Monday, June 6, 2011

Oxfam: Hunger Will Strike, Sean O’Grady

The charity warns that we will be unable to feed the world by 2050. Is it politics, global warming or greed that has got us here? And, asks Sean O’Grady, why aren’t we changing our behaviour to ensure a safer future?

The most startling thing about the Oxfam claim that one out of every seven people go hungry every day – the “bottom billion” – is that they are so few and that we manage to feed six billion satisfactorily.

The ingenuity of mankind is its ability to sustain a population way beyond what the earth was designed to take. From the first rice harvested in Korea 15,000 years ago to today’s genetically modified versions, from Charles “Turnip” Townshend’s revolutionary concept of crop rotation in the 1700s to Bernard Matthews’ debasement of the turkey, humankind has managed to get more from less with remarkable, if not always palatable, results.

This is how, for the last 200 years at least, we avoided the terrible prophecy of the Rev Thomas Malthus, who pitted the growth in population, a geometric sequence (as in one, two, four, eight, 16, 32…) against the arithmetic rise in agrarian production (as in one, two, four, six, eight, 10…). The result, Malthus said, would be populations checked by poverty and starvation, he advocated.

So Malthus, writing in 1798, did not see the explosion in productivity that has kept pace with population growth until our time (or even adequately acknowledge the strides that had been made). In nations such as Mexico and India, with vertiginous increases in their populations, the “green revolutions” of the 1960s, encompassing simple techniques such as irrigation and better seeds, averted catastrophe with bountiful crops. But will the next decades be as successful? If food prices double by 2030 it will be tough on British families. Yet British households only spend £12 in every £100 on food and much of that is refined, processed and packaged so the cost of the weekly shopping mostly comes from wages and transport. In Uganda or Nigeria food is over 50 per cent of household incomes. The barrier between survival and extinction for them is much slighter.

There are factors now driving inexorably towards disaster, as Oxfam rightly says, such as the pace of population growth. Somehow, the world will have to find nourishing food for another two billion people by 2050, on top of the nearly seven billion of today.

We’ve done it before. So why can’t we feed the nine billion in 2050? Productivity growth would need to be impressive to compensate for the shrinking of land now being tilled, as more areas in Asia and Africa are occupied by settlements and industries. Productivity growth in agriculture is forecast to be around 1 per cent a year, even with the marvels of biotechnology at our disposal – far slower than the growth in population. Yes, Dutch scientists have found a way of “growing” pork from stem cells in the lab. But it is absurdly costly and it tastes bad (the texture lacks something, apparently). Where arable land is opening up, it is in the worst possible places from a green point of view – palm-oil plantations displacing the rain forests of Indonesia, sugar cane for biofuels doing much the same in Brazil and the frightening possibility of Congo’s forest suffering the same fate.

These developments have made climate change worse and caused weather extremes. They pose the biggest threats to food production and sustainability that the planet faces. Climate change alone could push prices 40 per cent higher over the next few decades and destroy any hope Bangladesh might have of feeding some of its people. It creates a vicious circle, as poor harvests lead to yet more pressure on land, deforestation as well as desertification.

Another constraint is water. Some 70 to 80 per cent of the world’s supplies are devoted to farming and are coming under pressure. Many water sources will run dry and the rest will, soon enough, become valuable commodities – the oil reserves of the future. International disputes over rights to cross-border resources such as rivers and lakes will increase. Food production will suffer.

There is also the diversion of land and crops for biofuels, not the least damaging of the many “negative feedback loops” between the energy and food markets. Dearer oil – driven by some of the same factors as the rise in food, such as Chinese demand – means dearer transport, dearer fertilisers and dearer food. Dearer oil also means heavier demand for bio-fuel crops, exacerbated by the mandatory targets required for its use in the tanks of American and European cars – a thinly disguised subsidy to Western farmers.

So biofuels are turbo-charging the rise in grain prices. Plus, biofuels use unacceptably large quantities of fossil fuels in their manufacture. Even by the baleful standards of man-made policy in agriculture – need we mention the EU’s wasteful Common Agricultural Policy? – this is one of the more insane obstacles to sustainable prosperity we have created for ourselves.

On the demand side, things are pressing just as hard. Rising populations are one thing; if they are poor, as Asia’s masses were for so long, they can be relied upon to stick to easily grown staples and modest quantities rationed by the state. With industrialisation, globalisation, rising incomes and a burgeoning middle class has come a taste for protein – pork, poultry, beef, as well as fish, which suffers its own extreme problems of exploitation. A 10 per cent rise in household incomes in the United States leads to a 1 per cent increase in spending on meat; in China it is 11 per cent, creating a multiplier effect because it takes 3kg of grain and 16,000 litres of water to create 1kg of meat (not to mention all that greenhouse-gas methane emanating from those cattle).

The world’s food problem used to be not that the earth didn’t produce enough for us all to survive on, but that the right food wasn’t in the right places, a problem of distribution or “food justice”. Famines were, and are, periodic, but localised, often exacerbated by badly run governments. Ethiopia suffered from famines in 1973 and 1984, “biblical” events that were brought memorably to our television screens by Jonathan Dimbleby and Michael Buerk. It was largely drought, but the Ethiopian government, under the absolutist monarch Haile Selassie and then the Communist Mengistu Haile Mariam, made matters worse through the usual corruption and malfeasance.

Now we have the outstandingly cruel examples of Robert Mugabe and Kim Jong-il, the latter reducing his people to periodic cannibalism. Much the same human blame goes for Ireland’s potato blight and famine (the 1846 Corn Laws) or the Biafra conflict (the Nigerian civil war of 1969).

What the world will be faced with before long is what might be termed systemic, or generalised, even routine hunger. One symptom will be the food-price inflation, a matter of demand relentlessly outstripping supply, as a long-term trend. A succession of catastrophic weather events gave a huge boost to the recent spikes, with everything from Florida orange juice to Colombian coffee to Ukrainian and Russian wheat hit by unseasonable weather. What we need to focus on is that long-term “secular” trend, which predates the bad-weather episodes and will persist long after. According to analysts at Nomura, the world has experienced in the last few years the biggest commodities boom since 1900. The recession pushed food prices down again in 2008-09, but they quickly resumed their upward march. This is not going to go away.

At this point it is good to examine the most fashionable culprit for the spike in food prices – speculation. Even Oxfam does not single out the traders for blame. And organisations such as the World Bank, the IMF and the United Nations Food and Agriculture Organisation have mixed views on their culpability. The consensus seems to be that speculation can amplify trends and add to volatility, but it cannot, of itself, keep prices high forever.

Investors are known to have turned to so-called soft commodities, such as food, as a way of making money. In commodities markets the “financialisation” of food has continued apace, with wheat, orange juice and cocoa joining oil and gold in portfolios. Holdings in commodity index funds have risen from $13bn (£8bn) in 2003 to $317bn in 2008. The vast amounts of money pumped into the world economy by the US Fed, the Bank of England and other authorities may have found their way into these markets and pushed prices up, a bit of an own goal for bodies trying to control inflation. Commodity-trading firms the size of Glencore or Cargill and investment banks with the global reach of Goldman Sachs can influence prices. If they “tip”, or buy large quantities, then the price will shift. The availability of derivatives – options to buy or sell into the future and more exotic versions of this betting on future movements – allows them to exert leverage on prices beyond their initial stakes.

So let us take the recent bizarre, semi-comic case of “choc finger”. Like the Bond villain who attempted to take over the gold market and, in due course, the world, Anthony Ward was a London hedge-fund manager who decided to corner the market in cocoa, which he duly did, eventually ending up with 241,000 tons of cocoa beans in warehouses in Liverpool, Humberside and Holland. He could have manufactured about 5.3 billion chocolate bars. But this Willy Wonka demonstrated some crucial points: he had to take physical delivery at some point, which is costly as well as embarrassing; the price of cocoa was not permanently affected; he lost a reported £27m on his deal.

One more study: On 28 August 1958 US President Dwight Eisenhower signed into law one of the more unusual pieces of financial regulation of any age: the Onions Futures Act. The legislation prohibited the trading of onions for future delivery and remains on the statute book. So, presumably, if an American ever sidles up to you and tries to sell you an onion that he’ll hand over in, say November, you ought to alert the police. It derived from the same anxieties about markets. Two traders – the “onion ringers” – had cornered the market, using futures, and created such disruption for farmers that Congress had to react. And yet, the Act failed because the price of onions bounced around as much as it ever did. Of course, the price of onions might have varied by even more if the Act had not been passed. But without a parallel world of unfettered onion trading, we cannot be sure.

There is also case for speculation. In principle, a farmer able to set the price for his crop in advance, albeit for a fee, benefits from the certainty that such a contract brings. That was how and why the greatest commodities exchange in the world grew up in Chicago, in the wheat fields of the Midwestern US and the meat yards of the windy city. That was in the 1850s and today Oxfam, the World Bank and others advocate better access for small farmers – perhaps through co-operative groupings – to such financial instruments. Tea has no derivatives market and quaint blackboards occupy the tea-trading rooms of Sir Lanka and Malawi. And yet its price soared all the same.

Land grabs, though, seem to be in a different, more dangerous, category. Where arable land is bought up, usually in Africa or Brazil by sovereign-wealth funds or national agencies or by private investors – Nicola Horlick seems to be an enthusiastic buyer – the danger is that it will at some point be left fallow. The uncomfortable truth is that much of this is being perpetrated by emerging powers such as South Korea, India and China. It highlights the growing conflicts of interest in nations that were once major suppliers of surplus produce but are rapidly becoming net importers of food and are fearful of what happens when their own land runs out.

Like climate change, the world-trade talks and fixing the global-financial system, then, food is global problem that needs a global solution. Or maybe not. A Barack Obama-inspired G20 initiative for agricultural aid has still not got off the ground. Long experience tells us we ought to forget about global bans on trading this or that, or grandiose schemes for population control, or trying to kick our car habit. Two of the world’s most important water sources – the Aral Sea and Lake Chad – were destroyed by well-meaning but calamitous overly ambitious government schemes.

Instead, we should do what we know can be done locally: governments building up stocks; better storage; better husbandry, hardier crops and livestock (GM or not); improved literacy and sex education; the odd appeal by Bob Geldof and Lenny Henry. The chances are that we will see more hunger in the next five decades. And this time it will be concentrated among the urban poor – in places such as Karachi, Nairobi and Mexico City. Unlike those televised biblical droughts in the Horn of Africa, we can see this crisis coming years ahead.

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