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“Monsanto Protection Act”: Liberal Outrage or Herd Behavior?

Liberals gone wild

Liberals gone wild

I’ve been seeing a number of fiery comments from my liberal bretheren regarding the recent “Monsanto Protection Act.” Normally, I try to be sympathetic to liberal politics, but sometimes I can’t help but shake my head in disgust. I expect ignorance from the listeners of Rush Limbaugh. It’s disappointing when the supposedly better educated fall prey to the same gimmicks. It’s worth pointing out that even conpiracy nut Alex Jones has taken on the same position liberals have.

First, there is no such thing as a “Monsanto Protection Act” anymore than there is any such thing as “Obamacare.” This is a term created by the item’s opponents to rile up opposition, rather than foster critical analysis. I think that Liberals should be well aware of the political problems associated with demonizing and reductionist labeling of things they don’t like.

Second, though Presidents can veto any bill that comes across his desk, the veto of appropriations bills are rare, and have often been overridden by Congress in the past. It may be a shock to liberals, but Presidents aren’t kings. Conservatives often don’t seem to understand the three branches of Government. Liberals often appear to understand it even less.

Third, there was hardly “no debate.” A Google search will reveal that discussions of this particular item go back at least to June of 2012 and the “Famer’s Assurance Provision” as it is correctly known is part of another Ag Appropriations bill which passed last year. Anyone who tells you this is new, is either lying, or doesn’t know what they are talking about. (Even Snopes took this on.)

Fourth, there is no evidence (that I’m aware of) that GMO’s, which are already in our food supply, are having deleterious effects on human health or the environment. There have been some studies on mouse models that I know of, but it appears that no one can really agree on what a “GMO” really is. Until we can nail that down, and have more informed discussion of which GMOs are “bad” and which are “good”, I don’t think that screaming about GMO’s is any more productive than poorly informed discussion of complex issues such as climate change.

I’m not trying to suggest that there are no effects of “GMOs” whatever they may be. I am saying that lefties are accepting that there are broad effects without question and are relying on less-than-scientific and politically motivated sources such as Salon and the Huffington Post to inform them. That’s a very, very dangerous position to take.

Fifth, I think we should all know by now that rightists use issues like this to weaken Democratic Presidencies. I was of the opinion that much of the furor over controversial portions of the 2012 NDAA bill was stoked by right wingers hoping for a Achilles heel in the 2012 Obama campaign. When we buy into this type of sensationalist reporting without examining the evidence, we play right into their hands.

Sixth, well, I had a sixth, but lost it. But back to GMO’s: It’s interesting that discussions of GMO’s in Sub-Saharan Africa are opposite of what we hear in the US. People view the American and European opposition to GMOs, some of which have the potential to increase food yield while minimizing inputs, as an infringement on developing countries’ rights of self determination. It’s easy to dismiss their concerns as uninformed. However, people and policy makers in developing countries face competing issues of immediate economic needs and broad environmental concerns. Lots of things seem obvious to us, but then we have most of our basic needs already met.

I mean this not as a defense of the Farmer’s Assurance Provision or anything else having to do with GMO’s (so chill out). The endless (and perhaps deserved) vilification of Monsanto has reached a point where examination of the facts is secondary to screaming like a blithering idiot. To me, this is dangerous. When we reduce ourselves to merely accepting positions without criticism, we allow ourselves to be manipulated by just about anything. Not everyone has the time to read all that is required to create a truly informed and reasoned opinion on all subjects, I realize. Striving toward obtaining as much information as is reasonable, however, and acting critically should be a priority for everyone, however.

Liberals are the smart ones. We can do better.

Food Prices and Conflict in Sub-Saharan Africa

African Conflict and Worldwide Food Prices, 1997-2013

African Conflict and Worldwide Food Prices, 1997-2013

I decided I’d continue on this theme of African conflict for a bit after noticing some interesting trends in the data.

I’ve written before on the link between unrest in South Africa and the problem of rising food prices. Looking at the plot of the right, it’s not hard to notice the similarities in the series of conflict events post 2005 to food prices as estimated by the FAO’s Food Price Index (FPI).

I began to wonder whether some of the recent rise in conflict events is somehow related to rising food commodity prices. Having found a correlation in South Africa, it’s not out of the realm of possibility.

I calculated the cross correlations between the FPI and conflict events and found that the FPI was predictive of conflict, but that conflict was not predictive of FPI. This was similar to what I found in South Africa.

Plotting the FPI against the number of monthly conflict events, I found something interesting. It appears that the two are mostly unrelated until the FPI reaches a threshold of approximately 200, then the number of monthly events shoots up. It is interesting to note that in other research, 210 was the assumed maximum price that households would absorb before taking to the streets.

I’ve repeatedly written on the problem of stock market speculation in food commodities as a cause for rising volatility in world food prices. I won’t beat this into the ground again. However, results such as these indicate that the problem of rising and volatile food prices is not just an economic problem, but also a problem of human health and welfare.

FPI and Monthly Events with Threshold

FPI and Monthly Events with Threshold

Cross correlations of FPI and monthly conflict events

Cross correlations of FPI and monthly conflict events

More on Financialization of Food Commodities

I’ve written at length on the issue of the issue of financialization of food and price volatilities. Yet, when I bark about the subject, few around me seem convinced (and that’s ok, I’m never very convincing).

I found a cool video that sort of lays the issue out and explains the mechanics behind the world food trade system, and why the increased role of speculators is wreaking havoc on the world’s food prices. The common narrative is that issues of supply (droughts) and demand (bio-fuels, China) are the culprits.

Intuition might confirm this, and it is logical to assume that pressures on a limited supply of goods would lead to increases in price, but intuition is only as good as the amount of information possessed. The trouble with narratives that involved financial markets is that some knowledge of finance is required. Finance usually bores people to tears. Videos like this are a great step.

Supply and demand factors can explain gradual increases but can’t explain volatility in food prices. Rich people like us have no problem absorbing even a 200% increase in food prices. People living on a dollar a day have to make some pretty dire choices, and children end up malnourished.

The video gets a few things wrong. Namely, it states that speculators began seeking new investment areas and sources of growth after the bursting of the property bubble in the late 00’s. This is untrue. Speculators began trading in food commodities after a relaxing of rules during Clinton and the bursting of the tech equity bubble of 2000.

To me, this and the commoditization of water is the most important issue of our time and will have grave implications for the world’s future security.

Anyway, check out the video:

I was Interviewed by Mark Maynard on the Problem of Food Prices

And I’m still reeling. Tonight, I’ll be giving a haphazard lecture on the problem of rising food prices and the issue of agricultural commodity financialization for NWAEG (New World Agriculture and Ecology Group) here at the University of Michigan.

Mark was kind enough to interview me for the event, vastly overstating its relevance (my talk, the issue is very relevant).

Unfortunately, though, Mark is going to forego to the event to watch comedian and former Republican hopeful, Herman Cain.

You can find the interview here.

Rising Food Prices Might Be Causing Unrest in the Middle East and North Africa

Rising food prices and food riots

Last week, I put together a small post hypothesizing that rising food prices are associated with protests in South Africa. I showed how the pattern of newspaper reports on protests follows the current pattern on rising food prices, as measured through the FAO worldwide Food Price Index.

Turns out, researchers at the New England Complex Systems Institute had the same idea, but they applied it to food riots in the Middle East and North Africa. The results of their research are presented to the left.

The pattern is the same. Riots tend to be clustered during rapid price increases, and sparse (non-existent) when prices drop.

I have already written on the influence of Wall Street on price rise and volatility. This frightening pattern is no accident. If this result and mine are any indication, unrest will continue. Food prices will likely continue rising, with some intermittent drops.

My feeling is that the recent explosion of protest in Islamic countries is less related to a childish video, and more about individuals unable to properly feed their families. Given the United States financial sectors complicity in creating these conditions, they are right to be angry. Until the Americans become proactive toward regulating food commodity speculation, this situation will only worsen.

It is my opinion that this will be the most important issue of our time, and could very lead to massive instability and violence.

Are Rising Food Prices Causing Social Unrest?

I have written several posts on the major problem of rising global food prices. Recently, a friend brought up the threat of domestic food riots. I quickly brought up the problem of rising food costs, and theorized that a declining ability for people to feed their families is at least partially to blame for the increasingly bloody labor protests in South Africa.

South Africa is considered the world’s protest capitol. To be sure, the South Africans, used to generations of violent oppression have made a science of political protest. They are certainly within their rights to complain, dealing with massive inequality, political marginalization and a historically violent state.

Using the University of Michigan’s article database, I counted the number of newspaper articles containing the words “South Africa” and “protest” yearly from 1990 to 2012. Only articles written in English were considered. I combined this small database with the FAO’s yearly food price index to discover if there were some correlation between the two. The results of my search are in the graphic to the left.

Assuming that the number of articles on South African protests is correlated with the true number of protests, I found that there is a correlation between the two and that correlation is striking. I think it would be safe to conclude that the unprecedented increase in world food prices is contributing to massive social instability in South Africa.

I find this result frightening.

As a resource exporter dependent on international mineral traders and global pricing, domestic policy and corruption in South Africa are influenced and encouraged by the international community. This failure of policy to provide for the poor and protect the interests of workers (who merely demand fair pay) are likely contributing to violent unrest.

Rising Corn Prices: More than Climate Change

Corn prices over time (indexmundi.com)

Today, I had lunch with my good friend, Mark Maynard. He told me that his father recently tried to blame President Obama for increasing corn prices. Mark responded by pointing out that low precipitation and climate change are the culprits. The press recently has certainly indicated that this year’s drought will have an effect on corn prices and this very well may be true. I do not dispute this.

Mark’s logic, though, is suspect and I perhaps chided him a bit strongly (Mark is kind, though small and fragile). I am pretty positive that Mark’s father’s emails, given what I know of the other emails, are filled with the same conspiratorial nonsense that seems to fly all over the internet. It was Mark’s response, which I did not read, that bothered me, exclusively blaming climate change and weather events for increasing corn prices around the world at the expense of greater, less publicized issues surrounding food prices.

The prices of this year’s corn will have little to do with corn that is being harvested at present. Next year’s prices may certainly be affected, though to what is extent is up to speculation. News reports are predicting a 10% increase.

Certainly, a 10% increase is bad thing. Poor households will pay 10% more for food than they did last year. If we assume that very poor households in the United States have only $2.00 per day to spend on food (according to Joe Stiglitz’s math), this could be devastating for someone trying to feed multiple kids. I am not disputing this.

However, corn prices have been increasing rapidly for several years. This trend cannot be ignored. The figure above shows that the worldwide prices of corn have been increasing since at least 2002, follow the general pattern of the American economy crashing in 2008, then recovering quickly at present. But after decades of mostly flat prices, this giant spike is noteworthy, and, in my opinion frightening.

Important to my discussion with Mark, this trend has little to do with precipitation in the United States (below), which has actually been increasing over time.

Global mean temperatures (NASA)

We note that global mean temperatures have been increasing for at least the last half century, but also note again that corn prices did not rise uniformly with this increase. (The scale of the corn price graph is 1980 to present. During this time, there was a consistent rise in temperature, where corn prices, outside of some bumps are mostly flat until 2002.)

A spike of 10% next year over this year is a problem. Ignoring the overall trend of price increases (raising the base price that we would use to calculate next years price), is wholly unwise particularly when it is due to forces very much within our control.

I have written before on the problem of the trend toward financialization of commodities, the move from volatile equity based investments, to speculation on high yield, high demand commodities such as ag and mineral products, a practice that was illegal before the early 2000’s. Looking at the NASDAQ index, the evidence is compelling. The price of corn follows the stock market, suggesting that the two are tightly connected. Spikes in the price of gas and oil are also connected with this trend.

According to a UN Conference on Trade and Development report

• “these factors (rising food demand, biofuels, climate change) alone are not sufficient to explain recent commodity price developments; another major factor is the financialization of commodity markets. Its importance has increased significantly since about 2004, as reflected in rising volumes of financial investments in commodity derivatives markets – both at exchanges and over the counter (OTC). This phenomenon is a serious concern, because the activities of financial participants tend to drive commodity prices away from levels justified by market fundamentals, with negative effects both on producers and consumers.”-UNCTAD, 2011

The issue is certainly complex, much more complex than merely looking at one’s dying yard and concluding logically that weather is reducing supply which is raising prices. The reality, that American retirement accounts are gambling on the desperation of poor families in developing countries, is far more frightening, though they’ve long (and happily) gambled on war profits and tobacco.

We can do little to fix the weather. We can, though, fix economic policy to encourage equity in the worldwide price of food, a basic human right in my opinion.

Note: I just noticed that the New York Times ran an ariticle today which focuses on the role of weather on food prices, but fails to make even the smallest mention of the issue of the financialization of food commodities.

Rainfall in the US over time (NOAA)

NASDAQ over time

Rising Commodity Prices Starve Kenyan Children

Mbita Market

Yesterday, I was walking through the local market here in Mbita, Kenya and was struck with a (very overdue) revelation. Prices for basic goods here in Kenya are really not much more or less than prices for the same goods in the United States.

Kenya is certainly not cheap for foreigners and one may be under the impression that we pay some extra surcharge on just about everything. In some countries, this is very true. In Kenya, everyone pays the same price for everything.

Take a liter of milk. In the US, a liter of milk (at the time of this writing) is going for approximately $1.13. In Kenya, despite local production, a gallon of milk costs $.87. Turning that milk into cheese will set back an American $9.30 a pound, a Kenyan, a whopping $10.38.

It is worth mentioning that the newspaper here has reported that the price of milk in Kenya has shot up by 40% since the beginning of the year to nearly $1.05.

Shopping in a local hardware revealed that prices for steel nails and roofing is almost the same as the U.S. A kilogram of penny nails here costs about $5.00, just about the same as what I would pay in the states. 2×4’s will run approximately $.30 per foot, again, entirely comparable to what I pay in the States. A gallon of gas here is about $5, still cheaper than Malawi’s $10 but more expensive than the States.

Jimmy sells sugar in the market with his mother to support his 6 children. Each of these sugar cane blocks goes for about $7. The price that Jimmy pays the wholesaler is pegged to worldwide sugar prices.

To put this in perspective, an average American family pulls more than $44,000 yearly, where a typical Kenya is unemployed and may eek by through farming and informal market activities on a mere $800 a year (assuming GNI as a proxy).

Thus, to a Kenyan, food and housing are both incredible expenses. A Kenyan family likely spends nearly 80% of every penny they earn on food. The remaining 20% goes to school fees, cell phone minutes and transportation.

The trouble, and what may don’t realize, is that all of these things, food, steel and gasoline are commodities that are readily traded on the world market. Thus, prices are pegged to worldwide prices set by larger economies such as the United States and Europe. A Kenyan has to pay the same amount of money for the same products as an American, a Brit or a citizen of Japan.

All manner of beans are available at the Mbita Market.

One may argue that this situation may be an unavoidable consequence of a truly global economy, an unfortunate side effect of the free market. Competition on world markets, however, is only part of the equation. The situation is made worse, for example, by US policy which rewards speculation in commodities on Wall Street, a practice that was illegal before 2000. The global market, far from being free, is actually controlled by large global financial players betting on rising prices, prices which they themselves are setting.

Rising food prices barely make a dent in US home budgets, and even if they do, most families can cut things like eating out to adjust. A Kenyan, on the other hand, has nothing to cut when milk goes up an extra dime. People will simply just eat less.

Food Week Post 3: Subsidies, Sugar and Slavery

Sugar costs money. In fact, everything that’s bad for you in the American diet is heavily subsidized by the United States Government. A few large scale producers of sugars, oils, grains and other commodity crops receive huge payouts from the federal government to produce what they do.

Proponents of subsidies point to issues of food security, the protection of rural economies, and broader benefits of the low cost of food in the United States as justification for spending nearly half of one percent of the entire federal budget on direct payouts to American farmers. The truth is that the United States is one of the most food secure areas of the planet, that urban economies receive the largest benefit from food subsidies and that subsidies really work to keep producers of BAD food like Frito-Lay and McDonalds financially well fed.

Source: USDA Economic Research Service

While the proponents of subsidies, who often have deep interests in large agri-business, point to the poor, struggling American farmer as justification for continued subsidies, the truth is that the economy of agriculture couldn’t be healthier. The mean income of a farming operation was close to $90,000 last year, far beyond the national average/ Overall revenues from farming at an historical high. The farming sector is expected to pull in more than $100 billion in revenue this year, $31 billion more than 2010. A 24% increase!

Most family owned small farms are struggling and actually lose money on their farming operations. However, the bulk of farming is now done by large agricultural conglomerates, beholden not to Grandma and Grandpa but to urban elites and global stock-holders. These groups have a vested interest in continuing subsidy payments because it increases the health of it’s stock holdings. However, they don’t like to spread the subsidies around to people like my local struggling organic vegetable farm.

These subsidies have global implications. While right-wing blowhards in the US tout neo-classical ideas of “free-markets,” “small government” and “open competition,” the US government’s massive subsidies of agricultural commodities actually do what said blowhards say is a bad idea. The subsidies artificially depresses world commodity prices, giving the United States a competitive advantage on the world market.

The small country of Benin depends on cotton for 80% of its exports, which amount to a little over a billion dollars. A modest one percent decrease in the world price of cotton barely registers on the American economy. A one percent decrease in world cotton price has disastrous implications for a country like Benin, whose tiny GDP is only $6.4 billion or $1500 per capita. It has been estimated that US farm subsidies cost small cotton producing West African countries more than $250 million every year, $250 million dollars that could have been invested in schools, health care, power and communication infrastructure, and domestic industries. In essense, developing countries pay, in both lost revenues and human health, to beef up the stock portfolios of investors in big-Ag.

This isn’t even the worst of it. The sugar industry of Florida notoriously imports labor from Jamaica to assist in the grueling annual sugar cane harvest. For the privelege of cutting sugar cane all day, workers are rewarded a little as $2 per hour and must suffer under prison like conditions. These were most famously document in the fantastic 1990 documentary work of Stephanie Black, “H2 Worker.” Conditions may or may not have improved, to my knowledge they may have not. How could a business model used for the past 500 years change overnight? Slavery and the sugar industry built the United States; we won’t let go of it so easily.

The health of this criminal industry depends on massive subsidies from the US Government, who will happily turn a blind eye to the reprehensible conditions that workers slave under. Worse yet, as in interview with the late progressive Jamaican Prime Minister Michael Manley reveals, these subsidies prevent Jamaica (or even Haiti) from successfully developing its own sugar industry, thereby robbing a struggling country of a chance to lift itself out of poverty.

All of the large agricultural conglomerates that have headquarters in the United States such as Cargill, Bunge, Monsanto and Archer Daniels, and the beneficiaries of continued agricultural subsidy programs are internationally owned conglomerates that operate throughout the globe. Thus, in addition to the massive negative worldwide implications of commodity subsidies I just mentioned, the question of political sovereignty must also be addressed. Lost in neo-liberal right wing discussions is the role of international bodies in determining United States domestic policy. To me, the very idea of sovereign states in the 21st century is but an illusion and passports really just serve as protectionist labor schemes. Worse yet, democracy itself is called into question, when the money of the worldwide elite are able to shape US policy to serve its own narrow goals.

Food Week Post 2: How a Few Guys on Wall Street Control the Price of Food

Worldwide Price of Food

Anyone who has been to a grocery store in the past 2 years can tell you that food prices have increased. Intuitively, one would think that a few key factors have contributed to this rise in food costs.

Rising fuel prices increase the price of delivery. Rising demand for food from an increasing world population, and demand for protein rich foods from a rapidly urbanizing world, specifically from the emerging economies of China, India and Brazil increase demand for grains. A turn toward using biofuels increases competition for grains that would normally go to feed humans and livestock. Climate change and extreme weather events create a volatile agricultural market.

However, despite all these very obvious players, the amount of volatility seen in the food commodity markets is unprecedented. Agricultural production, though regionally volatile, has not experienced the same level of fluctuation as that of prices in the food commodities markets. Energy demand and production, though increasing, also do not exhibit the same behavior. Conflicts have negatively affected market prices in certain commodities, most notably that of cocoa due to recent political conflict in the Ivory Coast, but, the large ag-producing countries of the United States, China, India and Brazil have experienced no such disruptions. In fact, China and Brazil, despite a growing population and experiencing an expansion of the middle class, are still largely able to maintain food security.

In short, demand is rising, though not volatile. Supply also, is rising, though not volatile. One can make the argument that volatility in the oil markets is spilling over into grain commodity markets, but biofuels still only account for a small percentage of energy use. These factors do little to explain the large fluctation of the of the food commodity markets that we are experiencing today.

According to a UN Conference on Trade and Development report

• “these factors (rising food demand, biofuels, climate change) alone are not sufficient to explain recent commodity price developments; another major factor is the financialization of commodity markets. Its importance has increased significantly since about 2004, as reflected in rising volumes of financial investments in commodity derivatives markets – both at exchanges and over the counter (OTC). This phenomenon is a serious concern, because the activities of financial participants tend to drive commodity prices away from levels justified by market fundamentals, with negative effects both on producers and consumers.”-UNCTAD, 2011

Effects of 1% Change in Worldwide Food Prices on Local Prices

Prior to the private equity bubble (remember the dot-com bubble?) of 2000, financial markets relied on investments into stock equities. Following the burst of what was up until then an unheard of rise in the financial markets, investors, speculators and hedge fund managers moved increasingly toward commodities investments outside of the traditional equity markets. Financial investors seeking new opportunities, moved toward to commodities markers, including oil and food, anticipating rising worldwide demand. Commodities of all kinds were financialized and brought into the portfolios of hedge funds and money markets.

I am not an economist. Through my limited understanding of futures markets, I think that what I understand is this: Prices of commodities are usually set on a supply and demand basis, with considerable elasticity. If one wants to buy gold, for example, demand and supply work to set prices. If one wants to take advantage of cheap gold now, all one has to do is buy and store to sell it later. The storage costs must be rolled into the final resale price. With oil and agriculture, the model is similar, but these commodities can only be stored temporarily, before they are unsalable (rot). Thus, as there is little to hedge against future risk, speculators will buy contracts for future, as yet unproduced, goods at set prices. This practice is not uncommon and was originally conceived to protect American and European farmers from risk and to insure consistent supply and price in the market.

What is different now is that interest prices are rolled in based on the length of contract, linking worldwide financial markets with the prices of commodities and distorting the true supply and demand relationship. As futures, by definition, are conceived to protect investors from risk, they are a perfect target for large hedge funds, which protect large investors from long term risk. The tying of interest rates into commodity prices means that end prices will fluctuate wildly with the market, while protecting investors from losing their shirts.

One important way that hedge funds minimize long term risk, is through machine trading. Computers and mathematical models available market information, predict future fluctuations and sell when necessary. What this does is insert an even greater level of volatility into the market. Sudden sales of commodity futures will induce other funds to sell as well, creating a herd effect of commodity sales that has little to do with true supply and demand models. Imagine how flocks of birds or schools of fish move in response to one change in direction by a member of the group and you can get an appreciation for how machine trading works.

We are already seeing the effects of the financialization of food commodities. There was an unprecedented rise in food prices during the period of 2000-2007. The financial crash of 2007, brought in part by the activities of the very same financial players that are driving food prices up, saw a drop in prices, but as the market rebounds, prices are increasing once again, now higher on average than they were in 2007.


In fact, futures markets in commodities are exploding with the number of contracts rising to never before seen levels over the past decade as can be seen in the figure to the right.

Der Spiegel recently penned an excellent article on the rising price of food. In it, they spotlighted scumbag of the week, Alan Knuckman. Mr. Knuckman and a host of other US and worldwide speculators are unconcerned as long as the money is flowing to them. To Mr. Knuckman, he could be investing in GM, a new chain of box hardware stores, big pharma, copper, oil or food for kids, it’s all the same as long as it brings him a profit. In fact, he is quoted as saying, without a hint of irony, “the age of cheap food is over. Most Americans eat too much, anyway.” Yep, these dirtbags are just like the rest of America, blind to whatever happens outside their own gated communities.

Rising food prices are not a problem for Americans. In fact, we only use, on average, 13% of our income on food. In places like Kenya, however, food can consume nearly 100% of a household’s monthly income. In Kenya, food must be imported to account for shortages due to underdeveloped ag and transportation infrastructure, which prevents Kenyans from protecting themselves against extreme weather events and disruptions in supply. Even a 1% shift in the worldwide price of food can spell death for an Kenyan infant. What we have seen, however, is not a 1% shift, but rather a 71% increase in the worldwide price of grains since 2007. In Kenya, the price of corn meal has shot up 100% in the past five months. To Knuckman, this is just “an undesirable side effect of the market,” kind of like having to drink coffee that sat in the pot too long and turned bitter.

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