The World Food Crisis
While the advanced capitalist countries are hit by an acute crisis of
recession and unemployment, the developing world is facing, apart from the
fall-out of this crisis, an acute food crisis. Hunger afflicts the
developing world today with a virulence not seen in decades. World food
prices, not just in nominal but in real terms (relative to manufactured
goods prices), are at a record high. These prices which had shot up in 2008,
came down in 2009, but to a level that was nonetheless higher than in any
year before 2008; they have resumed their upward march thereafter. Food
riots have broken out in several third world countries; and in the Arab
world rocked by popular uprisings, the last straw has been the escalating
food prices.
When the food price upsurge (led by foodgrains) occurred in 2008, George
Bush, the then president of the United States, attributed it to the
improving living standards in India and China. As people become better off,
their diet gets diversified away from the direct consumption of foodgrains
towards animal products like chicken and meat. But since these products
themselves use grains intensively as feed, the direct and indirect
consumption of foodgrains per capita (including also as processed food)
increases with per capita income. Bush’s argument was that the rapid growth
in per capita incomes in India and China has therefore created excess demand
pressures in the world foodgrains market, causing the price rise.
Intriguingly, exactly the same argument is now reportedly advanced by the
deputy chairman of the Indian Planning Commission who attributes the current
food price inflation in India to the growing prosperity of the country.
Nothing could be further from the truth. Per capita foodgrain absorption,
taking direct and indirect absorption together, has declined in India since
the beginning of “liberalisation”, first gently and of late precipitously,
so much so that the level in 2008 itself was lower than in any year after
1953. In China too, there was a sharp decline in per capita total absorption
of foodgrains between 1996 and 2003. It improved thereafter but even by 2005
had not reached the 1996 level; it could not have jumped suddenly in 2008.
Since the population growth in both these countries has come down
substantially, even their absolute absorption in 2008 could not have been
much higher than in say the mid-nineties. It is not the increase in their
demand therefore that can possibly explain the 2008-11 food inflation.
Many have rightly emphasised speculation as an important contributory
factor. But while speculation can no doubt conjure up an inflationary
upsurge out of thin air, it typically operates on an underlying
demand-supply imbalance, accentuating its consequences. We therefore have to
look at the underlying output and demand trends; and here we come across two
startling facts.
TWO STARTLING FACTS
First, per capita cereal output, and also foodgrain output, has declined
significantly in absolute terms for the world as a whole since the eighties.
The average annual per capita cereal output for the quinqennium 1980-85 was
335 kilogrammes; for 2000-05 it was 310 kilogrammes. Since this decline in
output has also meant decline in consumption, hunger in the world has been
on the increase long before the price upsurge of 2008. Or putting it
differently, the world food crisis is a matter not of the last two years but
of the last two decades or more.
The second fact is even more startling. Since per capita income in the world
economy has been going up, and since therefore the demand for foodgrains in
real terms should have been going up, the decline in per capita foodgrain
output should have meant a rise in foodgrain price after the eighties,
relative, say, to the price of manufactured goods. But we find that cereal
price relative to manufactured goods declined by 46 per cent between 1980
and 2000. Indeed, between 1980 and 2008, the year of price upsurge,
foodgrain prices in general fell relative to those of manufactured goods,
even though per capita foodgrain output declined in absolute terms.
How could this happen? The answer is simple: a massive squeeze on the
purchasing power (an “income deflation”) imposed on the working population
all over the world, and especially in the third world, by the universal
pursuit of “neo-liberal” policies. Consider an economy with 100 workers each
earning a wage income of Re 1, where the marketed foodgrain output is 100
kg. If, for simplicity, all wages and only wages are spent on foodgrain,
then its price will be Re 1 per kg. But if the output drops to 50 kg, then
the excess demand at the old income-price configuration can be removed in
either of two ways: either through a rise in price to Rs 2 per kg or through
a reduction in wage income to 50 paise per worker. In other words an income
deflation can play the same role in getting rid of excess demand as a price
inflation.
Neo-liberal policies impose an income deflation not just on workers but on
peasants, petty producers, and agricultural workers in several ways: through
cuts in government expenditure on health, education, and welfare (which
forces them to access more expensive private facilities); through cuts in
input subsidies by the government (which squeezes peasant incomes); through
cuts in government expenditure on rural development (which entails a drying
up of rural purchasing power); through the unemployment generated by imports
out-competing domestic production and by the changing demand-pattern of the
increasingly affluent elite (eg, corporate retail outlets displacing petty
traders); and through increasing corporate and MNC control over the
distribution of peasants’ and petty producers’ output (which reduces their
share in the final price).
INCOME DEFLATION
Income deflation, however, even as it squeezes demand via restricting
purchasing power, also has the effect of restricting output and supply in so
far as it is directed against peasants and petty producers, by reducing the
profitability of their activities. This fact, together with the general
withdrawal of State support and protection from peasant and petty production
sectors (the virtual winding up of agricultural extension activities by the
government in India is a case in point), which also characterises
neo-liberalism, means that the output of this sector atrophies. Income
deflation therefore traps the foodgrain sector of the economy at a low level
of demand and supply.
A consequence of this is that while foodgrain prices can remain low or even
fall relative to those of manufactured goods, even in the midst of declining
per capita output, a sudden shock to the system in the form of an injection
of demand can cause an inflationary spurt; and if speculation builds on it,
the spurt can be quite lethal. Such a shock has been provided to the world
food economy by the sudden diversion of late of substantial amounts of
grains for the production of bio-fuels. In the US alone, which is a large
foodgrain producer, more than a fourth of grain output is currently diverted
to the production of bio-fuels.
This is what underlay the 2008 food price upsurge: with oil prices touching
dizzy heights because of speculation, large-scale diversion of foodgrains
for bio-fuels occurred, which pushed up foodgrain prices. What is more,
because of this bio-fuel link, foodgrain prices now have got hitched to oil
prices in the minds of speculators. When oil prices rise, so do foodgrain
prices, in anticipation of higher diversion of grains to bio-fuels, even
before any actual increase in diversion occurs. Not surprisingly, the very
person who encouraged the diversion of foodgrains for bio-fuel, George Bush,
also started the false explanation for food inflation, in terms of Indians
and Chinese eating more, to divert attention from his own culpability.
An argument is often advanced that to overcome the world food shortage,
agriculture everywhere should be opened up for corporate capital. Even if we
assume for argument’s sake that such a move will augment food output, it
will only compound world hunger by imposing a massive squeeze on the
purchasing power of the peasants and agricultural labourers who will get
uprooted to make way for corporate agriculture. There is no escape therefore
from the fact that overcoming the world food crisis requires a revamping
ofpeasant agriculture, through land reforms, through State support, through
protection from encroachment by corporate and MNC capital, and through
State-funded transfers and welfare expenditures for improving the quality of
rural life. The point is: will neo-liberalism allow it?
- Prabhat Patnaik
http://indiacurrentaffairs.org/the-world-food-crisis-prabhat-patnaik/