Food prices have increased significantly over the past few years. The United Nations (UN) FAO Food Price Index jumped 25 percent in 2010. And according to the World Bank, they sent 44 million people into poverty in that year alone. Former World Bank president, Robert Zoellick, has said, “Food price inflation is the biggest threat today to the world’s poor…one weather event and you start to push people over the edge.”
Some people put the blame on biofuels. But, the people I spoke with in the biofuel industry claim that their contribution is quite small, pointing out that, for example, while 40 percent of the U.S. corn crop is used for ethanol production, roughly one third of that is recycled back into animal feed in the form of distillers dry grain.
So what is causing food prices to go up?
According to the World Food Program, the top five causes of hunger are as follows:
- Nature: Droughts, floods, heat waves, and natural disasters have all damaged crops and reduced yield, leading to price increases. These things have always been around, but global warming is exacerbating them. That ship has already sailed, and the best we can hope to do now is to try and keep it from getting too much worse.
- War: Clearly, war creates disruption to all aspects of food production and distribution. Since 1992, man’s contribution to hunger has increased from 15 percent to 35 percent.
- Poverty: When people lack the resources for the most basic means of production, including things like seeds or tools, they cannot feed themselves.
- Lack of agricultural infrastructure: Without things like roads, warehouses and irrigation, it is difficult to grow, store and distribute food.
- Unsustainable agricultural practices: Deforestation, over-cropping, overgrazing.
Hazel Henderson, at Ethical Markets, has identified another major cause, one that is clearly man-made, significant and clearly preventable. That is commodity speculation. This form of financial gamesmanship has been around for a long time, but it has generally been confined to a relatively small number of gamblers. However, a series of recent moves by the Federal Reserve Board known euphemistically as quantitative easing (e.g. QE1, QE2 QE3), a highly questionable practice to begin with, has created an environment that is ripe for speculation. Why?
First, you must understand what quantitative easing actually is. It is a new, unproven, untested, financial drug, on which the Federal Reserve exercises its authority to print new money as a way to try and stimulate economic growth. In the past, printing new money has done nothing except stimulate inflation, but somehow they believe that it will work differently this time. Perhaps it’s the fact that the Fed will be using the money to buy U.S. Treasury bonds, not from the U.S. Treasury, but from Goldman Sachs, which will profit from every transaction. (See video).
Since this move severely undermines the value of the underlying fiat currency, investors rush out to buy more secure “hard” assets such as gold, silver, oil, land and food. With speculators bidding up the price of food, as they might a stock or mutual fund, those on the brink of poverty cannot compete in this global auction. As a result, they go hungry.
According to Henderson, “Blindness to the role of finance and speculation in rising prices of food and commodities attests to the power of free market ideologies among global financial interests.”
The blindness, of course comes about as the result of externalizing the social and environmental costs that, in the absence of accountability, do not affect the bottom line.
But, new systemic models such as Global Reporting Initiative (GRI) and Beyond GDP connect the dots between such policies and their far reaching impacts. One recent study from the New England Complexity Science Institute (NECSI) uncovers the causal links between rising food prices, riots among affected peoples with financial speculation and perverse government policies. The model predicts more food price spikes in 2013, unless restrictions on speculations contained in the Dodd-Frank bill, now law, are implemented.
RP Siegel, PE, is an inventor, consultant and author. He co-wrote the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water in an exciting and entertaining format. Now available on Kindle.
Follow RP Siegel on Twitter.