At the mercy of the weather and rapacious speculators, food prices are increasingly volatile. As a result, the issue of food security is more vital than ever.
Nature hasn’t been kind to Asia these past few months. Floods in Pakistan and China, wildfires in Russia and a wide swathe of the continent, spanning from east to west, could well have earned a new moniker: the crescent of desolation. Thousands have died tens of millions have been displaced. Every day, scenes of utter devastation and destitution are beamed to us. From the comfort of our living rooms, it’s nearly impossible to come to grips with the magnitude of these disasters.
Yet, these catastrophes could also have a far more immediate impact on our lives. In all likelihood, they will lead to increases in the prices of certain basic foodstuffs. And there’s worse news to come.
Take Russia, the world’s third biggest wheat producer. A third of its wheat crop has been ravaged by fire. Authorities there have even declared a ban on exports for now. Large parts of Pakistan, from where Mauritius imports most of its rice, are underwater. According to the Food and Agriculture Organization (FAO), 80% of crops have been lost in certain areas, some of which happen to be the most fertile in the country. Coupled with meteorological vagaries in Canada and Australia, these disasters seem destined to result in a rise in food prices.
It all boils down to basic economics: if the supply of a good falls and the demand for it remains constant, its price will go up. With the memories of the 2008 food crisis still fresh in everyone’s minds, this conjuncture comes as especially bad news for countries like Mauritius that are net importers of food. And it doesn’t really matter where we import our food from. “These events will definitely have an impact on Mauritius,” affirms a portfolio manager from a major bank who has been following trends in soft commodities (basic foodstuffs.). He explains that the effect will probably only be felt several months down the line, depending on when the current stocks of wheat and rice run out and the State Trading Corporation (STC) and private food importers have to order new supplies. Yet the extreme weather events in Asia will only exacerbate a phenomenon that has been evident for some time now: the steady rise of food prices. For instance, “Wheat prices have been on the increase for several years,” says the portfolio manager.
Given how much it costs to fill a shopping basket nowadays, it’s doubtful that Mauritians are unaware of this upward trend. According to the International Monetary Fund (IMF), food prices in the developing world have risen by 45% since the end of 2006. It attributes this steep increase to strong demand from emerging economies, rising biofuel production, slow supply adjustment and sluggish policy responses, amongst others.
That’s only the tip of the iceberg though. One factor the IMF conveniently omits to mention is the commoditization of our food, which allows speculators to bet on the prices of certain foodstuffs, thereby disrupting markets and holding consumers in vulnerable countries like Mauritius to ransom. In particular, the use of complex financial products, such as food commodity derivatives, has completely warped the true value of food. “With the liberalization of world trade, even slight price fluctuations can have an impact on small economies,” warns Eric Mangar of the “Movement pour l’Auto suffisance Alimentaire” (Movement for Food Self-Suffi ciency).
In “The Great Hunger Lottery: How banking speculation causes food crises,” the World Development Movement has created an impressive body of evidence showing that “gambling on hunger in financial markets is dangerous, immoral and indefensible.” The report, which caused quite a stir in certain circles and not least amongst those accused of “gambling on hunger”, offers a comprehensive view of just where we’ve gone wrong. It explains that commodity speculation actually dates back to the 19th century when future contracts were devised to “allow farmers to agree a guaranteed price for their next harvest well in advance, giving them greater certainty of income when planting crops.”
The system was thus created to help those who produced and bought food greater visibility and thus security. In the 20th century, however, things began to run amok. To cut a long story short, “contracts started to be bought and sold by financial speculators who had nothing to do with the physical production, processing or retailing of food. This activity began to affect the actual prices of foodstuffs on the daily ‘spot markets’, causing them to become more volatile and to rise and fall more sharply. Speculation rides on the back of underlying changes in supply and demand, amplifying their impact on price.”
As a result of this, the impact of natural phenomena that directly affect the production and, thus, the price of food, such as droughts and floods, is greatly exacerbated by those who’ve made it their job to gamble on these commodities. A knock-on effect of this uncertainty is that famers are finding more difficult to “plan and invest”. Earlier this month, The Guardian reported on an imminent return of “food inflation”, due partly to such dodgy practices. “Old-fashioned supply and demand is still at work, but there are fears that wild rumours and speculation are driving up prices”, the article said. And when prices are high, only the wealthiest nations can afford to snap up precious food supplies.
Early Warning System
In its conclusion, the WDM proposed a slew of measures to better regulate the way people bet on hunger. Its recommendations included helping “producers and purchasers to hedge their risk”, enabling “futures markets to better discover prices” and “freeing up capital for use in genuinely productive investment.” Yet such proposals are likely to meet fierce resistance from the avaricious few who profit so handsomely from the status quo. And, if the economic crisis has taught us anything, it’s that these people wield an inordinate amount of power over policy-makers. In other words, expect more of the same, namely increasingly erratic food prices.
So what can Mauritius do in the face of such perfidy? Well, to begin with Eric Mangar believes we should introduce an early warning system to inform the population of any impending shortages. “People have the right to know”, he asserts. Several African countries have already set up such systems with some success. Wouldn’t such announcements cause panic buying of the threatened staples? “It would initially, but it would also allow people to look for alternatives”, says this advocate of self-sufficiency.
In the long run however, the only durable solution to this conundrum will be to try to lessen our dependency on imported food stuffs. This is as hard as it sounds. Just take a look at some figures contained in the ministry of Agro-industry’s Blueprint for a Sustainable Diversified Agro-Food Strategy: “Our net food requirement is estimated at 690 000 tonnes annually, up to 75% of which is made up of agricultural and food products imports which peaked at some Rs23.4 billion in 2007, indicating a high level of trade dependency.
The food import bill on a net basis has more than doubled during the period 2001/2007, from Rs8.4 billion to Rs21 billion. The major cause is the drastic increase in the import of processed food items (including vegetables) over the short span 2001 to 2006, from around a mere Rs0.2 billion to Rs9 billion, respectively. This trend is expected to continue.” These figures give a glimpse of the arduousness of the task at hand. In the wake of the 2008 food crisis, government set up a Rs1 billion food security fund aimed at improving the country’s food sovereignty. Results have been underwhelming at best. “These things take time. The money’s there but the structures in place, such as the Agricultural and Research Extension Unit (AREU), aren’t up to scratch,” Eric Mangar contends.
The food crisis also had the merit of bringing, however briefly, our eating habits to the fore. Yet as soon as the crisis passed so did any resolutions to change our diet. According to the Central Statistics Office (CSO), the average Mauritian consumed almost 75kg of fl our and 50kg of rice in 2008 even though we import the totality of these staples. One way to make a dent in these numbers is to place greater emphasis on potatoes, of which the country produces around 14 000 tonnes annually.
The impending increases in the price of wheat and rice should encourage us to cement our resolve to lessen our reliance on imported foodstuffs. There’s simply too much at stake to allow unpredictable weather events in distant countries and rapacious speculators free reign over our food supplies.
Courtesy: Nicolas Rainer, L'Express of 27/08/2010.
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