Globalization of Trade,Capital Flows and Labor has led to many desired and undesired effects.While the globalization of Services and Industry has been extensively dealt with,the Effects of Globalization of Agriculture has been ignored by the media and academia.One thing that is clear to me is that has contributed hugely to the Price Rise in Food.The cause of Food Inflation which has led to increased hunger and starvation in developing countries are the quite varied and listed below.
1) Rise of Food Commodity as as Asset Class – Various Funds launced by Investment Banks have led to higher prices of agricultural products.Fund Managers are increasingly using these funds based on derivatives of corn,wheat,rice etc as a long only investment.While earlier food prices were determined by current supply and demand curves,nowadays future demand/supply perceptions are increasing affecting these prices mostly on the upside
2) Growth of Chinese and India Middle Class – India and China have seen increasing prosperity over the last several years driven by strong economic growth.The rise in the Middle Class of these countries have led to increasing food consumption.The shift in food preferences towards meat has led to more grain consumption as meat consumption require more energy and grain usage than plain vegetarian consumption
3) More Trade in Agriculture – With growth in trade route and tranportation has led to convergence in global food prices.This leads to divergence of food away from needy people in the East towards more affluent societies in the west.India has had to import export controls on food to stop steep rises in food prices.Despite these measures,India has seen food inflation of more than 15% over the last year.
4) Increased Usage of Crops for Biofuel - Countries like US and Brazil have mandated increased usage of biofuel as a substitute for petroleum based fuel for Transportation.Large amounts of crops like Corn are being diverted towards the manufacture of biofuels.Land which was meant for other crops is also being converted for usage of biofuel based crops.While the Global Financial Crisis has somewhat cooled the Corn prices,the return of economic growth is sure to put pressure on crop prices again.Note Biofuels as a solution to Climate Change and Global Warming is a small niche one at best.
At the end of 2006, food prices across the world started to rise, suddenly and stratospherically. Within a year, the price of wheat had shot up by 80 per cent, maize by 90 per cent, rice by 320 per cent. In a global jolt of hunger, 200 million people – mostly children – couldn’t afford to get food any more, and sank into malnutrition or starvation. There were riots in more than 30 countries, and at least one government was violently overthrown. Then, in spring 2008, prices just as mysteriously fell back to their previous level. Jean Ziegler, the UN Special Rapporteur on the Right to Food, calls it “a silent mass murder”, entirely due to “man-made actions.
Here’s how it happened. In 2006, financial speculators like Goldmans pulled out of the collapsing US real estate market. They reckoned food prices would stay steady or rise while the rest of the economy tanked, so they switched their funds there. Suddenly, the world’s frightened investors stampeded on to this ground.
So while the supply and demand of food stayed pretty much the same, the supply and demand for derivatives based on food massively rose – which meant the all-rolled-into-one price shot up, and the starvation began. The bubble only burst in March 2008 when the situation got so bad in the US that the speculators had to slash their spending to cover their losses back home.
2008 saw a sharp rise in commodity prices everywhere as asset bubbles found their way from commodities like oil,gold etc to food based commodities as well.The sharp increase in food prices has led to massive distress amongst poor population across the world.Riots related to Food Scarcity has been reported across 35 countries which has gone almost unnoticed by the global media.Virtual doubling of food prices in 2008 in a short span of time pushed people living on a day to day basis into starvation.The unrestricted trading of food based derivative contracts had a major role to play in this spurt of prices.With the Lehman Collapse,the Food Prices also collapsed.However the global reflation being practiced by Central Banks is again fueling pressures on Food Prices.High volatility in Commodities which was almost unseen 10 years ago has become the “new normal”.Its no longer strange to find Oil prices moving 5% on a daily basis.With these commodities being treated more like financial assets rather than critical inputs of daily living,expect more Hunger Riots in the Future.
The International Fund for Agricultural Development (IFAD) has warned that the current international trend of increasingly expensive food products is expected to continue. According to IFAD, the high cost of petrol, the increasing demand for meat in Asia, the conversion of land to the production of biofuel crops, problems linked to climate change and financial speculation are all important factors of the international rise in food prices.
Violent protests against rising food prices have broken out in a number of poor countries. Like Haiti, Egypt, Burkina Faso and Mauritania, to cite only a few, have experienced hunger riots. In 2007 alone, UN figures reveal an 80% increase in the price of dairy products, and a 42% increase in the price of cereals.
Spread of Ethnic Vegetables
Global movement of people has led to a rapid spread of local cuisines.Indian cuisine is almost as popular in the UK as native cuisine.This had led to increased demand of vegetables which were restricted to specific geographies.Exotic Brazilian vegetables have become popular in US supermarkets while vegetables like zucchini,asparagus etc which were virtually unknown in Indian markets have become staple fare these days.
Maxixe, a Brazilian relative of the cucumber, is relatively unknown in the U.S., but it may one day be as common as cilantro as farmers and consumers embrace more so-called ethnic vegetables.Sales of ethnic vegetables have benefited from “buy local” marketing campaigns and federal farm legislation giving states grants to expand specialty crop production, he said. There’s also been a greater emphasis on marketing specialty vegetables, with New York and New Jersey starting programs aimed at selling produce to ethnic groups.