted misery on the two billion people worldwide who earn less than US$2 (S$2.80) a day. As it is, they already spend more than 70 per cent of their income on their daily food bill.

It has been suggested that the real culprit for food price inflation may be the energy security policies adopted by large food-producing countries. Political concerns about energy security, it has been said, have triggered an international biofuel craze, inducing farmers around the world to stop growing food in favour of agrofuel crops.

At first glance, the figures seem to bear this out. For example, a third of the maize grown in the United States goes to ethanol production and half of the European Union's vegetable oil goes to biodiesel. The Thai government recently introduced an energy security programme to promote palm oil production, make gasohol available at petrol stations and require diesel to be mingled with biodiesel.

But a closer look would reveal that the impact of biofuels is not that straightforward. There is no evidence that world food production - according to the World Bank's World Development Indicators - is declining. That stands to reason, given the expansion of industrial food production in developing countries and the rapid advancement of agricultural technology.

The corporate monopolisation of the world food market holds the key to the real impact of the expansion of biofuel production. The world commodity trade system has hitherto been dominated by three companies: Archer Daniels Midland, Bunge and Cargill. The dramatic growth of the biofuel industry has entailed excessive hoarding and pre-emptive buying, thus driving cheap food from markets.

The biofuel boom has also lured investors and speculators into commodity futures markets as a hedge against the fluctuation of commodity prices. A recent report by the World Bank indicates that the biofuel stampede accounts for 75 per cent of the increase in world food prices.

The global food crisis calls for a new approach to energy security policy, one that would prevent aggressive speculation in the world food market and promote competition in the global food system. What leaders need to do now is not to increase the amount of food - there is enough - but make it affordable for everyone.

The writer is a fellow at the Institute of Southeast Asian Studies.