Bill Totten's Weblog

Tuesday, April 22, 2008

How the rich starved the world

World cereal stocks are at an all-time low, food-aid programmes have run out of money and millions face starvation. Yet wealthy countries persist with plans to use grain for petrol.

by Mark Lynas

New Statesman (April 17 2008)

The irony is extraordinary. At a time when world leaders are expressing grave concern about diminishing food stocks and a coming global food crisis, our government brings into force measures to increase the use of biofuels - a policy that will further increase food prices, and further worsen the plight of the world's poor.

What biofuels do is undeniable: they take food out of the mouths of starving people and divert them to be burned as fuel in the car engines of the world's rich consumers. This is, in the words of the United Nations special rapporteur on the right to food, Jean Ziegler, nothing less than a "crime against humanity". It is a crime the UK government seems determined to play its part in abetting. The Renewable Transport Fuel Obligation (RTFO), introduced on 15 April, mandates petrol retailers to mix 2.5 per cent biofuels into fuel sold to motorists. This will rise to 5.75 per cent by 2010, in line with European Union policy.

The message could not have been clearer if the Prime Minister, Gordon Brown, had personally put a torch to a pyre of corn and rice in Parliament Square: even as you take to the streets to protest your empty bellies and hungry children, we will burn your food in our cars. The UK is not uniquely implicated in this scandal: the EU, the United States, India, Brazil and China all have targets to increase biofuels use. But a look at the raw data confirms today's dire situation. According to the World Bank, global maize production increased by 51 million tonnes between 2004 and 2007. During that time, biofuels use in the US alone (mostly ethanol) rose by fifty million tonnes, soaking up almost the entire global increase.

Next year, the use of US corn for ethanol is forecast to rise to 114 million tonnes - nearly a third of the whole projected US crop. American cars now burn enough corn to cover all the import needs of the 82 nations classed by the UN's Food and Agriculture Organisation (FAO) as "low-income food-deficit countries". There could scarcely be a better way to starve the poor.

The threat posed by biofuels affects all of us. Global grain stockpiles - on which all of humanity depends - are now perilously depleted. Cereal stocks are at their lowest level for 25 years, according to the FAO. The world has consumed more grain than it has produced for seven of the past eight years, and supplies, at roughly only 54 days of consumption, are the lowest on record.

The president of the World Bank, Robert Zoellick, has already warned that 100 million people could be pushed deeper into poverty because of food price rises caused directly by this imbalance between supply and demand. Even consumers in rich countries are suffering. We now pay higher prices for our food in order to subsidise the biofuels industry, thanks to measures such as the renewable fuels directive.

This is not just a short-term price blip, but the beginnings of a major structural change in the world food market. Population pressure - still something of a taboo subject - is also certainly playing a part. With the world population growing by 78 million a year, and expected to reach nine billion by the middle of the century, there are simply many more mouths to feed.

In addition, rapid economic growth in India and China has created tens of millions of new middle-class consumers, all demanding western-style diets high in meat and dairy products, thereby vastly increasing the quantity of grain required for livestock production.

Weather plays a major role, too: the FAO's latest food situation brief reports that, in 2007, "unfavourable climatic conditions devastated crops in Australia and reduced harvests in many other countries, particularly in Europe", while Southern Africa and the western United States have been hit hard by severe drought. Rising oil prices also increase the cost of food, as fossil fuels are important throughout the agricultural process, from tractor diesel to fertiliser production.


The most important structural change, however, is the increasing interlinking of world energy and food markets. Once, food was just for people. Now rising demand for transport fuel - particularly in rich countries - is sucking supply away from the world food market and increasing the upward pressure on prices. In the words of Josette Sheeran, executive director of the UN World Food Programme (WFP): "We are seeing food in many places in the world priced at fuel levels", with increasing quantities of food "being bought by energy markets" for biofuels.

Rising oil prices feed back into the process. With food and fuel markets intertwined, increases in the price of oil are shadowed by increases in the price of grain. The real-world result from this structural shift may be that hundreds of thousands of people starve in the next few years - unless policies promoting biofuels are urgently reversed.

This is not to suggest that government targets on biofuels are driven by some kind of malicious desire to starve the world's poor. Indeed, both Brown and his Chancellor, Alistair Darling, have expressed concern about the food supply crisis and the role of biofuels in causing it. But for these two political leaders to voice their concerns while allowing the increased use of biofuels in the UK to be pushed forward - all in the same week - is nothing short of bizarre.

As Oxfam's Robert Bailey puts it: "This inconsistency at the highest levels simply beggars belief". The aid agency calculates that the RTFO represents a GBP 500 million annual subsidy from motorists and taxpayers to the biofuels industry - more than double the amount the WFP is urgently seeking from donor countries to try to mitigate the impact of food price rises on the world's poor.

The EU, meanwhile, persists in the erroneous belief that biofuels can help reduce greenhouse-gas emissions. The main reason for its speedy introduction of the replacement fuel initiative was as a sop to motor manufacturers who were lobbying hard against proposed higher fuel economy standards. With biofuels, the EU hoped, it could cave in to the car industry while still getting reduction in emissions.

Yet recent research suggests otherwise: two major studies published in Science magazine in February showed clearly that once the agricultural displacement effects of the new fuels on rainforests, peatlands and grasslands are taken into account, emissions are many times worse than from conventional mineral petrol. In other words, it would be better for the climate if we just went back to fossil fuels. Biofuels are not a "necessary but painful" way of saving the climate; they are a calamitous mistake by almost every criterion, whether social, ethical or environmental.

Reversing the damage

The industry claims that "second-generation" biofuels, using by-products such as corn stalks and woodchip as a feedstock, will be able to redress the balance. But if this technological advance is achieved (and that is by no means certain) it could usher in an even worse scenario: the annihilation of the world's forests. If all plant life was seen as potentially convertible for transport fuel, there would be nothing to stop what was left of the planet's biosphere from being strip-mined to keep rich motorists on the road. There is no simple solution. Much of the increased biofuel demand comes from the US, where Democratic and Republican politicians alike have talked themselves into a dead-end search for "energy security" - with US-grown corn top of the list.

But the UK and the EU can reverse some of the damage by immediately ditching their own biofuels policies and providing vital aid funding, principally through the WFP, to help prevent widespread starvation in the short term. Politicians need to realise that there is no such thing as "sustainable biofuels", either now or in the future. As for investors, they need to realise that pouring money into biofuels is a bad bet: subsidies will be quickly withdrawn when policymakers face up to the reality of their ghastly error.

In the meantime, millions face starvation and death from increasing hunger and malnutrition. There is no time to lose.

2008: the year of food riots

Egypt - Thousands of demonstrators in Mahalla el-Kobra loot shops and throw bricks at police during protests at rising food prices and low salaries, as part of nationwide strike

Haiti - At least four people killed in the southern city of Les Cayes after food prices rise fifty per cent in the past year

Côte d’Ivoire - Police injure more than ten protesters as several hundred demonstrators demand government action to curb food prices

Cameroon - Riots last four days and result in at least forty deaths. Unrest is due to high fuel and food prices. Worst riots in country for fifteen years

Mozambique - At least four people killed and 100 injured following fuel price rises

Senegal - Violent demonstrations in Dakar as prices of rice, milk and oil soar. Senegal imports almost all its food

Yemen - Five days of rioting and a hundred arrests after the price of wheat doubled over two months. Protesters set up roadblocks in Sana’a and Aden

... and in Mauritania, Bolivia, Indonesia, Mexico, India, Burkina Faso, and Uzbekistan

Research by Jax Jacobsen

Labour should have the courage to abandon biofuels at once

New Statesman Leader (April 17 2008)

For once, the preoccupations of the rich world coincide with those of the poor world. The relentless rise in the price of basic foodstuffs, which in recent weeks has been the trigger for riots in a number of developing countries, has started to be felt by shoppers in the more affluent western world. To some of us it means only a bit of belt-tightening; to Britain's poorer families it means a careful reworking of priorities; for some, it may mean impaired health as they cut back on items such as milk, 5 pence more for a pint than this time last year. But for the very poorest people in the developing world, the price of staple foods may be quite simply a matter of life or death, particularly when the UN's World Food Programme is unable to cover the increased cost of food aid to the most needy countries from its existing budget.

Such growing anxiety about global food stocks was the least propitious moment imaginable for the roll-out of phase one of the government's replacement fuels strategy. This, in short, requires that all petrol sold on the forecourt should contain a certain percentage of biofuels (increasing over time). But one of the main factors cited in the rising cost of basic foods is the diversion of crops to make ethanol for biofuels.

According to the IMF, ethanol production in the United States accounts for at least half the increase in global demand for corn. In other words, from this month, British cars will be burning food that the poor around the world are increasingly unable to afford, a situation that one UN food specialist graphically describes as "a crime against humanity".

As with the abolition of the 10p income tax band, it has taken implementation of a badly thought-through policy to lever out the very strong arguments against it. Once a useful green soundbite for Labour, biofuels replacement now turns out to be a scheme that enjoys the support of nobody, not even the Prime Minister's own team. The best his transport minister can say is that we should monitor it carefully, while his Chancellor has called for an urgent review of the policy and is reported to be anxious to convince fellow G7 members of its folly.

Promoting biofuels was in part a sop to the car-makers who lobbied hard against proposed higher fuel economy standards. Yet it would not require great bravery on the part of the government to abandon the biofuels programme and press for those higher fuel economy standards instead (and put its weight behind convincing our European partners to do the same).

Biofuels advocates argue that greener technologies which would not jeopardise food security are just around the corner. But as Mark Lynas points out [above], once any kind of biomatter can be used for fuel, how long would the world's forests remain? Already the Amazon rainforests are being razed to cultivate soya crops for fuel.

There are no quick fixes. The imperative remains, as ever, to reduce car use and petrol dependency drastically. Biofuels cannot be the solution. A swift acknowledgement of the error of the fuel replacement strategy would give the British government the authority to argue this within Europe and on a wider international stage.

The food crisis presents an even greater challenge and as riots continue to erupt in the developing world, the urgency is clear. As a priority, rich nations must address the scarcity through greatly increased aid. The spiralling cost of grain has left the aid agencies with inadequate funds to purchase sufficient amounts. They need an immediate injection of cash from rich countries to keep food supplies flowing at planned levels.

But Iain Macwhirter points to a more intractable problem [below]. The giant global financial institutions, which once speculated on dotcoms and property, are now speculating in the same reckless fashion on commodity prices, with dire consequences for the poor.

The World Bank predicts that demand for food will double by 2030 and that there will be shortages. The financial wolves are howling at the door. The priority for the international community has to be to work towards securing food supplies. A good start would be to release for food the vast quantities of grain now being diverted into fuel tanks.

The trading frenzy that sent prices soaring

Why the price of basic foodstuffs rocketed, from London to Haiti

by Iain Macwhirter

New Statesman (April 17 2008)

Four people were killed in food riots in Haiti. From Bolivia to Uzbekistan there have been violent protests against the doubling of food prices. In Italy, mothers are marching against the price of pasta. The World Food Programme has seized up and the World Bank on 13 April forecast that 100 million people face starvation. It should not have come as a surprise.

Conventional explanations for the food crisis range from climate change to dietary change in China, from global overpopulation to the switch of agricultural production to biofuels. These long-term factors are important but they are not the real reasons why food prices have doubled or why India is rationing rice or why British farmers are killing pigs for which they can't afford feedstocks. It's the credit crisis.

This latest food emergency has developed in an incredibly short space of time - essentially over the past eighteen months. The reason for food "shortages" is speculation in commodity futures following the collapse of the financial derivatives markets. Desperate for quick returns, dealers are taking trillions of dollars out of equities and mortgage bonds and ploughing them into food and raw materials. It's called the "commodities super-cycle" on Wall Street, and it is likely to cause starvation on an epic scale.

The rocketing price of wheat, soybeans, sugar, coffee - you name it - is a direct result of debt defaults that have caused financial panic in the west and encouraged investors to seek "stores of value". These range from gold and oil at one end to corn, cocoa and cattle at the other; speculators are even placing bets on water prices.

Just like the boom in house prices, commodity price inflation feeds on itself. The more prices rise, and big profits are made, the more others invest, hoping for big returns. Look at the financial websites: everyone and their mother is piling into commodities. It is the great bull market of the Noughties. The trouble is that if you are one of the 2.8 billion people, almost half the world's population, who live on less than $2 a day, you may pay for these profits with your life.

This speculation doesn't happen on its own, however. Commodities such as gold and oil are favourite "hedges" against falling currencies. But this time all manner of other commodities, such as wheat and rice, have been swept along in the inflationary slipstream.

Investment houses, pension funds, private equity groups and banks are driven by profit not morality, and they invest wherever they can see the biggest return. It is not a conspiracy, but it is a conscious strategy, backed by the central bankers of the west as they try to help Wall Street back on its feet. Put another way, the banks are exporting our debts to the developing world. The collapse of the dollar means that most international commodities are more expensive for poor people to buy. The dollar's decline is a direct result of the low interest rate policy of the US Federal Reserve and the Bank of England, which shockingly cut interest rates on 10 April even as inflation spiralled.

When interest rates are below the rate of inflation, investors have to keep moving their funds from sector to sector in search of higher returns. In the 1990s they piled into internet stocks. When that bubble burst in the 2000 stock-market crash, they shifted into property and complex collateralised debt dealing based on US "sub-prime" mortgages. Now, with the collapse of the property bubble - not just in the US but across the world - investors are on the move again, and the only place left is commodities. It's the third bubble and it's hitting the developing world hard.

There are other reasons for food shortages: the diversion to biofuels because of the depletion of oil reserves, the increasing population, changing eating habits in south-east Asia - all these are putting long-term pressure on agricultural resources. But the efforts of institutions such as the US Federal Reserve to revive the economy on the back of a commodities boom have dramatically speeded up global inflation.

Will it work? Will the new "asset bubble" restore the profits of the banks and revive the US economy? In the short term, possibly yes - but at terrible human cost. In the end, the US may be cutting its own throat. Once speculative prices get out of control, there is no knowing when they will stop. Oil is now more than $100 a barrel. Resource-rich countries such as Russia are suddenly world powers again. Hungry people are desperate people. This might be the bubble to end all bubbles.

Bill Totten


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