The Global Food System (GFS) is failing under market forces.
https://poelposition.blogspot.com/2024/04/the-global-food-system-gfs-is-failing.html
Part one
A guest submission from Peter Dawe, Apr 24
The years 2021 through to 2024 have seen radical problems in the food sector. While the system was not working well before 2021, it did more or less grow enough food for the world’s population.
Due to Covid, the Russian Ukraine war, other communal violence and climate issues (uncommonly poor growing weather across the globe, if you do not subscribe to climate change!) the Global Food System has been set off-balance. As a result, (I contend) the global food system has stopped working, and is in danger of failing to feed a significant part of the global population in 2024 onwards.
Note: The Global Food System is a very complex system that interfaces with all other aspects of global society. This paper of necessity simplifies that system.
Farmers, on every continent are protesting. While they may seem to be protesting about divergent local issues, they are all discontent because they are making significant losses on growing food. The catalyst for the problems is a consequence of the Ukraine War. This cause a number of major problems.
• The export of cereals and food oils across the Black Sea was disrupted, cause a massive spike in the price of cereals and food oils on the global market.
• The disruption of minerals from Russia to Europe causing a massive reduction in the production of fertiliser, and a consequent massive spike in its price and availability.
While in most market economies these matters are adjusted for through the “Market”, the problem with the food production is that there is a minimum 12-month lag, due to the seasons. So we have a particular sequence of events.
• The spike in cereal prices enriched those who had stock of cereals, typically the grain merchants.
• Due to the spike in cereal price, The Meat, Egg and Dairy sector were immediately affected, however, the merchants, supermarkets etc. refused to change the prices they paid for their produce (supported by politicians who did not want “inflation”) This resulted in immediate major financial losses for the sector.
• The spike in fertiliser prices meant that many farmers could not buy enough fertiliser, as they did not have enough working capital. Those farmers that did have enough ended up with high input costs to their next year's production.
• Due to the massive world-wide increase in the cost of energy, People budgeted, by reducing the amount of meat they consumed. (Global meat consumption went down by whole percentage points).
• At the same time, because meat and dairy producers were reducing their stock animals, there was a glut in meat availability, lowering the price farmers got for their meat.
• For poor countries that have large imports of energy, food and fertiliser, their free hard currency was used up during the price spikes. Resulting in their inability to buy in the subsequent years.
Moving on the following year and more problems!
• With a massive reduction in the production of meat, eggs and dairy, the demand for feed cereals plummeted, resulting in a price crash, feed wheat is now at £160 tonne, with production cost at over £200 per tonne, i.e. A typical cereal farmer is losing £40 a tonne on their 2023 crop.
• The cost of living issues are still with the people, so meat consumption has not yet fully recovered.
The current consequences
• Poor countries are still experiencing high food costs, due to local shortages, due to their hard currency shortage. (Much of Africa, parts of Asia, Central America and some Oceana countries.
• With poor countries unable to buy food, the global market is depressed.
• So farmers have not started re-stocking. (In the US, the number of calves is lower than any year in the last 100 years!).
• The price of fertiliser is showing no sign of going back to pre-2021 prices, so many farmers are reducing their sowing areas and reducing inputs, with a significant lowering of global cereal production.
• If and when the meat industry restocks, this will REDUCE the availability of meat.
Special events in Europe
• The environmental lobby has persuaded our politicians that paying for environmental services, rather than food is a good idea. So many farmers faced with loss making food production are taking the tax-payers money and have become “park keepers”.
• Using land for “Energy”, be it solar farms or energy crops (Bio diesel, AD plants, wood chip…) is now a better and low risk alternative to food crops
• The societal norm of anyone “getting their hands dirty” being of low status, means farmers cannot recruit workers.
• The push-back against low-wage migrant labour has made that way of recruitment more difficult
• Many farmers are near or passed retirement age, so are looking for retirement exits.
Specifically in the UK
• Solar Farms are a very attractive alternate use of land
• “Sustainable Farm Initiative” is now also an attractive low risk alternative use of land
• “Development Rights” allowing redundant farm buildings to be repurposed for non-farming use means that farming infrastructure is being destroyed.
• Regulation on farms has become so onerous, 50% of a farmer's time is “in the office”
• Regulation of food production has resulted in very restricted options for selling. Leading to a power imbalance between producers and processors, which the processors have abused.
The consequences
• Globally, food insecurity is now very high in many poor countries
• Globally, people are losing their options for high quality food
• In the UK, food production is likely to reduce by up to 20% in 2024!
• Up to 10% of currently farmed land is being permanently taken out of production (Possibly 50% in Wales)
• While farm owners will enjoy some return on their land. Tenants, farmworkers and those involved in food production and processing are likely to see some 20% redundancies.
• UK GDP will fall by 3% due to loss of farm and farm related incomes.
(Percentages are my personal informed estimates - PD)
Part 2. April 25th 2024 (work in progress)
The Global Food System (GFS) is failing under market forces. Part 2
Governments fall if they fail to feed their population, thus every government has food security as one of their main pillars. An exception is where an oppressive despotic regime may be able to hold on to power through violence alone. For most of the world, the provision of food is now dominated by global rather than national issues. Whilst much of the needed calorific food is typically grown within a nation, there are a number of countries that are either large importers or large exporters of calories. Regardless of where production is, they are all subject to the global market in fertilisers and pesticides.
This paper includes my observations on the current workings of the Global Food System.
Fertiliser and pesticide
Fertiliser and pesticide production is concentrated into a few hands. The three main fertiliser chemicals are water soluble compounds of Nitrogen, Potassium and Phosphate (NKP). Nitrogen is made from Hydrogen produced from natural gas in a few massive chemical plants across the world. Because Nitrogen is seen as a strategic resource, most major countries have a plant. However, Potassium and Phosphate are based on mined mineral-rich deposits which are scarce and localised, resulting in a few nations/corporations having a strategic stranglehold.
It is increasingly the case that these important resources are being withheld from poorer countries as they are a poor credit risk. Thus lowering their productivity, driving them ever poorer. Even in the wealthier countries, ability to buy can determine where these are deployed. When farmers have suffered losses due to weather or other problems, they may be unable to finance the cash flow needed between use and harvest.
Global trade in food
Before global markets, local produce was consumed by local consumers at the local price. Global trade of food and fertiliser has been captured by multinational corporations. These corporations, with their singular goal of self-interest, are now managing the GFS to their corporate advantage. “Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus, collectively known as the ABCD traders, share a significant presence in a range of agricultural basic commodities, both fertiliser and food. Controlling, for example, as much as 90 per cent of the global grain trade. These corporations move commodities around the globe.
As a result, when farmers' crops fail, the corporations move food into the area, thus farmers never enjoy shortage premiums. However, when there is a bumper crop, the price falls and the corporations move the surplus to shortage areas. If this trade ensured that farmers enjoyed a reasonable return on the work, this system would be one that could be applauded. Unfortunately, these corporations are taking all the value in the GFS. Farming, worldwide, is loss making, with many farmers needing to get money from second jobs, diaspora remittances, or government hand-outs.
The effectiveness of these corporations' extortion is such that when governments put money into farming, they arbitrage these payments away from the farmer into their coffers. (Demonstrated when the New Zealand government stopped putting money into farms, after a short adjustment period, the financial performance of farms did not change.)
National Food Trade
While high value foods can be transported using planes, trains and lorries to rich markets, there are some foods that are difficult to transport due to their short shelf-life. In many parts of the world, food distribution is controlled by another small number of processors and retailers. Here it is they who oppress the farmers and growers. Using their control of the consumer market to impose onerous contracts on the farmers.
Consequences
Rural migration
There is now a global shortage of agricultural workers. Even countries with high unemployment cannot provide the labour needed on farms, as the farmers cannot pay them enough, relative to the “benefits” enjoyed by people living in towns and cities. There is a massive migration from rural to urban. In the past this was just the “surplus” sons and daughters, now it is all of the children and often even the parents.
Even farm managers and owners are giving up, and there are few young people entering the profession due to the poor pay, hard working conditions and the uncertainty.
Land that can be farmed using high levels of mechanisation can still be viable. Interestingly this is the land which is being bought by private equity and other absentee landlords for long term investment. Land and crops that are difficult to mechanise are now being abandoned. Small rice paddy, fruit and some vegetables farms are being abandoned, as are farms where the fields are too small.
With so little value being retained by the farmers, and most of the economic activity done away from the local economy with multinational corporations ( Machines, Oil, PKN, processing ) the rural economy is also in free-fall. Meaning that shops and other infrastructure are closing or being neglected, further destroying reasons to remain.
Fertilisers and pesticides
Food affordability
With all of the value being captured by a few corporations, the general population has little money to buy food. While urban areas are supported by governments, rural areas are neglected, but eventually governments are overwhelmed by the cost of feeding their population. When this happens, countries typically become ungovernable, as seen already in a number of countries, with more looking likely to succumb in the coming years.
Once a country becomes ungovernable, productivity drops further, however, ironically, the economics of growing one's own food becomes viable, as the multi-nationals cannot or will not operate in such conditions.
Currently the global loss of production is being covered by the exploitation of newly cleared land in S America, Africa and other tropical forests and jungle around the world, and by deploying technology to improve yields.
Monopoly abuse
As we have seen in history, when there is a food shortage, the price goes up massively. As an essential, people will even sell the children for their next meal when they are starving (Afghanistan). With the Global food system, (and national food systems) under the control of a few corporations and organisations. They can extort very high profits by creating a shortage. This has repeatedly happened in the global markets when there have been “shocks” of wheat and rice shortages. It is in the interests of the GFS corporations to ensure there is never quite enough food. To this end, they have persuaded governments to use crops for energy, to mop-up any surplus that might reduce their profits. Be that Bio-ethanol, Bio Diesel or anaerobic digesters producing methane.
The Actors
Growers - Farmers, Harvesters, fishermen…
Traders - Storage, shippers, arbitrageurs
Processors - Millers, Oil crushers, abattoirs, butchers, crops-to-energy
Retailers
Governments, and of course
Consumers.
The main commodities
Cereals Human and animal feed
Rice
Sugar - cane and beet
Pulses - beans and peas…
Roots - Potatoes, Sweet potatoes, swede…
Nuts - almond, peanut, cashew…
Plantains - bananas…
Veg oil, Palm, Olive, Rape, Corn…
Vegetables - Onions, brassicas…
Fruit - Including juices
Dairy - Milk butter, cheese…
Eggs,
Meat - Chicken, pig, beef, lamb,
Fish - Wild, farmed
Fibres - Cotton, flax, wool
Inputs
Fertiliser, NKP
Seed,
Pesticides
Land
Capital,
Labour,
Energy
,
Storage,
Shipping.
Water * (Subject of a third paper)
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