Commodity Price Surge Sets Stage For
Global Food Crisis In New Year
By Barry Grey
31 December, 2010
WSWS.org
The price of traded food
staples such as wheat, corn and rice soared 26 percent from June to
November, nearing the peaks reached during the global food crisis of
2008, according to the Food Price Index kept by the United Nations' Food
and Agriculture Organization.
The price surge has continued in December, with
foodstuffs and basic commodities hitting new highs and expected to climb
further in 2011.
In 2008, riots broke out in at least a dozen
countries as food prices hit record highs. The new surge in prices
promises to unleash even greater hunger and deprivation, and more
widespread social unrest, as hundreds of millions of people around the
world contend with the impact of the ongoing recession and government
austerity measures.
According to the UN Food and Agriculture
Organization, 925 million people worldwide suffered from hunger in 2010,
an increase of about 150 million since 1995-97. One third of children
in the so-called developing world are malnourished.
The new explosion in commodity prices is being
fueled by the cheap credit policies of governments and central banks in
Europe, Japan and, above all, the United States, where core short-term
interest rates remain near zero. These policies, most critically the
renewed turn by the US Federal Reserve to so-called “quantitative
easing,” are designed to boost national stock markets and business
profits by providing the banks and corporations with virtually free
credit.
The Federal Reserve in November announced that it
would purchase $600 billion in US Treasury securities by, in effect,
printing dollars. This cheap-dollar policy has the effect of debasing
the world’s primary trading and reserve currency, thereby fueling
inflationary tendencies around the world and increasing the flow of hot
money to emerging economies with faster growth and higher interest
rates.
The impact is vastly destabilizing and exacerbates
global economic imbalances. It also provides banks, hedge funds and
corporations with wide vistas for speculation on commodity prices.
In the US alone, corporations and banks are sitting
on some $3 trillion in cash which they refuse to invest in production
and hiring. A good portion of the global surfeit of cash is being used
to ramp up the prices of commodities―from oil, copper, cotton, gold and
silver to food staples such as wheat, corn, rice and soybeans.
Natural disasters are also playing a role. Drought
in the Black Sea region cut Russia's wheat harvest by a third this year.
Unusually hot and dry weather in Argentina and other Latin American
crop exporting nations is threatening to further reduce the volume of
corn, wheat and soybeans on world markets.
Such natural factors, however, are exacerbated by
the impact of national divisions on the global economy. Russia responded
to the failure of its crop by imposing an export ban on wheat.
Similarly, India has imposed an export ban on onions. The effect of such
measures is to increase the upward pressure on prices worldwide.
A major factor in the rise in corn prices is the
diversion of a third of US corn production to the more profitable
production of ethanol in 2010.
On the global commodity markets, wheat and corn have
increased almost 50 percent over last year. Wheat prices soared to
their highest level in over two years this week. US soybean futures have
been rising rapidly since August, and corn ends the year at a 29-month
high.
As the Wall Street Journal reported on December 24,
“Traders are also anticipating that index funds will pour more money
into agricultural commodities at the start of the year, pushing prices
higher, analysts said.”
Alberto Weisser, chief executive of US-based Bunge,
one of the biggest traders of commodities such as soybeans, told the
Financial Times (December 29) that tight grain conditions would continue
into the next year. “For the next 12 months,” he said, “I think you
will see volatility of prices.”
Overall, world commodity prices have risen by 25
percent over the past six months. The European debt crisis and the
Federal Reserve's cheap-dollar policy have, according to the Journal
(December 27), “driven investors to hard assets.”
Oil is now at $90 a barrel, nearing a 26-month high.
The sharp increase in oil prices drives up transport costs for food and
other commodities.
In the US, prices of gasoline at the pump are now
averaging over $3 a gallon nationwide, according to the American
Automobile Association. This is an increase of 20 cents from just last
month and over 40 cents from a year ago.
Speaking Wednesday on the CBS network's “Early
Show,” former Shell Oil President John Hofmeister warned that gas could
climb to $5 a gallon by 2012.
US copper prices reached a record for the second
straight day on Tuesday. Copper is up 13 percent in December alone and
57 percent since June 7.
Gold pushed above $1,400 an ounce this week, near its record high. It is up
26 percent this year.
Highlighting the role of speculation in the
commodity surge, the Wall Street Journal on Monday published a
front-page article on the staggering rise in the price of silver. In the
past four months, the precious metal has risen 51 percent to a series
of 30-year highs, before inflation. It closed last week at $29.31 a troy
ounce, as compared to $16.822 at the beginning of 2010―a rise of 74
percent.
Of the general surge in commodity prices, the
Journal wrote: “Prices are rising despite over-supply and a lackluster
recovery in industrial demand. Many analysts expected those factors
would keep a lid on prices in 2010. What they didn't expect was an
overwhelming flow of money into the market from investors eager to ride a
commodity rally.”
The newspaper quoted Stephen Briggs, senior metals
strategist at BNP Paribas, as saying, “This is a story almost entirely
about investment.”
The inflationary impact of Washington's cheap-dollar
policy is being felt most directly in the so-called “emerging
economies,” led by China. Speculative cash from the West is wreaking
havoc on prices of Chinese goods and, above all, housing costs. Housing
prices in the US peaked at 6.4 times average earnings this decade. In
Beijing, housing prices are 22 times average earnings.
In an attempt to stem inflation―Chinese consumer
prices rose 5.1 percent in November―the People's Bank of China on
Saturday announced its second interest rate hike in 10 weeks. This poses
the threat of a slowdown in China's economic growth, which, under
conditions of anemic growth in the US, Europe and Japan, has been the
major factor in averting a relapse to negative economic growth
worldwide.
The rise in food prices, which brings immense
profits for agribusiness and speculators and untold suffering for
millions of ordinary people, underscores the irrational and socially
destructive nature of the capitalist market and production for profit.
http://www.countercurrents.org/grey311210.htm
[Non-text portions of this message have been removed]
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