Behind Latin America's Food Crisis
Behind Latin America's Food Crisis
By Laura Carlsen
Americas Program, Center for International Policy (CIP) americas.irc-online.org
Even a year ago, few people would have predicted that a global food crisis would make headlines as one of the major concerns for the future of the world. Yes, critics of agrofuels warned that food shortages and price hikes would result from the headlong rush to divert land from food to fuel production. And climate change experts predicted that global warming would hit small farmers—who even in today's world of industrialized agribusiness still produce much of what we eat—the hardest. Agricultural economists alerted the world to the dangers of leaving the food supply to a highly concentrated international market.
But all these threats seemed nascent, not imminent.
So what happened? How did we get to a full-blown crisis, with children who before were fed going to sleep hungry, with rioters banging empty pots in the streets, with mud cakes standing in as dinner?
The answer involves all the dire warnings above. How they have played out depends in part on where you are. The interplay of pests and policies, drought and dollars, futures and farmers has always made agriculture a hard call for both almanac writers and policymakers. But international trends and a case-by-case analysis show common culprits.
In the Western Hemisphere, two countries—Haiti and Mexico—reveal the forces that are leading societies into a crisis that could become permanent if deep changes aren't made to our food and agriculture systems.
Death and Dirt Cookies in Haiti
The half-island nation of Haiti is the West's basket case. The suffering there makes the news only when it explodes into violence.
That happened again in early April, when demonstrations began across the country to protest rising food prices. Beginning in the provinces and spreading quickly to the nation's capital Port-au-Prince the mobilizations left five dead, stores looted, and desperation unmasked.
It wasn't just spring fever that drove people into the streets. In a recent Americas Program article, researcher Mark Schuller reports back on street interviews done shortly before the disturbances. The comments of Sylvie St. Fleur, a laid-off factory worker, summed up the frustration among the poor: "The thing that destroys the country is that you can't buy anything. This high cost of living is killing us in Haiti."
In a nation where half the population lives on less than one dollar a day, price increases of 50% and more in staples like rice and beans mean the difference between eating or not.
Or eating dirt cookies. This invention of resourceful street vendors to trick empty stomachs rapidly became a tragic symbol of how intense hunger even broke the usual human taboo on eating dirt. Food items bore the brunt of price increases and are most keenly felt. But these hikes combined with low wages and high gas prices to decimate family economies.
No Harvard-educated economist keeps better statistics on prices than a poor woman feeding a family. Sylvia proves the point: "If you used to buy a sack of rice for 1,000 goud, now you have to buy it at 1,500 goud ($37.50). Only now, a cup of sugar costs 25 goud, a cup of rice costs 18 or 19 goud, a cup of beans costs 25 goud. Even if you work for 70 goud per day (minimum wage), you buy a gallon of gas for 150 goud ($3.75) ... you see? Here you can work two whole days and you can't even buy a gallon of gas."
Haiti is not a poor country for all Haitians. UN statistics show it's the second most unequal nation in the world. Haitian millionaires live a life thousands of slum-dwellers cannot even imagine.
Both the social inequality and the food crisis stem from neoliberal economic policies. Haiti was self-sufficient in rice, its main staple, until the 1980s but by the 1990s when trade liberalization policies took hold imports began to surpass production. In 1995, rice tariffs were slashed from 35% to 3% under an IMF "medium-term structural adjustment strategy." Direct food aid from the United States following the 1991-94 coup period that supplanted local production and diversion of resources to pay an onerous foreign debt also added to the slow demise of Haitian agriculture.
After a coup d'etat that bore signs of U.S. involvement drove out President Jean-Bertrand Aristide on Feb. 29, 2004, Interim Prime Minister Gerard Latortue further lowered tariffs and promoted an export-oriented approach to reinvigorate the nation's agriculture. As a result of all these factors, Haiti is almost entirely dependent on foreign food imports and now imports an estimated 82% of total rice consumption.
According to a 2004 study by American University, "... rice production in Haiti has collapsed, threatening the economic well-being of Haitian rice farmers and tens of thousands of others who participate in the cultivation, processing, and sale of Haitian rice. Though this decline can be blamed on a variety of causes including the poor condition of Haiti's natural environment, and several other factors that have handicapped Haitian farmers ... trade liberalization policies are at the center of this phenomenon."
Haiti's rice tariffs are the lowest in the Caribbean and Haiti has earned a top rating on the IMF's trade-restrictiveness index. But this is a case where the top student is at the bottom of the class, which makes one wonder what exactly is being taught. Tariff reduction has decimated production and led to an influx of "Miami rice" at what some experts have called dumping prices.
Journalist Reed Lindsay quotes Frantz Thelusma, a community organizer, expressing the demands of the mobilizations: "First, we demand the government get rid of its neoliberal plan. We will not accept this death plan. Second, the government needs to regulate the market and lower the price of basic goods." The protests led to the recall of Prime Minister Jacques-Edouard Alexis on April 12, and negotiations to lower the price of imported rice.
The world responded to Haiti's "food riots" with major media attention and promises of emergency aid. The UN made a commitment to establish community kitchens and school meals, as well as delivering 8,000 tons of food hand-outs. In implicit recognition of Haiti's broken food supply, international agencies promised to "jump-start" Haiti's agriculture through programs to provide fertilizers, and restore environmentally damaged areas.
If everyone knew that Haitian agriculture has been stalled by the side of the road for some time now, why didn't anyone think of this sooner? As long as imports were available and the country could accumulate the foreign debt needed to pay for them, most policymakers seemed to think the system was working fine. Until now.
Mexico's Tortilla Crisis and the Battle for Corn
In Mexico, an eventual showdown over corn wasn't difficult to predict. Mexicans have been battling over corn for decades. Nothing brings to the fore the contradictions in Mexican society, the clash of values and class confrontation, the way the nation's staple crop and main food source does.
In January of 2007 tens of thousands of Mexicans marched in the streets to protest a leap of 50% in the price of corn tortillas. Although many analysts have attributed the sudden spike to a rise in international prices due to demand for ethanol production, the root cause is far more complex and predates the biofuels boom.
What happened in Mexico, and continues to happen, was caused by the confluence of several factors: the rise in the international price, the increase in the price of gas, and the concentration of corn markets by transnational companies as a result of the North American Free Trade Agreement (NAFTA).
As Mexican maize expert Ana de Ita points out, "The price rises were not due to a lack of national production, since in 2006, 21.9 million tons were produced, a record output. At the same time record volumes of corn were imported—7.3 million tons of yellow corn and 254,000 tons of white corn. If imports of broken corn are included, the total reaches 10.3 million tons. Bizarrely, in a year of crisis allegedly due to a decrease in the corn supply, corn stocks reached their highest volumes ever."
It wasn't due just to the international market either. In late 2006, the price of corn on the international market showed a clear upward tendency. But the steep rise in prices within Mexico far surpassed the tendency on the world market. The main culprit was speculation and hoarding on the part of the transnationals. Four companies—Cargill, Maseca-Archer Daniels Midland, Minsa-Arancia Corn Products International, and Agroinsa—are the main buyers of the Mexican corn harvest and also the principal importers of corn from the United States.
The large corporations had two motives in driving the price up. The first was profit. De Ita's research shows that these buyers—whose access to capital and storage and transportation facilities gives them a tremendous edge in the Mexican market—bought corn at 1,450 pesos from the autumn-winter 2005-2006 harvest, which starts in April for producers in Sinaloa and Tamaulipas, and at 1,760 pesos from the producers of the 2006 spring-summer cycle, which starts in September. In late December they began selling this same corn on the domestic market for between 3,000 and 3,500 pesos.
The second reason was to capture the corn flour market. In Mexico about half of tortillas are made with industrialized corn flour and the other half with corn milled the traditional way from whole corn by small mills. The traditional sector includes 70,000 small mills and tortilla producers. The large corn processors have long wanted to make further inroads into this market. After spiking the price of corn to the mills, they moved in to sell corn flour at lower prices to tortilla producers and flood large retail chains with processed tortillas below the cost of the traditionally made tortillas. Maseca alone accounts for 73% of the corn flour market and just three other companies make up most of the rest.
Small producers have dubbed this collusion of interests and market control in the hands a few large corporations the "corn-tortilla cartel" and accused the Mexican government of " discouraging domestic production, gambling on unstable imports, and (causing) volatility in domestic corn prices ..."
Indeed, the Mexican government handed over millions of pesos in marketing subsidies. According to data from the government marketing agency Aserca, the Mexican government paid 37,776,174 pesos in "direct payments for marketing" to Cargill and Minsa alone for the fall-winter white corn harvest of 2005-2006 in the state of Sinaloa. The subsidy program has been harshly criticized; according to farm organization leader Víctor Suárez, "Aserca is the main agency for transferring public resources to monopolies ... maintaining disorder in agriculture and food markets, and advancing the concentration of production, marketing, and industrialization in very few hands."
As the poor clamored for food in the streets, Cargill—the world's largest grain trader—registered an 86% increase in profits from commodity trading in the first quarter of 2008. In Mexico, small farmers have seen producer prices fall as a result of imports and the elimination of government programs. Two million farmers have been displaced since NAFTA went into effect.
What many people don't know is that the tortilla crisis of January 2007 is not over. The government's voluntary program to place a ceiling on corn prices remains in place and the price has stabilized in some areas but the higher price continues to affect the diet of the poor. On May 5, tortilla vendors in the state of Chiapas announced a nearly 18% price hike to 10 pesos a kilo. Although a 15-cent increase may seem like a pittance to many consumers in the developed world, in Mexico's poorest state it threatens nutritional intake for thousands of families.
In a survey at a market in Mexico City's low-income urban neighborhoods, women shoppers said that after the January 2007 tortilla crisis they had to reduce their family's tortilla consumption by half. As one señora pointed out, "If we can't eat corn, we can't eat."
No part of the tortilla crisis had to do with a real problem of scarcity. And yet the response has been focused on unsustainable agricultural practices to raise yields. The biotech lobby has used the crisis to argue for an end to a government ban on cultivation of genetically modified corn. The new rules of a biosafety law made-to-order to their interests have encouraged seed companies like Monsanto to pressure for permits to sow GM corn, now claiming that the higher yields of these varieties will solve the tortilla crisis and lead to greater food security. Farmers' organizations warn that lifting the ban threatens native corn varieties, livelihoods, and the nation's food sovereignty. Mexico is a center of origin for corn, with hundreds of native varieties developed over the years by indigenous and non-indigenous small farmers. GM corn cross-pollinates naturally with native varieties, leading to already documented cases of genetic contamination of varieties that indigenous farmers have developed over centuries. The use of GM seed also makes farmers dependent on transnational seed companies, instead of relying on the millennia-old practices of seed-saving.
According to experts, a full-blown food crisis in Mexico is gestating. Tortilla vendors show signs of breaking the pact, and meat prices are on the rise. Food expert Blanca Rubio warns that scarcity could become a problem. Since NAFTA has eliminated all controls on imports, transnational corporations can threaten to import rather than paying decent prices to local producers, leading to disincentives to produce.
The Bank of Mexico reports that in 2007 Mexico paid $5 billion dollars more for 127 basic foods and agricultural inputs than in 2005—a 62% increase. Two-thirds of the increases were for five products: corn, wheat, soy, powdered milk, and seeds. The cost of Mexico's food dependency totally cancelled out its windfall earnings from high oil prices.
"The Rich Don't Understand the Poor"
The standard explanation for the global food crisis rests on the convergence of the demand for food crops due to agrofuels, the hike in gas prices, urbanization, increased demand from emerging economies, climatic changes, and environmental deterioration from erosion and pollution.
All of these factors have played a part in the crisis. Agrofuel development has been mandated well into the future, although it may be slowing down as criticism mounts. A recent report by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) blames biofuels in part for price hikes. The report concludes, "Governments need to carefully consider the impact of bio-fuels on the poor." Gas prices are likely to remain high. With so much food moving around under free trade policies this will continue to affect the price and access.
Another, less mentioned, factor in the hike is speculation as investors search for new opportunities to make money out of money. On the Arancia corn website, a typical pitch from an investment company titled " How to Profit from the Corn Crunch of 2008" offers an easy way "to profit from ag-flation—a way that could reward forward-thinking investors with returns of 61% or more." The Economist reports "more febrile behavior seems to be influencing markets: export quotas by large grain producers, rumors of panic-buying by grain importers, money from hedge funds looking for new markets."
With agribusiness corporations posting record highs (like Cargill, ADM saw profits soar from $363 million in 2006 to $517 for 2007) and investors salivating over "ag-flation" windfalls, it's clear that what's a crisis for some is a bonanza for others. That in itself should be a clue that the structural problems with the global food system do not lie in poor yields, "inefficient" small farmers, or climatic disasters. It's manipulated prices; faulty trade, aid, and promotion policies; distribution and wrong priorities that are starving the world's most vulnerable inhabitants.
In Port-au-Prince, Sylvie St. Fleur has a simpler explanation. "Haiti doesn't suffer from a lack of food because there's no food, no! It is because the rich don't understand the poor."
Inadequate Proposals From the International Community
The food crisis is here to stay. The World Bank reports a 181% increase in wheat prices over the 36 months prior to February 2008, and overall global food prices registering an 83% percent rise. It predicts that food crop prices will remain high in 2008 and 2009 and then begin to decline, but maintain levels far above 2004 prices through 2015. World Bank president Robert Zoellick warns that the food crisis could push 100 million people worldwide into deeper poverty.
UN Secretary General Ban Ki-moon called it " an unprecedented challenge of global proportions that has become a crisis for the most vulnerable," and t he FAO has summoned a High-Level Conference on World Food Security, Climate Change, and Biofuels for June 3-5. U.S. President Bush has asked Congress for an emergency request of $700 million in food aid.
With information pouring in on the breakdown of access to food for the world's poorest across the globe, it's clear that the crisis is real. But a crisis mentality in seeking solutions only serves to divert attention from the deep structural faults in global food production, distribution, and consumption.
Oddly enough, international solutions do not address these fundamental issues. Policy prescriptions from the wealthy countries and international financial institutions emphasize hand-outs and more free trade. They tend toward increasing, not diminishing, developing country dependence on imports and aid, and further lining the pockets of the companies that are fleecing the public.
The World Bank's proposals include: "calling on the international community to make up the $500 million food gap required by the UN's World Food Program to meet emergency needs," increasing its loans for agriculture (promoting the same model that led to the loss of food sovereignty in developing countries facing today's food crisis), "expanding and improving access to safety net programs, such as cash transfers, and risk management instruments to protect the poor" and strengthening free trade through "advocacy on the negative impacts of policies such as export bans, which create price spikes in importing countries, and the high levels of trade tariffs and subsidies in the developed world." World Bank President Robert Zoellick, IMF Director Dominique Strauss-Kuhn, and former WTO President Pascal Lamy have all used the food crisis to argue for a reinvigorated Doha Round of the WTO to deepen the free trade system. This constitutes an offensive against measures that question the international markets which helped cause the food crisis.
Emergency aid measures focus on moving food around the globe, from where there's too much to where there's too little. This movement of food will add even more to the coffers of traders and agribusiness surplus producers, paid for by taxpayers. At the same time, it will do little or nothing to improve production. Moreover, wasn't that exactly what the free market system was supposed to do?
Bush's aid request once again repeats the model of food aid in-kind that has been harshly criticized for destroying markets for local production. Although he announced that approximately a quarter would go to purchasing local production, this is still a fraction of the amount and does not represent a thought-out change in priorities or practices.
Some proposals also center on boosting yields. The Economist , which has called the food crisis "the silent tsunami," inexplicably concludes that "farmers, slow to respond, will eventually plant more to reach a new market equilibrium." The conclusion is inexplicable since its own article states that "in most places there are no absolute shortages and the task is to lower domestic prices without doing too much harm to farmers." So why has the response of international agencies been focused on increasing production through technological innovation?
The answer is that international agriculture and food policy have been playing a stuck record for decades. Pat Mooney of the ETC Group has extensively criticized what he calls the "Silver Bullet" approach to the food crisis that relies on new technologies to increase yields when evidence shows that the lack of access to food for the hungry stems far more from prices and distribution. The "silver bullet" approach became global policy with the advent of the "Green Revolution" in agricultural technologies, which increased yields but led to environmental degradation and dependency of small farmers on chemical and seed purchases.
Small farmers should be supported to produce more food so their communities can depend less on the corporate-controlled international market. But under current conditions that will be difficult. Fertilizer prices in some cases have tripled over the last year. Some organizations note that this is a good opportunity to convert to organic production but they will need government support to do this and that support has not been forthcoming. If the price and market system is not corrected, small farmers will not be able to produce more in a more sustainable way, nor will they be able to market their product at decent prices.
Asking the Right Questions
As experts and policymakers begin to ask questions and commission studies to solve the global food crisis, it's remarkable that certain questions prevail and others have been virtually shut out of the discussion. The excluded areas of the debate include:
- Government subsidies: Many articles and statements to date have named government subsidies as the cause of market distortions in food distribution and production. Indeed, free trade in agriculture with wealthy nations that heavily subsidize already privileged producers has hurt small farmers in developing countries. But how to encourage capital-starved family farmers in both developed and developing countries without government support programs? Negotiations in the World Trade Organization and bilateral agreements treat government agricultural subsidies as if they were the same issue for developed and developing countries, for agribusiness and for family farmers. They are not. Why not take into account the purpose, the type of subsidy (beyond the boxes), and who it helps? Why not create subsidies that encourage society's goals of agriculture that leads to creation of stable livelihoods, a sustainable food supply, and environmental conservation, and eliminate those that work contrary to those interests?
- Patents on living organisms: Patents inhibit public research into public-interest agriculture by restricting the ability to share findings. Moreover, they have led to cases of looting of public gene banks by private interests. The production and promotion of patented plant and seed products has led to genetic contamination and stolen knowledge and livelihoods from small farmers and indigenous peoples. It's time for a serious debate about who these protections really benefit.
- Concentration of global food trade: Institutions of global governance must take a hard look at the human cost of allowing a handful of transnational companies to control so much of our global food supply. Anti-trust laws must be applied to break up their stranglehold on international markets.
- Supply management and market control measures: Governments need to rethink their absolute dependence on the international market for food. In addition to developing national food sovereignty policies, they should consider building reserves and supply management systems to control price volatility.
The policy recommendations of Mexican small farmers' organizations in the Chilpancingo Declaration of February 2007 sum up an alternative approach to the food crisis that reflects proposals of farmers' organizations in other parts of the world. Among them are to e stablish policies that promote food sovereignty through production of basic foods; campesino subsistence agriculture and organic production and that finance and assist campesino-owned corn storage and distribution businesses; strengthen campesino training and education and promote their organization in collective marketing agencies; eliminate subsidies to large producers, corporate sellers, and processors; renegotiate the agriculture chapter of NAFTA and eliminate any commercial agreements on "basic and strategic" products; establish a floor price for corn and other basic food products that compensates the costs of production; establish a mechanism by which the state regulates prices, supply, imports, and exports for corn and other basic foods.
The mass media portrays "food riots" in Latin America—demonstrations in the streets of Haiti, women banging on empty pots in Lima, cries for an affordable tortilla in Mexico—as ominous signs of instability. Instead they should be seen as wake-up calls to fix our most vital link to each other and to life itself—the food system.
Laura Carlsen (lcarlsen(a)ciponline.org) is director of the Americas Policy Program (www.americaspolicy.org) in Mexico City.