After Egypt, Who's Next?

Two weeks ago, I had posted on my Facebook wall a link to Dr. James Hamilton's blog post, Geopolitical Unrest and World Oil Markets. In that post Dr. Hamilton (of the University of California, San Diego) showed that there is a possible inverse relationship between a country's oil production and that country's political instability. Meaning, those countries with low levels of oil production were among the first to revolt, whereas countries with high oil production have shown greater stability. The implication is that the lack of petrodollars had not provided enough of a political safety net for the governments to cover their weak economies.

Hamilton's brief analysis covers (in the order of increasing oil production as a percentage of the world total) Lebanon (0.0%), Tunisia (0.1%), Yemen (0.3%), Sudan (0.6%), Egypt (0.8%), Libya (2.1%), Algeria (2.5%), Iraq (2.7%), Iran (4.9%), and Saudi Arabia (11.7%).

Now, if Hamilton's thesis is correct, then Egypt appears to be the last of the "low-hanging fruit" to have undergone political unrest. Theoretically, then, Libya and/or Algeria should be the next to revolt.

The potential problem with this analysis is that it doesn't explain all of the recent events in the Middle East and North Africa or the lack thereof. For example, Lebanon and Sudan have had long-standing government instability; that they should be undergoing problems now (such as the collapse of the government in Lebanon or the recent referendum in Sudan to split the country into two) are not terribly surprising given these countries' histories.

Likewise, I suspect that some countries that should have gone into turmoil may have had their chance but won't either because their societies are too stable (Morocco? Oman?) or because the state's security apparatus is too strong (Syria?).

What the professor also didn't mention was that Iran, which is second only to Saudi Arabia in oil production, already had its instability in the Green Movement protests of June 2009 that were quashed. I'm not expecting another major uprising in Iran (a la Tahrir Square) anytime soon.

What I think the protests really point out is that standards of living matter. Even more so than a lack of democracy, the economic corruption that pervades certain countries' economies is ultimately the straw that breaks the camel's back, so to speak. I say this with not only the Arab revolts currently going on in mind, but also the dissolution of the Communist bloc in Eastern Europe in 1989, which underwent similar revolutions for similar reasons. Republicans in the United States, who seem hell bent on trying to lower American standards of living, should take note of the potential consequences for their actions.

Jeffrey D. Sachs: Surging Food Prices Mean Global Instability

Quite by coincidence, I came across the following article from Scientific American just a short time after publishing my last post. This article, by Jeffrey Sachs, Director of the Earth Institute at Columbia University, focuses primarily on one of the root causes of the current food crisis, the conversion of maize ("corn" to us Americans) into ethanol. One of the good things about this article is that four recommendations are given, the first of which ties in very well with the food sovereignty idea/Malawi case study mentioned in my previous post.

While you're at it, you should also read Angry Bear's The Biofuel-Backlash Backlash and Econbrowser's Reconciling Estimates: Biofuels and Food Prices.

The recent surge in world food prices is already creating havoc in poor countries, and worse is to come. Food riots are spreading across Africa, though many are unreported in the international press. Moreover, the surge in wheat, maize and rice prices seen on commodities markets have not yet fully percolated into the shops and stalls of the poor countries or the budgets of relief organizations. Nor has the budget crunch facing relief organizations such as the World Food Program, which must buy food in world markets, been fully felt. The results could be calamitous unless offsetting policy actions are taken rapidly.

The facts are stark. A metric ton of wheat cost around $375 on the commodity exchanges in early 2006. In March 2008, it stood at over $900. Maize has gone from around $250 to $560 in the same period. Rice prices have also soared. The physical inventories of grain relative to demand are also down sharply in recent years.

Several factors are at play in the skyrocketing prices, reflecting both rising global demand and falling supplies of food grains. World incomes have been rising at around 5 percent annually in recent years, and 4 percent in per capita terms, leading to an increased global demand for food and for meat as a share of the diet. China’s economic growth, of course, has been double the world’s average. The rising demand for meat exacerbates the pressures on grain and oil-seed prices since several kilograms of animal feed are required to produce each kilogram of meat.

Feed grains have risen from around 30 percent of total global grain production to around 40 percent today. Land that would otherwise be planted to the main grains is shifting to soya bean and other oil seeds used for animal feed. It is forecast, for example, that U.S. farmers will cut maize plantings by 8 million acres, while raising soya-bean production by about the same amount. The grain supply side has also been disrupted by climate shocks, such as Australia’s massive droughts.

An even bigger blow has been the U.S. decision to subsidize conversion of maize into ethanol to blend with gasoline. This wrong-headed policy, pushed by an aggressive farm lobby, gives a 51-cent tax credit for each gallon of ethanol blended into gasoline. The 2005 Energy Policy Act mandates a minimum of 7.5 billion gallons of domestic renewable-fuel production, which will overwhelmingly be corn-based ethanol, by 2012. Consequently, up to a third of the U.S. mid-Western maize crop this year will be converted to ethanol, causing a cascade of price increases across the food chain. (Worse, use of ethanol instead of gasoline does little to reduce net carbon emissions once the energy-intensive full cycle of ethanol production-- including the energy-intensive fertilizer and transport needs --is taken into account.)

The food price increases are pummeling poor food-importing regions, with Africa by far the hardest hit. Several countries, such as Egypt, India and Vietnam, have cut off their rice exports in response to soaring prices at home, thereby exacerbating the effects on rice-importing countries. Even small changes in food prices can push the poor into hunger and destitution: as famously expounded by Nobel laureate Amartya Sen, some of the greatest famines in history were caused not by massive declines in grain production but rather by losses in the purchasing power of the poor.

At a time when hundreds of billions of dollars each year veer to war rather than peaceful development, and when media attention is riveted on the U.S. financial crises, it is hard to raise even a few billion dollars for desperately hungry people. Still, it is urgent to do so. At least four measures should be taken in response to soaring food prices.

First, the world should heed the call of U.N. Secretary-General Ban Ki-moon to fund a massive increase in Africa’s own food production. The needed technologies are available—high-yield seeds, fertilizer, small-scale irrigation—but the financing is not. The new African Green Revolution would initially subsidize peasant farmers’ access to high-yield technologies and thereby at least double grain yields. The funding would also help farm communities establish long-term micro-finance institutions to ensure continued access to improved agricultural inputs after the temporary subsidies are ended in a few years.

Second, the U.S. should end its misguided corn-to-ethanol subsidies. Farmers hardly need them given world demand for food and feed grains. There is certainly a case for re-doubling the scientific efforts to produce bio-fuels on lands which do not compete with food crops, for example from cellulosic ethanol, but this technology is still not ready for the market.

Third, the world should support longer-term research into higher agricultural production. Shockingly, the Bush administration is proposing to cut sharply the U.S. funding for tropical agriculture research in the Consultative Group for International Agriculture Research (CGIAR), just when that research is most urgently needed. This is an example of the Administration’s anti-scientific approach at its worst.

Finally, the world should follow through on the promised Climate Adaptation Fund announced last December in the Bali Climate Change conference, to help poor countries face the growing risks to food production from increasingly adverse climate conditions. Even as the world staunches the immediate crisis, there will be more wrenching dislocations as drought, heat stress, pest infestations and other climate-induced shocks occur increasingly often.

HT: Economist's View

Walden Bello: Manufacturing a Food Crisis

In reading this important article by Walden Bello in The Nation, one wonders who the people at the World Bank, the International Monetary Fund (IMF) and the World Trade Organization (WTO) really are: dogmatic eggheads who blindly follow the "free trade" mantra without regard to the human consequences, or useful fools working on behalf of rich northern nations and corporations? Perhaps both. Bello shows that, since the early 80s, the World Bank, IMF, WTO and free trade agreements like NAFTA have caused several nations (Mexico and the Philippines are given as examples) to go from being net exporters of food to net importers, largely as a result of World Bank and IMF policies that helped keep several governments solvent but at the expense of ruining local farmers. The countries were forced to accept highly subsidized food imports from the U.S. and the European Union or, in the case of Malawi, to sell off their food reserves in return for loans. In the meantime, more and more farmers are committing suicide (especially in India) as their livelihoods are ruined, and about 1,500 Malawians died from starvation when a famine struck that country in 2001-02, when little food was available because the country had been forced (earlier) to sell their food reserves. (One wonders whether the IMF and the other NGOs realize how much blood is on their hands.) The case of Malawi is particularly rich with irony considering that the World Bank forced the Malawian government to scrap a subsidy program for its farmers (which had been very successful, bringing in a bumper crop of corn), because "the subsidy distorted trade." And, yet, "[s]ince the late 1990s subsidies have accounted for 40 percent of the value of agricultural production in the European Union and 25 percent in the United States." What hypocrisy.

There is nothing wrong with international trade; we all benefit by it. But "free" trade often isn't free and can carry an extremely heavy cost. Trade, like anything else, needs to be regulated if it is to work most effectively. Obviously the human costs, in terms of suffering and needless deaths, are factors that need to be considered, but aren't. The suggestion of "food sovereignty," mentioned at the bottom of the article, makes sense. We need to realize that most of these farmers in Mexico, the Philippines, and around the world are among the poorest of the poor who, like everyone else, need to be able to support themselves and their families. Poor national governments need to weigh more carefully the demands of debt servicing by organizations like the IMF and World Bank against the needs of their citizens who are most at risk.

Some excerpts:

However, an intriguing question escaped many observers: how on earth did Mexicans, who live in the land where corn was domesticated, become dependent on US imports in the first place?

The Mexican food crisis cannot be fully understood without taking into account the fact that in the years preceding the tortilla crisis, the homeland of corn had been converted to a corn-importing economy by “free market” policies promoted by the International Monetary Fund (IMF), the World Bank and Washington. The process began with the early 1980s debt crisis. One of the two largest developing-country debtors, Mexico was forced to beg for money from the Bank and IMF to service its debt to international commercial banks. The quid pro quo for a multibillion-dollar bailout was what a member of the World Bank executive board described as “unprecedented thoroughgoing interventionism” designed to eliminate high tariffs, state regulations and government support institutions, which neoliberal doctrine identified as barriers to economic efficiency.

Interest payments rose from 19 percent of total government expenditures in 1982 to 57 percent in 1988, while capital expenditures dropped from an already low 19.3 percent to 4.4 percent. The contraction of government spending translated into the dismantling of state credit, government-subsidized agricultural inputs, price supports, state marketing boards and extension services. Unilateral liberalization of agricultural trade pushed by the IMF and World Bank also contributed to the destabilization of peasant producers.

This blow to peasant agriculture was followed by an even larger one in 1994, when the North American Free Trade Agreement went into effect. Although NAFTA had a fifteen-year phaseout of tariff protection for agricultural products, including corn, highly subsidized US corn quickly flooded in, reducing prices by half and plunging the corn sector into chronic crisis. Largely as a result of this agreement, Mexico’s status as a net food importer has now been firmly established.

With the shutting down of the state marketing agency for corn, distribution of US corn imports and Mexican grain has come to be monopolized by a few transnational traders, like US-owned Cargill and partly US-owned Maseca, operating on both sides of the border. This has given them tremendous power to speculate on trade trends, so that movements in biofuel demand can be manipulated and magnified many times over. At the same time, monopoly control of domestic trade has ensured that a rise in international corn prices does not translate into significantly higher prices paid to small producers.

...

The Philippines provides a grim example of how neoliberal economic restructuring transforms a country from a net food exporter to a net food importer. The Philippines is the world’s largest importer of rice. Manila’s desperate effort to secure supplies at any price has become front-page news, and pictures of soldiers providing security for rice distribution in poor communities have become emblematic of the global crisis.

The broad contours of the Philippines story are similar to those of Mexico. Dictator Ferdinand Marcos was guilty of many crimes and misdeeds, including failure to follow through on land reform, but one thing he cannot be accused of is starving the agricultural sector. To head off peasant discontent, the regime provided farmers with subsidized fertilizer and seeds, launched credit plans and built rural infrastructure. When Marcos fled the country in 1986, there were 900,000 metric tons of rice in government warehouses.

Paradoxically, the next few years under the new democratic dispensation saw the gutting of government investment capacity. As in Mexico the World Bank and IMF, working on behalf of international creditors, pressured the Corazon Aquino administration to make repayment of the $26 billion foreign debt a priority. Aquino acquiesced, though she was warned by the country’s top economists that the “search for a recovery program that is consistent with a debt repayment schedule determined by our creditors is a futile one.” Between 1986 and 1993 8 percent to 10 percent of GDP left the Philippines yearly in debt-service payments — roughly the same proportion as in Mexico. Interest payments as a percentage of expenditures rose from 7 percent in 1980 to 28 percent in 1994; capital expenditures plunged from 26 percent to 16 percent. In short, debt servicing became the national budgetary priority.

Spending on agriculture fell by more than half. The World Bank and its local acolytes were not worried, however, since one purpose of the belt-tightening was to get the private sector to energize the countryside. But agricultural capacity quickly eroded. Irrigation stagnated, and by the end of the 1990s only 17 percent of the Philippines’ road network was paved, compared with 82 percent in Thailand and 75 percent in Malaysia. Crop yields were generally anemic, with the average rice yield way below those in China, Vietnam and Thailand, where governments actively promoted rural production. The post-Marcos agrarian reform program shriveled, deprived of funding for support services, which had been the key to successful reforms in Taiwan and South Korea. As in Mexico Filipino peasants were confronted with full-scale retreat of the state as provider of comprehensive support — a role they had come to depend on.

And the cutback in agricultural programs was followed by trade liberalization, with the Philippines’ 1995 entry into the World Trade Organization having the same effect as Mexico’s joining NAFTA. WTO membership required the Philippines to eliminate quotas on all agricultural imports except rice and allow a certain amount of each commodity to enter at low tariff rates. While the country was allowed to maintain a quota on rice imports, it nevertheless had to admit the equivalent of 1 to 4 percent of domestic consumption over the next ten years. In fact, because of gravely weakened production resulting from lack of state support, the government imported much more than that to make up for shortfalls. The massive imports depressed the price of rice, discouraging farmers and keeping growth in production at a rate far below that of the country’s two top suppliers, Thailand and Vietnam.

The consequences of the Philippines’ joining the WTO barreled through the rest of its agriculture like a super-typhoon. Swamped by cheap corn imports — much of it subsidized US grain — farmers reduced land devoted to corn from 3.1 million hectares in 1993 to 2.5 million in 2000. Massive importation of chicken parts nearly killed that industry, while surges in imports destabilized the poultry, hog and vegetable industries.

During the 1994 campaign to ratify WTO membership, government economists, coached by their World Bank handlers, promised that losses in corn and other traditional crops would be more than compensated for by the new export industry of “high-value-added” crops like cut flowers, asparagus and broccoli. Little of this materialized. Nor did many of the 500,000 agricultural jobs that were supposed to be created yearly by the magic of the market; instead, agricultural employment dropped from 11.2 million in 1994 to 10.8 million in 2001.

The one-two punch of IMF-imposed adjustment and WTO-imposed trade liberalization swiftly transformed a largely self-sufficient agricultural economy into an import-dependent one as it steadily marginalized farmers.

...

A study of fourteen countries by the UN’s Food and Agricultural Organization found that the levels of food imports in 1995-98 exceeded those in 1990-94. This was not surprising, since one of the main goals of the WTO’s Agreement on Agriculture was to open up markets in developing countries so they could absorb surplus production in the North. As then-US Agriculture Secretary John Block put it in 1986, “The idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on US agricultural products, which are available in most cases at lower cost.”

What Block did not say was that the lower cost of US products stemmed from subsidies, which became more massive with each passing year despite the fact that the WTO was supposed to phase them out. From $367 billion in 1995, the total amount of agricultural subsidies provided by developed-country governments rose to $388 billion in 2004. Since the late 1990s subsidies have accounted for 40 percent of the value of agricultural production in the European Union and 25 percent in the United States.

...

This is not simply the erosion of national food self-sufficiency or food security but what Africanist Deborah Bryceson of Oxford calls “de-peasantization” — the phasing out of a mode of production to make the countryside a more congenial site for intensive capital accumulation. This transformation is a traumatic one for hundreds of millions of people, since peasant production is not simply an economic activity. It is an ancient way of life, a culture, which is one reason displaced or marginalized peasants in India have taken to committing suicide. In the state of Andhra Pradesh, farmer suicides rose from 233 in 1998 to 2,600 in 2002; in Maharashtra, suicides more than tripled, from 1,083 in 1995 to 3,926 in 2005. One estimate is that some 150,000 Indian farmers have taken their lives. Collapse of prices from trade liberalization and loss of control over seeds to biotech firms is part of a comprehensive problem, says global justice activist Vandana Shiva: “Under globalization, the farmer is losing her/his social, cultural, economic identity as a producer. A farmer is now a ‘consumer’ of costly seeds and costly chemicals sold by powerful global corporations through powerful landlords and money lenders locally.”

...

At the time of decolonization, in the 1960s, Africa was actually a net food exporter. Today the continent imports 25 percent of its food; almost every country is a net importer. Hunger and famine have become recurrent phenomena, with the past three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, and Southern and Central Africa.

Agriculture in Africa is in deep crisis, and the causes range from wars to bad governance, lack of agricultural technology and the spread of HIV/AIDS. However, as in Mexico and the Philippines, an important part of the explanation is the phasing out of government controls and support mechanisms under the IMF and World Bank structural adjustment programs imposed as the price for assistance in servicing external debt.

...

The support that African governments were allowed to muster was channeled by the World Bank toward export agriculture to generate foreign exchange, which states needed to service debt. But, as in Ethiopia during the 1980s famine, this led to the dedication of good land to export crops, with food crops forced into less suitable soil, thus exacerbating food insecurity. Moreover, the World Bank’s encouragement of several economies to focus on the same export crops often led to overproduction, triggering price collapses in international markets. For instance, the very success of Ghana’s expansion of cocoa production triggered a 48 percent drop in the international price between 1986 and 1989. In 2002-03 a collapse in coffee prices contributed to another food emergency in Ethiopia.

As in Mexico and the Philippines, structural adjustment in Africa was not simply about underinvestment but state divestment. But there was one major difference. In Africa the World Bank and IMF micromanaged, making decisions on how fast subsidies should be phased out, how many civil servants had to be fired and even, as in the case of Malawi, how much of the country’s grain reserve should be sold and to whom.

Compounding the negative impact of adjustment were unfair EU and US trade practices. Liberalization allowed subsidized EU beef to drive many West African and South African cattle raisers to ruin. With their subsidies legitimized by the WTO, US growers offloaded cotton on world markets at 20 percent to 55 percent of production cost, thereby bankrupting West and Central African farmers.

...

In 1999 the government of Malawi initiated a program to give each smallholder family a starter pack of free fertilizers and seeds. The result was a national surplus of corn. What came after is a story that should be enshrined as a classic case study of one of the greatest blunders of neoliberal economics. The World Bank and other aid donors forced the scaling down and eventual scrapping of the program, arguing that the subsidy distorted trade. Without the free packs, output plummeted. In the meantime, the IMF insisted that the government sell off a large portion of its grain reserves to enable the food reserve agency to settle its commercial debts. The government complied. When the food crisis turned into a famine in 2001-02, there were hardly any reserves left. About 1,500 people perished. The IMF was unrepentant; in fact, it suspended its disbursements on an adjustment program on the grounds that “the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets… [are] crowding out more productive spending.”

By the time an even worse food crisis developed in 2005, the government had had enough of World Bank/IMF stupidity. A new president reintroduced the fertilizer subsidy, enabling 2 million households to buy it at a third of the retail price and seeds at a discount. The result: bumper harvests for two years, a million-ton maize surplus and the country transformed into a supplier of corn to Southern Africa.

Malawi’s defiance of the World Bank would probably have been an act of heroic but futile resistance a decade ago. The environment is different today, since structural adjustment has been discredited throughout Africa. Even some donor governments and NGOs that used to subscribe to it have distanced themselves from the Bank. Perhaps the motivation is to prevent their influence in the continent from being further eroded by association with a failed approach and unpopular institutions when Chinese aid is emerging as an alternative to World Bank, IMF and Western government aid programs.

...

It is not only defiance from governments like Malawi and dissent from their erstwhile allies that are undermining the IMF and the World Bank. Peasant organizations around the world have become increasingly militant in their resistance to the globalization of industrial agriculture. Indeed, it is because of pressure from farmers’ groups that the governments of the South have refused to grant wider access to their agricultural markets and demanded a massive slashing of US and EU agricultural subsidies, which brought the WTO’s Doha Round of negotiations to a standstill.

Farmers’ groups have networked internationally; one of the most dynamic to emerge is Via Campesina (Peasant’s Path). Via not only seeks to get “WTO out of agriculture” and opposes the paradigm of a globalized capitalist industrial agriculture; it also proposes an alternative — food sovereignty. Food sovereignty means, first of all, the right of a country to determine its production and consumption of food and the exemption of agriculture from global trade regimes like that of the WTO. It also means consolidation of a smallholder-centered agriculture via protection of the domestic market from low-priced imports; remunerative prices for farmers and fisherfolk; abolition of all direct and indirect export subsidies; and the phasing out of domestic subsidies that promote unsustainable agriculture. Via’s platform also calls for an end to the Trade Related Intellectual Property Rights regime, or TRIPs, which allows corporations to patent plant seeds; opposes agro-technology based on genetic engineering; and demands land reform. In contrast to an integrated global monoculture, Via offers the vision of an international agricultural economy composed of diverse national agricultural economies trading with one another but focused primarily on domestic production.

Walden Bello is senior analyst at and former executive director of Focus on the Global South, a research and advocacy institute based at Chulalongkorn University in Bangkok. He is the author or co-author of many books on politics and economic issues in the Philippines and Asia, including, most recently, Deglobalization (Zed), and recipient of the 2003 Right Livelihood Award, also known as the “Alternative Nobel Prize.” In March he was named Outstanding Public Scholar for 2008 by the International Studies Association.

HT: Economist's View