High food prices: Cause and Result
Bread is a classic symbol of revolution. From the French revolution in 1789, to the ousting of Ben Ali in Tunisia in January 2011, it endures as totem of the high costs of food and of government’s inability to provide basic services to their people. Dramatic weather events have destroyed crops around the world, pushing prices up. In addition, speculation in the commodity market has amplifed this effect. Recently, it has been suggested that high food prices have been one cause of instability in the Middle East and North Africa region.
There are many causes for price increases
The United States Department of Agriculture (USDA) recently released a report that said global output in several key commodities would fall while demand across a number of sectors would rise. The simple and relatively uncontroversial concept of supply and demand would dictate the food prices would increase. Following this announcement, prices did indeed rise. Corn is up 94 percent, soybeans 51 percent, and wheat 80 percent. Current prices are so high that they exceeded a previous record set in 2008, and the United Nations's Food and Agricultural Organization’s (FAO) Food Price Index is at an all time high.
Specifically, there are a number of causes for this dramatic leap. The USDA cited supply side problems, such as floods of Australia, poor weather in South America, and extremely dry weather in Russia last year. In addition, they expect demand to increase with ethanol producers using more corn. In a bigger picture, rising global standards of living are leading to more demand for meat. This leads to raising more livestock, which consume a large amount of grain and adds to more stress on already tight supplies.
Another cause of high costs — commodity speculation — has less to do with the actual supply and demand, and more to do with fundamental shortcomings of the systems currently in place. This cause is much more controversial, with some arguing that it plays no role at all. Many others however believe that over activity and manipulation in the markets is artificially pushing prices up, adding to the normal supply and demand process.
Throughout the 1990’s the restrictions on commodity market speculation were slowly and steadily rolled back. Banks, hedge funds, and investors took the traditional futures contracts and turned them into derivates, bought and sold and resold to investors who are far from the traditional agriculture sector. One fund manager, Mike Masters testified before the United States Senate that over 70 percent of the trades in the market are now speculation. He points out that this amplifies the traditional market mechanisms, turning what would be a normal dollar increase in price into a 3-dollar spike.
The impacts of high food prices
Rising commodity prices will be felt by everyone on the planet. For those of us in the developed world, this might mean a marked increase in prices paid at the supermarket. A troubling concern, but not one that will often have life and death choices. Many in the developing world however are not so lucky. Price increases could lead to days without food and long hungry nights. In the developed world, there is often a social safety net that mitigates price increases. In the developing world however, no such protections exist. Precious family resources are stretched thin, and paying extra for food trades off with spending on education and health care.
In international law, the right to food has been long recognized. For example, it exists in Article 24 of the convention on the Rights of the Child, Articles 25 and 28 of Convention on the Rights of Persons with Disabilities, Article 12 of Convention on the Elimination of All Forms of Discrimination against Women, Article 25 of the Universal Declaration of Human Rights, and Article 11 of the International Covenant on Economic, Social and Cultural Rights. In addition, the United Nations has a Special Rapporteur on the Right to Food. Mr. Olivier De Schutter reports to the Human Rights Council and to the General Assembly on the implementation and works to make sure the right is realized by all people. Clearly, when price increases make food unaffordable this right is being violated.
Finally, there can be little denying that high food prices have an undermining effect on governments. This should not overshadow the obvious lack of democracy and restrictions put on fundamental civil and political rights. World Bank President Robert Zoellick described it as an "aggravating factor" behind the recent wave of change sweeping the Middle East.
Conclusion
A recent United Nations report estimates that food prices could go up by 40 percent over the next decade. This overshadows Mr. Masters’s testimony to the U.S. Senate when he described the end game for commodity price speculation, “It will end badly as all Wall Street fads do. It's going to blow up." Supply could be upped with inducements made to cultivate more land in a sustainable fashion, such as in Africa. Better producing strains of crops can be developed, such as during India’s famous Green Revolution. Demand could be reduced if countries could also work to reduce the amount of food supplies turned into biofueles. Tamping speculation could be reduced, for example, the Commodity Futures Trading Commission has suggested that regulators limit the volume of futures contracts that can be traded. In the end, this might mean some losses for investors, but until prices are controlled, it could mean hunger for people around the world and more civil unrest.
