Rising food prices signal global economic failure

Jun 23, 2008

Food prices have risen sharply in recent times. This is happenning globally, signaling a large scale connection to the global economic system. Some have simplistically explained the rise in food prices to be the result of low productivity at the local level. But they have not explained why the sudde

By Sam Okuonzi

Food prices have risen sharply in recent times. This is happenning globally, signaling a large scale connection to the global economic system. Some have simplistically explained the rise in food prices to be the result of low productivity at the local level. But they have not explained why the sudden worldwide rise when neither the demand nor supply of food has sharply changed.

Theories to sudden rise in food prices
Some say it is the disjunction between production and consumption, failure of marketing mechanisms, low household incomes, ineffective use of land, and lack of incentives to farmers. Still others say it is due to the phenomenal economic growth in China and India, where consumption of raw materials, food and energy have increased dramatically. Others say the protection of farmers in Europe and in the US has stifled food production in Africa, where it has become cheaper to buy imported or dumped food from abroad than to produce food locally. Or that large arable lands are now being “wasted” for the production of bio-fuels to stem the global energy crisis.

But none of these explains what is really going on. The International Monetary Fund (IMF) has warned that agricultural prices “will remain high for the foreseeable future”. It is a remarkable understatement. Poor weather, dwindling food stock levels, increasing fuel costs and the use of stable foods (such as wheat, sugar, cassava and maize) to produce bio-fuels and the ban on food exports by some countries may drive food prices even higher.

Answer lies in financial markets
Financial markets, characterised by the abundance of liquidity, relatively low interest rates and high fuel prices will lead to an increase in the speculation of food markets. Some have predicted that in the medium-term there will be panic-buying of food; domestic food-prices will be controlled by governments; and food insecurity, malnutrition and hunger will increase among the poor. But experts predict that high food prices may become an effective stimulus for agricultural productivity if governments provide the necessary infrastructure and policy environment, and if farmers and agricultural inputs are not taxed.

Flaw in global economic system
But rising food and general commodity prices is only one aspect pointing to major flaw in the current global economic system. Other crises (severe shortages) are in energy, water and land. Forest cover is decreasing at an alarming rate and the environment is degrading rapidly. Population explosion is putting pressure on food requirements, leaving some people more hungry and malnourished. Social services are collapsing or being degraded. Income differences are widening among and within countries, fomenting social unrest and terrorism.

It all comes from a false belief that untrammeled free-market globalisation will create economic growth perpetually, increase wealth around the world and reduce poverty, improve equity and reduce conflict. But there are inherent contradictions and flaws in this economic model. It is now clear that this model is unsustainable. Experts predict that unless major policy reforms are made and implemented urgently, the current economic system will tumble from one crisis to another for a few more decades and implode under its own weight. The system is driven by excessive and overvalued capital and liquidity in the west and increasingly in other rich countries in Asia. Market outlets are aggressively opened around the world to service the capital. For markets to serve this enormous and redundant capital on a global scale, economies of poor countries must be stabilised through market reforms, specifically through low-inflation targets.

National economies should be freed from the state so that multinational corporations can expand markets unhindered. These multinationals belong to monolithic ruling interest groups, which control national politics in the west and increasingly in poor countries.

Profit and consumerism drive
The system is further driven by profit and consumerism, and is supposed to be serviced by perpetual and effective (above 5%) economic growth. The system depends on high consumption of natural resources and its ideologies openly question and demonise the concept of sustainability of natural resources, environmental promotion and climate change measures. Where the economy is clearly not doing well, the monolithic interest groups create a perception of a healthy global economy through lies, bribery, manipulation of statistics, misinformation and self-deception. For example, economic growth in Europe and the US has been 2-3% since 1960s. The phenomenal growth in China and India is due to “catch-up development,” but sooner the growth rate will reduce. Politicians and business-people work hand in hand to lower corporate taxes, bail out failed firms, subsidise the private sector with taxpayer’s money, and carry out engineered accounting, a vivid example of which was done by EMRON, which collapsed under massive fraud. Thus, the free-market system, which is supposed to be neutral and fair, is an illusion. In developed countries, the “free-market” is supported by the state, which acts in the interest of a small interest group that owns the multinational corporations.

Way forward
But this free-market, profit-making, low inflation-targeting and “high” economic growth economic system is incompatible with the current low growth, which has plagued the west since the 1960s. Two approaches are required to address this quagmire. The first is to address prevailing crises, such rising food prices, deepening inequalities and social unrest. Secondly, there is need to move the world on a new path, away from the current profit-making consumerist frenzy.

The writer is the director of the Makerere University Regional Centre for Quality of Health Care

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