Price Anger Roils Developing World

By N. Gunasekaran

The growing protests against hikes in prices of essential commodities have gained global momentum. The massive nationwide industrial strike by millions of workers in India on Aug. 20 was a historic one. In many countries, including Thailand, Pakistan, Cameroon, Ethiopia, Honduras, Indonesia, Madagascar, Mauritania, Niger, Peru, Philippines, Senegal, Thailand, Uzbekistan and Zambia, the issue of rising prices has caused social unrest. In Bangladesh, more than 20,000 workers from textile factories went on strike to demand lower prices and higher wages. The Egyptian government tried to prevent a general strike, killing two people and imprisoning more than 600 workers.

Such agitations are inevitable. The skyrocketing prices of foods like wheat, corn and rice are catastrophic for the 2.6 billion people around the world who live on less than $2 a day. The UN Food and Agriculture Organization revealed that between March 2007 and March 2008 prices of cereals increased 88%, oils and fats 106% and dairy 48%. The prices of the 60 agricultural commodities traded on the world market increased 37% last year. The prices of corn, wheat, soybean and cooking oils had soared to record levels. The prices of rice have also risen over 100%.

Today, both the developed and developing economies are hard hit by rising inflation. The US consumer prices rose by 5.6% in 2008 through July, which is the highest in the past two decades. In India, the rate of inflation had hit a high of 12.44%, the highest in 13 years.

A study by the UN’s Food and Agricultural Organization said that the levels of food imports in 1995-98 exceeded those in 1990-94 in many developing countries. This was on par with the main goal of the WTO’s agreement, which demands the developing countries to open up their markets to absorb surplus production in the Northern Hemisphere. The penetration of multinational agricultural corporations such as Cargill and Monsanto into the developing countries to sell seeds, fertilizers and pesticides and to process raw agricultural products to export or sell them through large supermarkets is not only pauperizing the large community of small farmers but also increasing the cost of food grains. In India, the big corporations are allowed free entry into the procurement process of food grains. They were procuring food grains from farmers at a slightly higher rate and holding the stocks to indulge in speculation. This has further increased the prices of foods. While 3 billion people across the world are either malnourished or starving due to high costs of food, corporate agribusiness is getting huge profits. The time of price increases is obviously more conducive for thriving corporate profits.

The official policy in the US, Canada and Europe to convert food into fuel has impacted the rising costs of the food. Producing corn to make ethanol or soybean and palm oil to make diesel fuel is certainly becoming harmful for the people who rely on these crops as foods at affordable prices. The same quantity of corn used in the US vehicles as fuel equals the import needs of 82 poorest countries.

India and China had achieved food self-sufficiency. Now both are turning into food importers. This is not desirable for the vast majority of population in India, since they cannot afford the high cost of imported foods, with their declining purchasing capacity. Speculation in the futures market and local hoarding are also making food more expensive.

The hike in oil prices, from $25 a barrel in 2003 to over $140 in July have had cascading effects on the price front. The declining value of the US dollar made the oil-producing nations raise prices to compensate for the falling value of their payments they receive. The US threats against Iran, the continuing occupations in Iraq and Afghanistan, the deadlock in the Middle East, dwindling petroleum resources and increasing demand from the developing economies like China and India are some of the factors for the oil-price hikes. Apart from these obvious reasons, the fact that the US-based international financial companies like the Citigroup, JP Morgan Chase, Morgan Stanley and Goldman Sachs, have put huge funds into the oil futures market to make speculative profits is also one of the reasons for oil price-hike. These financial speculators along with the multinational grain traders like Cargill, Monsanto, Syngenta and fertilizer companies are also responsible for the sharp increase in prices of essentials.

Across the world, no government is effectively intervening in the market to control prices. The ruling elites don’t like to curb the profits of corporate giants, traders and speculators. Political classes in both the US and India took some monetary steps like raising interest rates. They say that, with the increased interest rates, there would be slow down in credit growth, consumption and investment and in overall demand and it would consequently bring down prices. But the inflation is driven by sharp increases in prices of food and fuel, which are essential commodities. People don’t reduce their consumption even if their prices go up. Instead, people reduce expenditure on other non-essential items. In countries like India, raising interest rates makes credit more expensive for farmers, small and medium industries and middle-class borrowers.

On the whole, the profit-driven global corporate system is responsible for the increases in oil and food prices. The global inflation and the global food crisis is primarily an outcome of the free-market oriented neoliberal policies. The solution to the current inflation, therefore, lies in the reversal of these policies, both domestically and globally.

N. Gunasekaran is a political activist and writer based in Chennai, India.

From The Progressive Populist, Sept. 15, 2008

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