The Global Food crisis is the fallout from the failure of Western Capitalism

The past few weeks have increasingly seen disturbing headlines being made by the soaring cost of basic food commodities and subsequent ‘food riots' in many countries around the world. The price of wheat alone has increased an astonishing 120% in the last year, with the price of rice increasing by 75% in the last two months alone. The World Bank has warned that these price levels will be maintained until the year 2015. Many poor people around the world who already spend most of their disposable incomes on food are suddenly finding it impossible just to feed themselves. With riots and protests seen as far as wide from Haiti to Indonesia, the lack of food has the potential to create geo-political upheaval.


Several reasons have been put forward by Western politicians' and the mainstream Western media to explain the sudden price surge. The most commonly offered explanation is that food demand has just increased globally over the last few years. In particular they cite the growing economies of China and India as having tightened global supplies of wheat, rice and corn; as they grow more affluent they are increasing their demand for meat based products for which these food stuffs are essential. They also cite poor harvests recently, particularly in Australia the world's number two wheat producer, due to the ongoing drought the country is experiencing. Another reason put forward is that a wheat fungus is striking parts of Eastern Africa, Yemen, Iran and possibly Pakistan as well. These increases together with the increase in Corn price have been blamed on the growth in countries such as Brazil and America using land to grow Corn for bio-fuel derived Ethanol as a substitute for petrol. Thus, according to their argument, the land that could be used to grow wheat and rice is being lost.


These reasons in themselves whilst having some merit for consideration, do not explain the sudden surge in prices globally in such a short space of time. Despite all the claims about corn being used for bio-fuel, corn price has only increased by a relative modest 31% as compared to the triple digit increases in wheat and rice prices in the last year. The populations of India and China have not increased to their present size in the space of a year, let alone two months. Neither have they grown proportionately affluent in the same space of time. China's economic growth has been underway for the last 30 years since it first started to reform it's centrally controlled economy. India too has also introduced free market reforms since the early 1990s. Moreover global food production has increased twice as fast as the increase in the world population in the last 25 years. Last year the world produced a record 2.1 billion tonnes of grains, an increase of 5% on the year before. Moreover there is room to increase global yields. The most shocking statistic perhaps though is that of the total 2.3 billion tonnes of food to be produced this year, only 1.01 billion is expected to be consumed.


This highlights globally the failure to make better use of existing food produce and to distribute it more efficiently and fairly. Whilst some food stock will inevitably be destroyed due to poor storage, the fact remains that man-made policies have encouraged poor use and wastefulness. The European Union has for many years given it's farmers generous subsidies under it's Common Agricultural Programme (CAP). The result has been that overproduction has taken place where excess ‘food mountains' have been deliberately destroyed in the past. Where they have been have given to the poor in other parts of the world, they have been dumped at lower than the production cost, ruining local producers. America too provides it's farmers generous subsidies. The result is that whilst the IMF and the World bank force third world countries to end any support they may give to their farming industry under the pretext of encouraging efficiency, market liberalisation and structural reforms, Western farmers derive a major portion of their income from government subsidies.


However none of this explains the sudden rise in global commodity prices. Yet what is apparent is that in almost the same period the global credit crisis has dramatically matured. Western bankers, economists and politicians have all failed to publicly link the two crisises; in reality these are two sides of the same coin, the failure of Western imposed global Capitalism.


The cause of the global credit crisis lies at the feet of the prized global ‘investment' banks. Hedge fund managers who ‘betted' correctly on the direction of the US housing market have made billions of dollars out of the misery of millions. Even western banking officials admit that the cause of the global financial crisis lies in the lavish compensation packages designed for banking executives and fund managers who had no long term interest in the banks and the financial system that employed them.


Part of the reason why food prices have now surged is because of the role of traders or speculators who have sought to diversify investments away from bonds, securities and generally mortgage related debt held by these banks. These are now regarded as very bad investments. With money being diverted into buying stocks of wheat, corn and oil at some point in the future, using futures' contracts, this speculation is a self feeding cycle of frenzied increases.


However this is only part of the reason. In the period that has passed we have seen Western Central Banks led by the Federal Reserve Bank of America pump hundreds of billions of dollars into the Western banking system to save their banks and their financial system. This is one of the consequences that America has utilized ever since it de-linked it's currency from the Gold standard. To a lesser extent we have have also seen billions of pounds and euros also injected by their respective central banks. Western governments have chosen to bail out these banks by printing and lending them money, an expansionist monetary policy, rather than risk the inevitable political consequences of these banks going bankrupt. The result of this increase in the global money supply has been global inflation. This in turn has naturally forced up the prices of goods and services denominated in dollars, pounds and euros. As the supply of dollars globally has increased, the dollar has devalued. This situation has been compounded by the bloating US trade and budget deficits in recent years. The total US external debt is estimated at over $12 trillion dollars, or 88% of GDP.


Most commodities including oil and food, such as rice, wheat and corn, are denominated and traded in dollars. By far the biggest injection of more money has been in dollars. The current crisis has been exasperated by the fact that most countries around the world, particularly poorer third world countries, hold foreign currency reserves mostly in dollars. As the value of the dollar has decreased, the worth of these dollar reserves has eroded whilst food prices have increased in proportion to the dollar's fall. Countries which rely on importing food grains, especially those traded in currencies other than the dollar have suffered greatly (the following poor countries import the stated percentage of their food: Eritrea (88%), Sierra Leone (85%), Niger (81%), Liberia (75%), Botswana (72%), Haiti (67%) and Bangladesh (65%)). As a result prices for food and other imported goods and services have increased in proportion to the inflationary effect. The sub-prime credit crisis has been exported to the poorest parts of the world by America, Britain and other Western governments in order to save their financial system from ruin by literally printing more paper.


Another reason why the this bad situation has become even worse is because of the record oil price. Oil itself is traded in dollars and thus is subject to the same inflationary effect seen with food commodities. Yet the apparent reason given for the increase in the oil price is increased political uncertainty in the Middle East and tightening of supply because of growing demand from India and China. However India and China have made steady economic progress over years, not over the last few months. As such their oil demand will be already factored into futures oil contracts. The oil price though has seen consistent huge increases in the last few months. Iraq's oil production too despite all the problems of occupation has recovered to pre-war levels and with no loss of supply elsewhere this argument is also not credible. Even if one accepted the argument over the role of oil speculators, it only serves to prove the flaws in the Western financial trading system. These speculators can demand oil price increases merely on ‘political uncertainty' even though there is no actual reduction in oil supply, causing immense hardship to people around the world. With Western oil giants continuing to make record profits it is clear that on the other hand the cost of oil production is still low and supplies of oil sustained. These oil prices could be held down by passing on to the consumer what they are now taking in hugely increased profit. To put this in perspective, Shell made $9.65 billion in the entire year of 2002. In the first quarter of 2008 Shell made $7.8 billion alone.


The result is that oil derived fertilisers, pesticides and other inputs essential for agriculture have all increased in cost. Like anything else, food also needs to be distributed and transported. With the cost of fuel so high, it is inevitable that this growing increase in fuel price will be passed on to the end consumer. All of these factors taken together have contributed to the catastrophic increase in the price of food globally.


In the Muslim world this situation has been made worse because Arab countries such as Saudi Arabia have pegged their currencies to the dollar. As the US dollar's value has fallen, so has the value of their local currency. This has pushed up the cost of every item that is imported, cruelly exposing the ordinary person. Salaries and wages have not increased for many people, resulting in the current severe price increases being seen. In Egypt, people are finding it difficult to obtain their daily bread and the army has been drafted in to try to produce and distribute bread using army supplies. Egypt faces an inflationary crisis. The betrayal of the Muslim rulers is most apparent here again; there is no economic advantage to be gained by pegging their domestic currency to the dollar. Yet these treacherous rulers continue to do so as the price they must pay in return for American protection and support. If they ditched the dollar it would further erode the already plummeting value of the dollar, thus precipitating a real economic crisis for America, perhaps something worse. Together with the fact that oil is also denominated in dollars by countries such as Saudi Arabia, these Muslim rulers are helping to prop up America's economy and thus it's ability to continue waging war in Iraq, Afghanistan and elsewhere.


In Islam, it is an obligation upon the ruler, the Khaleefah, to ensure that people have access to food, clothing and shelter. The Khilafah must ensure these needs are fulfilled. This is because Muhammad(SAW) said:


"The son of Adam has no better right than that he would have a house wherein he may live and a piece of cloth whereby he may hide his nakedness and a piece of bread and some water" (Tirmidhi)


Whilst Islam allows individuals and companies to trade amongst each other to make profit, it does not allow essential public utilities and resources to be placed under private ownership. Muhammad(SAW) elaborated on this saying:


"Muslims are partners in three things: in water, pastures and fire"

(Narrated by Ibn ‘Abbas and reported by Abu Dawud)


This means that resources such as oil and gas would not be turned over to private companies to be ruthlessly exploited as is the case today.


The global food shortage in the coming months will further intensify as the increase in money supply slowly distributes itself through the western dominated financial system and economies around the world. As Western governments continue to pump money into their failed financial systems, the full effect of inflationary pressures are yet to be felt. In all of this the one thing that stands out is the failure and greed bred by the Western enforced global capitialist system. With minimal regulation in Western countries, mainly as the result of close ties between politicians' and big business, this was a situation that was waiting to happen. As a result the poor and vulnerable around the world are having to suffer for the folly of Western bankers. The Western democratic and capitalist system has truely demonstrated it's failure on a global scale.