Food Crises Pummel the Poor, Austerity Multiplies Pain

The
poor spend a greater proportion of their income on food and fuel, and
so, when the prices of both start to rise, poorer households suffer
more. Petrol, diesel, sugar and cereal prices are all up. Poor women,
invariably responsible for household food purchases, are hurt far more
than men - which is why they've protested in India, where food inflation soared to 19.8% just last month.

In the UK, today's inflation figures of just 3.7%
caused alarm - containing much higher rises in food and fuel costs and
disproportionately hitting poorer families there as elsewhere. Of
course, it's not just Britain or the subcontinent where staples are
becoming more expensive. The UN announced that its global food price
index is now higher than it has ever been. Already this year, protesters
have taken to the streets in India, Jordan and Algeria.

Whence
the price rises? One of the reasons for food and fuel inflation lies in
bullish views of the economy. The price of oil is nudging $100 a barrel
again. Not only does this bump the price of fossil fuels directly, but
it hits food too. When the price of oil is high, it becomes economically
attractive to divert crops from use in food to use in biofuels.

Others
blame the weather for the inflation: La Nina, the periodic wobble in
Pacific ocean weather that ripples across the planet, hasn't only been
blamed for the catastrophic floods in Brazil. Argentina has experienced
unusually dry conditions, which have lowered the expectations for their exports of corn and soybeans. Floods in Australia and Indonesia have also stymied production, and last year's wildfires in Russia only made things worse.

It's
true that weather events have had an impact on global markets, but this
is hardly the first La Nina. The historian Mike Davis, in his
magisterial work Late Victorian Holocausts, looked at how the world
responded to the cyclical El Nino/La Nina shocks throughout the 19th
century. In the 1800s, the effects were survivable - but by the 1890s,
in the so-called "golden age of liberal capitalism", weather shocks were
being transmitted directly to the poor through the newly established
system of global commodity markets. And it's these markets that have
recently gone into overdrive.

Deborah Doane of the World Development Movement has noted
that more than $200bn has been poured into food markets since the
financial crisis by speculators hunting for profit, creating volatility.
The leading international grain-trading companies are doing well as a
result. The US agricultural giant Cargill reeled in $1.49bn in windfall
profits in its last quarter, three times its profits the year before.

It
might seem like there's nothing new here. Climate shocks, shoddy
government policy, scalping by traders, speculation by bankers,
biofuels, and a rising oil price. We're not in 2008, though. The oil
price isn't quite in the $150-a-barrel recession-precipitating territory
yet - but that's as far as the good news goes. There are other reasons
to worry. More than a billion people went hungry in 2009, and the shock
of the past two years has stripped assets away from the poor - in order
to survive poverty, many have been involved in distress sales. The last
two years' hunger and malnourishment will have indelibly affected an
entire cohort of children. The recession has meant that more people are
vulnerable to systemic shocks.

But governments are less ready to
buffer those shocks. Perhaps the most significant difference between
2008 and now is that governments are no longer in recession-fighting
mode - they're in inflation-fighting mode. That's a problem when you
look at the kinds of policies that worked to feed the poor over the past
two years. The World Bank's Robert Zoellick calls for freer markets, but researchers at, er, the World Bank found that it's government spending that helps most.

Free
market policies such as cutting import tariffs on food can sometimes
help to lower the price in urban areas. This helps but only, as urban Tunisians understand too well,
if there are jobs and money with which to buy the food in the first
place. Well-designed public-feeding and public works programmes are much
better than free market policies at feeding people. But these
programmes require government spending. They're inflationary.

Now
that governments' great enemy is inflation, the policies that feed the
hungry are precisely the ones under the knife in a global push for
market-friendly austerity. India's home minister, P Chidambaram,
recently admitted that he didn't "have all the tools to control food
inflation". Although countries are scrambling to find ways of bridging
the gaps, the great worry in 2011 is not only that inflation will eat
away everyone's earnings through higher food prices, but that the
institutions and policies that might ward off the worst effects will be
hexed by the markets too.