Food Riots and Man-Made Famine 2011

(9 am. – promoted by ek hornbeck)

  It now seems likely to be one of the most tragic and inevitable global trends for 2011: food riots.

 People are burning stores in India, Chili, China, Egypt, and Algeria.

 The recent overthrow of the Tunisian dictator was about a lot of things, including corruption and unemployment, but it was also about food prices too. Protest signs in Tunis included examples like, “WE WANT bread and water and no Ben Ali.” Some protesters waved loaves of bread to emphasize their point.

 Food price protests have spread even to oil-rich Oman.

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 Meanwhile, governments are taking desperate measures in the face of soaring prices.

 India has banned the export of onions after vegetable prices have risen 70% in the past year. China is implementing price controls and building up a strategic supply of foodstuffs. South Korea is lowering import tariffs on food. Many arab governments are resorting to tax cuts and hand-outs to defer popular protests.

 The scary thing is that everyone expects food prices to keep increasing.

 Beef and pork prices are at record highs, but, if forecasts prove accurate, consumers have only just begun to see higher prices for food and fuel.

  Steady increases in the costs of grain and energy since last fall are drawing comparisons to the summer of 2008, when corn and soybean prices set a record and gasoline topped $4 a gallon, said Purdue University farm economist Chris Hurt.

  Unlike in 2008, however, grain prices are up before the first seeds go into the ground, and fuel costs are rising well ahead of the spring-summer driving season.

 The key question is “why”? Why is food price inflation suddenly so high?

  The first place the authorities point fingers at is extreme weather. Every year, somewhere in the world, there is unusual weawther, and this year is no exception. Drought in Russia and flooding in Australia and Pakistan has hurt some food production.

 But that seems to be more of a convenient excuse than a legitimate reason.

2010 saw the biggest global rice harvest in history, yet the price of rice increased 24%.

 Corn prices surged on the report of an unexpected 1% drop in America’s production, but it was still the 3rd largest corn harvest on record. Soybeans also dropped 1%, and was still the 2nd largest harvest on record. Some are expecting a world record wheat harvest this year.

 We’ve seen this story before. In 2008, 2.2 billion tons of cereal grains were produced–an all-time production record. Yet the world was racked by global food riots as prices rose beyond the ability of poor people to pay for it.

 Shortages are not the reason for this spike in food prices. Something else is going on, and that something can be found in the financial markets.

 Top financiers and politicians have accused banks, pension and hedge funds of inflating food prices around the world by speculating on commodities.

 “There is no doubt that speculators have been behind surging prices.

Prices of wheat, maize and rice have increased very significantly but this is not linked to low stock levels or harvests, but rather to traders reacting to information and speculating on the markets,” UN rapporteur on the right to food, Olivier De Schutter, said.

 Mike Masters, US equity hedge fund head of Masters Capital management, who testified on food prices to the US Senate in 2009, said speculators and hedge funds were driving prices up.

 The World Development movement in London said banks and hedge funds had poured money into food futures markets in the past three years, betting on prices going ever higher and creating a dangerous bubble.

  There is enough food to feed the poor of the world. The problem is that they don’t have enough money to buy it. We are looking at global hunger in a world of plenty. We are facing an artificial, man-made “famine”.

 This is a crime of immense proportions.

 That still leaves the question of “why”? Why would someone do this?

The answer to that question is somewhat complex.

 The price hikes could not all be justified by the increasing activity in industrialised nations, he said.

 “Some of it is caused by the liquidity of markets. Cash is finding its way into the markets as money needs to find a home.

  “Investors who are adverse to equities and bonds are parking their money in real assets – property and gold are examples.

 “But you can also do that in food. You don’t need to use sugar but you can still invest in it.”

 Stock and bond prices are already near record highs. That makes professional investors hesitant to buy more. At the same time the financial markets of the world are being flooded with liquidity by the central banks of the world.

  The central banks are doing this in order to combat the global depression. The real problem here is that the central banks are combating the global depression by trying to prop up asset prices when asset prices are already high. The idea is re-inflating the “wealth effect” that Alan Greenspan so loved. This is supposed to create a “trickle-down” effect for the rest of the economy.

 At least that is the conventional, mainstream thinking.

 The problem here is that the financial system broke in 2008, and it hasn’t been fixed.

Asset values are already too high, and the wealth isn’t trickling down. Instead the financial markets are flooded with liquidity, and all that money needs to go somewhere.

 The evidence of all this can be seen in the commodity index. Prices here began shooting up in mid-summer, within days of the moment that Federal Reserve Chief Bernanke began hinting at a new round of Quantitative Easing.

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  The people who are pouring money into commodities are indeed speculators, but they are only doing the logical thing in a broken financial system. The real criminals here aren’t the speculators. After all, no one complained about speculators when equity and house prices were going up.

 The real criminals are the politicians and central bankers who refused to fix the financial system with real reforms after the 2008 crisis.

 Max Keiser uses a great example of a broken water main to describe this problem.

 The solution to this problem is obvious. We already have a template – the New Deal.

We need to roll back financial regulations to the 1970’s. We need to stop sending money to where it isn’t needed – Wall Street – and start putting it where there isn’t enough – jobs for Main Street.

  If we did this asset prices would drop, but asset prices aren’t the problem. The lack of decent paying jobs are the problem.

 Plus, we already know that inflating asset prices is doing more harm than good. Deficit spending, if it isn’t targeted to where it is most needed, is worse than no deficit spending at all.

 You would think this would be self-evident, but for some people its not.

 Reforms like this seem to be common sense. However, the political culture of this country is still built around pandering to the interests of the wealthy elite who own those overpriced assets. The corporate culture of this country is still built around pandering to big businesses that ship jobs overseas. The economic culture is still built around punishing the workers for getting paid more than factory workers in China.

 What we are facing is not food shortages. The starvation and violence is the ultimate result of a broken political economy that has been captured by wealthy interests.

 If all this sounds familiar, it should. People forget that during Great Irish Potato Famine in the 1840’s, Ireland remained a food exporter.

The new Lord John Russell Whig administration, influenced by their laissez-faire belief that the market would provide the food needed but at the same time ignoring the food exports to England, then halted government food and relief works, leaving many hundreds of thousands of people without any work, money or food.

70 years earlier the British East Indies company caused a famine in the Indian state of Bengal that killed nearly 10 million people. That too was largely a man-made famine.


Skip to comment form

    • gjohnsit on January 20, 2011 at 09:12

    How do you fix a systemic problem when everyone from the politicians to the man on the street just wants to throw money at it?

  1. I like hard news in the morning, especially economics.

  2. …comment here much anymore,

    I have to give you a whole hearted Thanks for another wonderful diary.  And I would like to highlight a couple of significantr points:

    The real criminals are the politicians and central bankers who refused to fix the financial system with real reforms after the 2008 crisis.

    The solution to this problem is obvious. We already have a template – the New Deal.

    You would think this would be self-evident, but for some people its not.

    It’s self evident to me. It has been since the problems of 2007-08.

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