Washington D.C. is a gloomy place these days, with grey skies and a weirdly warm winter, the sour prospect of failure around the sequestration debate, and more cuts on the horizon. It’s possible, however, that on international food aid there just might be a silver lining to all that gloom. Reuters reports that President Obama might propose new rules in his March budget proposal that would make food aid reach more people, more quickly and more efficiently.
Since the 1950s, nearly all U.S. food aid has been shipped in-kind. There was a certain (though even then, not entirely positive) logic to that practice when this country had vast grain reserves, but that hasn’t been the case for years. Most donor countries now provide more flexible resources for local and regional purchases of food aid, and there has been pressure for years from development and faith organizations for the U.S. government to get with the times and make that shift.
There was a small breakthrough in the 2008 Farm Bill, which created a pilot program to test local and regional purchases of food aid. The evaluation of that experiment found that food aid purchased locally arrived, on average, in about 56 days, compared to 130 days for food purchased and shipped from the U.S.—and at lower cost. Early drafts of the 2012 Farm Bill would have expanded that program and made it permanent, but the Farm Bill, like so many others initiatives these days, is in limbo.
After the disastrous financial collapse in 2008, the commodity and financial market regulatory reform process on both sides of the Atlantic has been a series of promising but halting steps, all too often two steps forward and one step back. This week the EU Parliament decided not to take that one step back, when it withdrew a resolution to object to standards for the centralized clearing of over-the-counter (OTC) financial and commodity derivatives contracts. Such a centralized system is essential for effective market regulation. Joost Mulder, of the Brussels-based NGO Finance Watch, said, “the decision to withdraw the resolution is a victory for the real economy.”
The new standards will make transparent pricing and other information previously hidden in the privately negotiated, but market-dominant, OTC contracts and will prevent a repeat of the 2008-09 cascades of counterparty defaults. According to the standards, Centralized Clearing Platforms (CCP) authorized by the European Market Infrastructure Regulation (EMIR), would ensure that the counterparties to an OTC contract are credit worthy and able to cover their losses. Lack of centralized clearing of OTC trades (called swaps) was a major factor in the financial industry crisis of 2008-09, which triggered taxpayer bailouts of the industry and a real economy crisis on both sides of the Atlantic, wreaking price havoc in agriculture and energy markets.
Last year international food markets suffered their third price spike in five years. The trigger was a terrible drought in the United States—a major agricultural producer and exporter. An unstable climate met low levels of international grain reserves, while U.S. ethanol gobbled up maize supplies. The resulting high and volatile prices struck yet another blow at the world’s already fragile food systems.
This is exactly the scenario we warned of a year ago when we published Resolving the Food Crisis, a comprehensive assessment of the international community’s response to the global food price crisis.
High and volatile food prices in international markets will continue until structural reforms to trade, finance and agriculture are put in place to address the real drivers of the food crisis. It’s time for meaningful limits on financial speculation, reformed mandates for biofuels made from food crops, a system of internationally coordinated public food reserves and strong regulation on land investments. Donors should continue to invest in developing country agriculture, respecting their commitment to recipient country leadership. If the private sector engages, it, too, must respect the rights of the people it engages with.
Here is our review of progress on these issues in 2012:
Funding for agricultural development: Instead of renewing their 2009 L’Aquila commitment to invest significant aid money in agriculture, the G-8 group of powerful nations rolled out the “New Alliance for Food Security and Nutrition.” Most of the funding comes from private sector partners like Monsanto and Yara, a global fertilizer company. The aid comes with strings: To qualify, governments must “refine policies in order to improve investment opportunities.”
In 2010, journalist Frederick Kaufman wrote in Harper’s Magazine about how Wall Street speculators wreaked havoc with wheat markets and, in turn, helped drive the 2008-09 food price crisis. Now, he’s out with a new book titled Bet the Farm: How Food Stopped Being Food that goes into depth on how the increasing financialization of food effects farmers, consumers and global hunger. Research for the book brought Kaufman to farms, food science research labs, agribusiness giants, the United Nations and the Chicago Mercantile exchange. Bet the Farm is an accessible, sharp critique of how our food system has become increasingly captured by the big banks and giant food and agribusiness companies. Kaufman graciously accepted our invitation to answer five questions about the new book.
You write about the remarkable growth of the pizza industry, not only here but around the world. How has that impacted the agricultural economy?
As the Rome-based Committee on World Food Security begins preparing principles for “responsible agriculture investment” (RAI), its advisory body, the High-level Panel of Experts (HLPE), gets ready to revise its report on “Smallholder agriculture investment.” It is hoped that the RAI principles, if crafted with input from small-scale food producers and those advocating for their rights, become internationally accepted principles to govern international investment. If so, the RAI principles could pave the way for multilateral and bilateral investment treaties that respect small food producers, prevent egregious practices of transnational corporations that have led to landgrabs and livelihood loss, and more positively encourage agroecological investment in small-scale producers.
The HLPE, an advisory body to the Rome-based Committee on World Food Security, has received at least 65 comments into the first draft of its report, Investing in smallholder agriculture for food and nutrition security. This report could be a significant contribution into the RAI process. Many civil society groups support the HLPE and its process, not only because it has civil society representation, but also because its ultimate objectives are to help the CFS have “more informed policy debates and improve the quality, effectiveness and coherence of food security and nutrition policies from local to international levels.” This report on small-scale food producers is its sixth report in three years with previous reports addressing critical issues affecting the global food system such as food price volatility, land tenure, social protection and climate change.
On January 19, Deutsche Bank (DB) issued “Questions and Answers on investments in agricultural commodities”. The DB stated that after an internal examination, it was resuming investments in agricultural derivatives contracts that it had suspended since March 2011. Nongovernmental organizations had successfully pressured the DB and a few other European banks to “stop gambling on hunger” due to the banks’ concern about risk to their reputations. The World Development Movement had organized an October 2011 letter signed by 450 economists to the Group of 20 (G-20) demanding an end to bank speculation on agricultural contracts, so the DB was an early adopter of the investment moratorium.
The derivatives contracts include both the regulated futures and options contracts that farmers and food manufacturers use to protect against price decreases and increases respectively, and the unregulated over-the-counter (OTC) contracts. The DB’s internal investigation, bolstered by non-cited studies of unnamed agricultural economists, found “there is little empirical evidence to support the notion that the growth of agricultural based financial products has caused price increases or volatility.”
Writing in National Geographic in December 2012 about “small-scale irrigation techniques with simple buckets, affordable pumps, drip lines, and other equipment” that “are enabling farm families to weather dry seasons, raise yields, diversify their crops, and lift themselves out of poverty” water expert Sandra Postel of the Global Water Policy Project cautioned against reckless land and water-related investments in Africa. “[U]nless African governments and foreign interests lend support to these farmer-driven initiatives, rather than undermine them through land and water deals that benefit large-scale, commercial schemes, the best opportunity in decades for societal advancement in the region will be squandered.”
That same month, the online publication Market Oracle reported that “[t]he new ‘water barons’—the Wall Street banks and elitist multibillionaires—are buying up water all over the world at unprecedented pace.” The report reveals two phenomena that have been gathering speed, and that could potentially lead to profit accumulation at the cost of communities and commons —the expansion of market instruments beyond the water supply and sanitation to other areas of water governance, and the increasingly prominent role of financial institutions.
The 18th annual climate negotiations of the U.N. Framework Convention on Climate Change (UNFCCC) just ended Saturday night. These government officials had a historic and an urgently critical task at hand: how to effectively address the increasing climate chaos characterized by extreme storms like Hurricane Sandy, Typhoon Bhopa (which recently just devastated several islands in the Philippines), droughts, floods and eerily erratic weather before it’s too late.
The “Doha Climate Gateway,” as the outcome is being called, resulted in a second commitment period for the Kyoto Protocol (the KP) and built the “gateway” for a new climate treaty that is supposed to come into force by 2020. In three year’s time, governments will have to finalize this new treaty that will now be negotiated in a track they call the Ad-hoc Working Group on the Durban Platform for Enhanced Action (ADP).
Hard on the heels of Oxfam’s Food and Gender Discussion Blog, in which ten experts provided ten views over ten days intended to reframe food security from the perspective of women’s rights and women’s agency comes another Oxfam online forum for debate on agriculture called "The Future of Agriculture."
The series will explore four issues:
As with the series on food and gender, the discussion aims to generate bold proposals, in this case to meet increasing world demand for food in a way that eradicates hunger and preserves the environment.
I had the privilege to contribute to the debate, and my essay (one of twenty or so to be featured over the next two weeks) has been posted as one of two to kick off the discussion. Below are some excerpts from my contribution—I do hope you will find time to read and respond as the debate unfolds.
Agriculture is a risky business. At the mercy of inclement weather and pests, a frequent casualty of war, and subject to its own particular demand constraints and market failures, agriculture merits a branch of economics all to itself. The risks are not just economic: they also link to biological diversity and natural resource management, to culture and social relationships.
The theme of the day, "Solving for Pattern," comes from the Wendell Berry essay of the same name. Berry talks about apparent solutions that in fact either make the problem they are intended to solve worse, or solve one problem but in the process create a whole set of other problems; “as when the problem of soil compaction is solved by a bigger tractor, which further compacts the soil, which makes a need for a still bigger tractor, and so on.”
Berry tells the story of Earl Spencer’s dairy farm, which was on the conventional path of increasing scale, commercialization, debt, specialization and disconnection with the land; until he decided that he needed to operate in balance with nature. Spencer said his farm, “had been going at a dead run, and now he would slow it to a walk.”
Berry is a farmer talking about farming in his essay, but as usual, he also has bigger fish to fry. He tells us what study after study has since confirmed that we need to move away from agriculture modeled on industrial production. And importantly, he recognizes that this is not just because of its dependence on unsustainable technologies and inputs, but because of its business model, because the profitability of industrial farming depends on ignoring many of the very things that we care about most, such as human health, animal welfare, community and the environment.
This is the pattern I think we all need to see and solve for.