Global Danger of Starvation in the Triangle of Speculation: Bio-fuel and Drought

By Tamer ÇERÇ?
ITO Vizyon

Increasing global energy prices coupled with the madly elevated food prices caused us to question the global danger of starvation. In Turkey, which had a dry summer last year, the increase in food prices was felt only for rice. However, considering the structural problems of agriculture and the risk of drought, alarm bells are ringing for Turkey which was one of the seven self-sufficient countries formerly.

In the past, food crises were known to be local crises specific to underdeveloped countries which are not well governed and have unfavourable geography. The UN used to provide food to those countries, organise hunger concerts and then the danger was forgotten.

On the other hand, after the discussion on global warming last year, a further topic in the first quarter of this year was the global food crisis. News such as the mobilisation of Egyptian army for baking bread, starvation of people in Uganda, protestant walks in 32 countries including Egypt, Haiti, Sudan, Bangladesh, Afghanistan, Indonesia, Ethiopia, and Yemen caused the fear for “global food crisis”.

Democracies Do Not Allow for Starvation
Thus the World Bank President Robert Zoellick says that 30 countries are under the risk of social conflict because of food crisis and that within the next months the number of people below the poverty line can reach 100 million. England Foreign Secretary Gordon Brown says that food price have reached the highest level since 1945 when the Second World War had ended. The USA International Development Agency Chairman Natsios draws attention to a more dangerous point:

“Food crisis generally influence the rural areas most. This time its main area of influence is the cities which is something that increases social and political risks.” Indian Amartya Sen, holder of a Nobel Prize in Economy says that 2008 will be the year in which, “The allegation that democracies do not allow for starvation is tested”.

Is it Poverty in Wealth?
This brings us to the conclusion that in fact the food crisis is poverty in wealth for some people and wealth in poverty for others.

Agriculture and GATT Expert Dr. Binhan O?uz says that it is not realistic to talk about shortage of food. Saying that at least for now there is enough food in the world for everyone, O?uz continues:

“The earth has sufficient capacity to feed even more people. In the past two years global food trade increased at the rate of 16 percent. This increase is caused by the 40 percent increase in the global retail sales in the last two years. It is a conflict that so much food has been sold in the world in spite of food crisis”.

The Problem is Increasing Prices
Mentioning that many multi-national food companies have announced profits of more than 80 percent, Dr. Binhan O?uz says that wheat reserves are at the lowest level of the last 35 years and that the prices are at peak. Saying that consumption habits of the middle class have changed in countries like China and India, which had a record growth figure in the recent years, O?uz continues:

“According to the data from the World Food Program, global food prices have increased by 55 percent since June 2007. The reason why we fear from shortage is that agricultural product prices in the world have increased in spite of the increase in production.”

Istanbul Chamber of Commerce (ICOC) Assembly Member Sad?k Çelik says that drought is not the only factor that influences the increase in food prices. According to Çelik, the most important factor contributing to the crisis is the expansion of western type eating habits in countries which have recently experienced rapid economic growth.

Bilgi University Instructor Prof. Dr. Gülten Kazgan says that there are four main reasons for global food crisis. These reasons are global warming, bio-diesel production because of increasing oil prices, growth of global economy and global market speculation.

Fluctuations can Last 10 Years
In the Agricultural Estimates Report that has been recently published by the UN Food and Agriculture Organisation (FAO) in cooperation with OECD, it has been warned that in the next 10 years agricultural prices may be above the historical balance levels. In the report, it is stated that decline in production due to drought and low levels of stock are temporary conditions that increase food prices. However, the main expectation of high prices is explained as follows:

“Structural changes such as decreasing overproduction in agriculture because of political reforms in the past and increasing raw material demand for bio-fuel production may keep the prices above the historical balance levels in the next ten years. Increasing product prices are subject of concern for both the poor people in the cities and the developing countries which rely on food imports.”

Fuel Versus Food
Another danger indicated in the 2007-2016 estimate report of FAO is the starting of the global “fuel versus food” discussion. Increasing bio-fuel raw material prices is a profit making factor for producers of these products. However, this means cost increase for the producer who uses the same products as animal feed.

Remember that following September, 11 attacks, oil prices increased in 2000’s because of reasons such as military intervention to Afghanistan and Iraq, attacks to the oil pipelines in Nigeria, growing global economy, successive tensions in the Middle East. Because of the increasing oil prices, big investments were made for bio-fuel production particularly in connection to the alternative energy search in the USA. Especially corn bioethanol is considered to be a common source of alternative energy. According to information provided by Dr. Binhan O?uz, 240 kg of corn can be used to make ethanol for the tank of a vehicle with a big cylinder. However, this amount can be used to feed a person for one year.

Although today 12 percent of the total corn production in the world is reserved for bio-fuel, this amount is expected to increase. USA has been producing 130 thousand tons of corn for bio-fuel. However, this production which is not aimed for food increases corn prices. Increasing corn prices makes people prefer other grains. This vicious cycle further increases the prices of other products.

Stocks Were Eliminated When Left Unsupported
Another topic of discussion related to global food crisis is the discontinued policy of supporting agricultural products in countries upon initiatives by international organisations including the World Trade Organisation (WTO), the World Bank and the IMF. Consequently, starting from 1980’s, agriculturally developed countries have forced the developing ones “to open their markets to imported agricultural products”.

Prof. Dr. Gülten Kazgan argues that the increase experienced in the global food prices today is in fact something both suggested and targeted and says “I suppose WTO’s decision to remove subventions and liberalise agricultural markets was based on an expectation of price increases”.

Dimensions of Global Competition
Dr. Binhan O?uz, who has been closely following the WTO agricultural negotiations for a long time, argues that there is no protective buffer against price increases since state support for agriculture has been removed. Saying that food stocks have decreased because of privatization, opening of markets, encouraging countries for export based growth, Dr. O?uz continues to talk about the dimensions of global competition:

“This year global wheat stocks are expected to fall by 5 percent down to the levels in 1982. The situation seems more critical, given that wheat consumption has increased today as compared to 1982. Although the low levels of dollar and interest rates and the increasing oil prices force the actors to look for high profits in new products such as food, the public sector has failed to intervene. International organizations such as WTO, IMF and World Bank that support liberalisation in agriculture are now talking about increasing supports to help solve the crisis. On the WTO part, liberalisation is demanded because the crisis is caused by subventions.”

Turkey Felt the Crisis with Rice
Food crisis had a place in Turkey’s agenda first by the drought last year and then by the increasing rice prices in the first half of this year. According to data from the Ministry of Agriculture and Rural Affairs, the drought last year had unforeseeable effects on Turkey.
The data from the Ministry of Agriculture and Rural Affairs indicate that the recession in grain production is much more than the recession in the world. For example, while rice production in the world decreased by 1 percent; in Turkey it decreased by 7 percent. This is also true for corn-wheat-barley. However, it is good news that these products are not as expensive in Turkey yet as they are in the world.

Agricultural Exports are Less Than Imports
However, structural problems such as the removal of support purchases in agriculture and the application of direct income support instead and transition to common agricultural policy with the EU have always been current issues. Finally, Prime Minister Erdo?an announced a new resource package that will give life to the South-eastern Anatolia.

But a careful glance at the agriculture in Turkey reveals that agricultural imports are now less than exports.

In the research by Turkish Industrialists’ and Businessmen Association (TÜS?AD) titled ‘Agriculture and Food in Turkey: Developments, Policies and Recommendations’, it is stated that the annual agricultural production in our country between 1968 and 2006 could not go beyond 1.3 percent. This is an indicator of a long term risk. Moreover, the influence of increasing food prices on the increase of inflation and the disruption of income distribution is another subject of concern. Prof. Kazgan reminds that although the average annual agricultural production is 1.3 percent, the population increase in Turkey is about 1.8 percent and gives warning, “We have constant deficits in food. Our agricultural imports are more than agricultural exports”.