A failure to understand the importance of food prices

Posted on February 24, 2012


Apart from a nod in the direction of domestic food production with the promise of support for agriculture, finance minister Pravin Gordhan had nothing to say in his Wednesday (February 22) Budget speech about food prices. Yet this is the one area that is likely to cause social tension and frustrate Gordhan’s calls for the country to unite behind government policies.

In fact, several of the measures he announced to increase revenue, will help to push up the average cost of living — food being a major part of this for the lower paid. This is almost certain to fuel higher wage demands and may set the unions on a collision course with government.

Perhaps Gordhan and the government are not aware of — or do not consider valid — the increasingly popular comment that the world is only three square meals away from revolution. Or anarchy. It’s an expression that has really come into its own in recent months. Especially since the publication late last year of a report that links high global food prices to social unrest.

Produced by a research team from Massachusetts in the United States, The Food Crisis analysis provides details about the real drivers behind high food prices and the peaks and falls in these. It also draws a convincing picture of how high global food prices coincide with major social upheavals by providing the conditions for everything from riots to revolution.

There now seems to be little disagreement that food prices are again on the way up, and not only because of higher transport costs as a result of increases in fuel prices. The government has little control over the price of oil, but this Budget has added to the transport, and therefore food, price rise with increases in the fuel and Road Accident Fund levies.

Fuel prices directly impact on almost everything throughout the supply chain and, according to the Food and Agriculture Organisation (FAO) of the United Nations, the staple food of Africa, mealie meal, is particularly vulnerable.

Yet, as many in the labour movement have argued for years, there is no global food shortage: there is enough food produced globally to provide an adequate diet for every human being on earth. So the recurring question is always: why do prices rise when there are no real shortages?

Various environmentalists, both within and outside the trade unions, have also maintained that adequate food production has been achieved without patented, privately-owned strains of genetically modified seeds and that food production over the past 30 years has outstripped population growth. From this viewpoint, a generally ill-defined “market” is blamed for supporting a wasteful system that encourages the plunder and destruction of the physical environment.

But the market comprises all the mechanisms involved in production, distribution, storage and sales, complicated by the puts and calls of futures trading and those gambles on gambles, derivatives. Not until the US team, under researcher Marco Largi, had produced their report, was it made clear what elements of the market were mainly responsible for the recent booms and subsequent declines in food prices.

In addition, the report was able to link the incidence of violent unrest to peaks in food prices. It revealed that the prices in themselves were not the cause, but that they provided the conditions in which unrest could readily occur. In other words, the tinder that just required a match.

For most of the labour movement, there was nothing new in this linkage: high food prices and the consequent suffering among the working poor and the unemployed are widely accepted as creating the conditions for unrest. This is summed up by Cosatu general secretary Zwelinzima Vavi’s oft quoted comment about a “ticking time bomb”. High food prices merely shorten the fuse on the bomb, not only in South Africa, but around the world.

Many trade unionists also know, from their own experience, that hungry people are usually desperate and often very angry people who frequently require only one, even apparently minor, incident to ignite furious and violent reactions. What the findings of researcher Marco Largi and his three-strong team provide are the details behind modern food price movements and show how, when global prices reach a peak, there are major outbreaks of unrest.

Contrary to most received wisdom, they reveal that it is not oil prices or even the conventional supply and demand mechanisms that are the primary agencies in food price movement: that distinction belongs to speculators. Financial gambles on futures and derivatives that do not even involve real production or the delivery of food are primarily responsible, with the underlying trend upwards in recent years provided mainly by the drive to covert food grains to the biofuel, ethanol. Other factors, including regional droughts and transport costs play subsidiary roles.

And the responsibility for enabling speculators to manipulate the market to the detriment of millions of poor people around the world, they lay squarely on the deregulation of the commodity markets. It was this deregulation, for example, that allowed large quantities of South African maize to be exported last year, with the resultant shortage being made up by expensive imports.

To the approval of most in the trade union movement, Gordhan did at least acknowledge that “deregulated capitalism” had failed; that new measures were called for. But unless the new measures seriously tackle the issue of food prices, a degree of social cohesion and economic stability will be impossible to achieve.

As the Largi team notes: “Rapid action is needed to reduce the impacts of the price increases on global hunger.”

Not that revolution or widespread anarchy are necessarily on the cards for South Africa. But labour disputes most certainly will be.

And as National Union of MIneworkers spokesperson, Lesiba Seshoka remarked last week about the Implats impasse: “We have arrived at anarchy.”