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Global food bubble on the way? Pt.2


Jayati Ghosh: We have to ban finance speculation that does not physically hold food commodities -   May 6, 2010
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Bio

Jayati Ghosh is professor of economics and currently also Chairperson at the Centre for Economic Studies and Planning, School of Social Sciences, at the Jawaharlal Nehru University, in New Delhi, India. Her specialities include globalization, international finance, employment patterns in developing countries, macroeconomic policy, and issues related to gender and development. Among other books, she has co-authored (with Prof. C.P. Chandrasekhar) Crisis as a Conquest: Learning from East Asia, The Market that Failed: A Decade of Neoliberal Economic Reforms in India and Work and Well-Being in the Age of Finance. She is one of the founders of the Economic Research Foundation in New Delhi and is on the board of various other social research organizations. Since 2002 she has been the Executive Secretary of International Development Economics Associates (IDEAS), an international network of heterodox development economists www.networkideas.org.

Transcript

Global food bubble on the way? Pt.2Jayati Ghosh Interview (2 of 2)

PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I'm Paul Jay in Washington. And joining us again to talk about the global food price bubble is Jayati Ghosh. She's a professor of economics at the Centre for Economic Studies and Planning at the School of Social Sciences at JNU in New Delhi, India. Her recent book is titled After Crisis. And she joins us from the PERI institute in Amherst, Massachusetts. Thanks again for joining us, Jayati.

JAYATI GHOSH: Thank you.

JAY: So, in the first segment we talked about being, all of us on this globe, at the beginning of another bubble of food prices, fuel pushed by global finance companies. What can we do about it?

GHOSH: Well, there are many levels at which we have to have action. First, of course, as I said, because so much of this recent volatility is about global finance making hay while the rest of the world suffers, you have to control the finance. And what's important is that this financial regulation has to cover more than just how banks behave in general. It has to look specifically at the commodity futures market. We have to ban the entry of players who don't actually hold, physically, those commodities. So we have to ban financial players from entering a green market.

JAY: So this is, essentially, stop the casino side of all of this.

GHOSH: Absolutely. You know, the point about a futures market is that it's supposed to allow for hedging and it's supposed to allow people to hedge against future risk, both the producers and the consumers. But if it becomes so volatile because people are in there for speculative motives, then it doesn't serve that function at all. So we have to actually bring back regulation that prevents companies, financial companies, from entering into something without actually holding the physical stocks. That's number one. That means a range of financial regulation, which is, unfortunately, not being considered by the US properly. And when the US government suggests that it might do something like this, then they're threatened that, well, then we will move the trade to London. So this needs a concerted international effort. So that's the first thing. But that doesn't solve the underlying problem, and it also doesn't solve the problem of specific developing countries. So there are international and national measures that are required. One is that countries that have succeeded in weathering this price hike better are those that have a much larger domestic supply and have domestically managed to hold stocks and strategic grain reserves. So it's very important for countries to do this. Countries like India and China are large countries. They can try and do this on their own. They can try and improve domestic production by making agriculture viable, and hold domestic stocks of food grain and distribute this in a public system to actually prevent the price rise. But small countries can try and do this, too. They have to get together. They have to have regional arrangements to hold grain reserves and to prevent kind of being at the mercy of these destabilizing movements.

JAY: There's a lot of pressure on small countries not to do it. The food-producing countries say, you know, we'll produce the food, and you can produce some kind of cash crop.

GHOSH: Absolutely. In fact, the IMF has been leading the pack. The World Bank and the IMF persuaded Malawi, a very small sub-Saharan African country, to drop its entire program of public procurement and distribution. And within two years, Malawi had a very major famine. At that point, World Bank turned around and said, oh, it's because of crony capitalism and because you're all corrupt, and so on. But if they had maintained their holding of public reserves, they would not have had this famine. And now, in fact, Malawi decided to forget about World Bank advice, go ahead with subsidizing farmers to actually improve productivity on the land, and hold public reserves. So it has managed to weather this latest storm better than other countries that are still listening to the Washington group.

JAY: Now, has the global surge in prices affected people as much in the major industrialized countries, for example in the United States or Canada or England?

GHOSH: Well, not so much, because, for one thing, food is a much smaller part of the total, you know, basket of consumption. But in the period when it was rising very rapidly,—pasta prices were doubling in Italy, and there was a lot of noise in Italy about, you know, how can you have this kind of price rise. But what is really bad is the way it's affecting the developing world. Remember, we're talking about a very large part of the population that is already at the margin of subsistence.

JAY: Now, in 2008 we saw some major protests against the rise in food prices all over the developing world. Are we starting to see that again now?

GHOSH: You know, we will definitely—it is becoming a very important political issue in a number of countries already. In India, a food price rise, it's a 20 percent in food price inflation in the last one year, when average inflation rates are less than 5 percent. And so, then, in the last two years there has been nearly 50 percent increase in food prices, when most people's wages have not increased at all. So this has become a very hot political issue in India at the moment.

JAY: To what extent is the issue of biofuels an issue? This speculation on food prices is not just really about food anymore. It's a speculation on fuel.

GHOSH: Well, to some extent. But, you know, the point about biofuel is a deeper problem. When I said that the recent increase is really only about finance, I didn't want to underplay the fact that there are supply changes that matter. I mentioned one important supply chain, which is going to affect the medium term as well, which is the neglect of agriculture in the developing world. But there's another very important thing, which is a more short-term effect, and that is the whole subsidy to biofuels. We can really date the big increase in this subsidy from about 2004, when it became clear to George Bush that he wasn't winning the war in Iraq and he couldn't control oil supplies to the extent that he expected. And so he gives this very large subsidy to biofuel production in the United States, which transforms about one-third of maize production and increases a very large area of acreage diverted to biofuels. The same thing has happened in the European Union: about half of the imported maize and about one-third of the domestic production is now diverted to biofuels. We all know about sugarcane ethanol in Brazil and how that is leading to the deforestation of large parts of the Amazon. So I think this particular thing about the emphasis of subsidies to biofuels is important, because it has led to and is likely to lead to an increase in diversion of both acreage and output to nonfood use. Now, that has a knock-on effect on other food prices. Also, as the price of petrol goes up—you know, petrol is a very important import in agricultural production, not just because it helps in irrigation, it enters into fertilizer, but also because of transporting agricultural goods. So the price of food is often intimately related to the price of petrol. It feeds in directly.

JAY: So if you're an ordinary American or Canadian and you're not seeing any action at the government level, either on regulation or some of the other issues, what would you be demanding from politicians now?

GHOSH: Well, I would be demanding a lot of action of the government level in terms of, first of all, encouraging agriculture to actually produce more food through various different kinds of incentives and subsidies, making agriculture viable, of course in developing countries, but also the developed countries, where farmers do not get the benefit of most of the subsidies—most subsidies go to agribusiness. Encouraging the creation of grain reserves that prevent very volatile increases in prices. So if you have sufficiently large reserves, then food cannot be an area of speculation, it can't become this rampant kind of financial free-for-all that we have seen. We have to have sufficiently large grain reserves that can prevent that kind of crazy movement of the prices.

JAY: Thanks very much for joining us, Jayati.

GHOSH: You're welcome.

JAY: If you like this story, you can text us $5 at 85944. Send us the word "News" if you're in the US, and if you're not in the US, as I say, click Donate. And thank you for joining us on The Real News Network.

END OF TRANSCRIPT

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