Spiralling Food and Fuel prices:
Two Different Sides of Capitalism’s Crisis
By Raphie de Santos
As billions of people all over the world struggle to either obtain or pay for their food the cost of commodities, particularly oil, continues to rise causing hardship directly and indirectly to the poor who make up the majority of the world’s population – whether they are in the developing countries or the rich North. What really lies behind these price increases and are there solutions which can make all our lives more secure and sustainable?
We will show that there is enough food in the world to provide every one of its over six billions citizens, on a daily basis, with sufficient calories and nutrition. At the same time commodities such as oil are running out. They are finite resources which cannot be replaced. If the world’s population were all to consume as much petrol as the average citizen of the United States then the known global oil reserves would last 4 days!
We cannot solve the problems of food shortages and price rises and the
rising cost of and depletion of commodities within the current system.
We need a rationally planned economy where all the world’s population
basic needs are met – shelter, food, warmth, education, heath, community
and culture.
Capitalism has never been able to provide this for the bulk of the world’s
population, the 86% of the total who live in the developing countries
and the poor of the rich North. Now it cannot it even do so for the majority
of the rich north while at the same time causing even more suffering
and hardship amongst the world’s poor who make up the overwhelming majority
of humanity.
The Crisis in Food
In Haiti the poor, the majority of the population, who get 22% fewer calories than the minimum required for good health , are eating ‘mud biscuits’ made of clay, water, some vegetable oil and salt. Meanwhile framers in North America are being paid to kill pigs by the federal government to reduce pig production. Pig farmers are being hit by falling prices for their pigs and higher feeding costs. That’s the insanity of the world we live in. In the rich North the poorer section of society are paying 40% more on essential food items compared to a year ago. Combine this with rising gas and electricity prices and many are facing sharp drops in their living standards and severe impoverishment. What’s driving these higher food prices?
In the capitalist market place it’s a simple law of supply and demand and if demand outstrips supply then prices increase. The production of basic food has been cut back over the last forty years. Countries like Haiti which was once self-sufficient in rice saw their rice industry destroyed as the rich governments in the North forced them to lift their import tariffs on rice. This allowed the United States (US) who benefited from mass automated modern farming methods and could produce rice much more cheaply than the local Haitian farmers to flood countries like Haiti with US grown rice and consequently wiping out the locally grown rice.
Secondly, the effects of climate change have either reduced or wiped out basic food harvests particularly in the developing countries. This has again reduced supply.
On the demand side basic food stuffs are being converted to bio fuels as an alternative to oil. This has been actively encouraged by the US and the UK governments. This again reduces the amount of crops available for food (supply). Next, the increasing wealthy and growing middle classes, but still a minority of a huge population, in China are having improved diets and this means more demand for the basic crops at the bottom of the food chain.
Finally, the rising cost of oil which is used both in the production of food and its transportation is adding to the cost of food.
But there is plenty of food in this world for every body in our planet to receive 2000 calories per day which is well above the minimum required for good health. Study after study has shown this to be true¹, that global food production has outstripped global population growth. It is not a technical problem then to feed the world but a political and an economic one.
To immediately relieve the food crisis in Scotland an SSP government
would freeze and control all basic food prices and bring essential food
production and distribution under common ownership. This would stop the
large supermarkets using increased crop and fuel prices as a cover for
raising prices disproportionably in order to profit.
In the longer term
it would work with developing countries to enable them to put together
a sustainable self-reliant food industry and a food for oil program using
Scotland’s Oil resources.
Oil crisis
It is the price of oil which is the flip side of rising prices. Unlike food it is commodity which is running out and cannot be replaced. It is a finite resource but one which modern capitalism and its societies are dependent on.
There are many reasons why the price of Oil and other commodities such as copper and natural gas will continue to rise over the short, medium and long term. But like rising food prices the Oil companies are able to profit by far more then the corresponding rise in the underlying price in Oil.
Oil’s recent brush with $150 a barrel was driven by Iran launching test
missiles which could reach Israel.
Here lies one of the reasons for its long-term price rise. Most of the known reserves are in countries which are either hostile to the United States or the supplies are threatened by local conflicts. These countries are Iraq, Iran, Venezuela and Nigeria. This is supply side problem.
Secondly, the reserves of extractable oil are known. There will come a point in the future where peak oil production will be reached and after that the demand will far outstrip demand – the range of estimates for this to happen are between five and ten years. Under the laws of supply and demand this will lead to a steady increase in the price of oil.
Thirdly, and on the demand side oil and other commodities are becoming an investment asset. They are seen as an insurance against inflation and the decling value of the US dollar. As the dollar falls and inflation rises the price of commodities which are generally priced in US dollars make a compensatory rise. Also, because commodities are seen to be running out and becoming scarce they are perceived as a long-term investment not just by speculators but by pension and insurance company funds. This is either done directly or through commodity funds or financial products whose price is linked to the price of a commodity. These funds and products are bought from investment banks that have to buy the corresponding underlying commodity to reduce their risk to rising commodity prices.
Finally, the continuous rise in commodity prices seen since the start of the new millennium have been partly driven by the increased demand from China as it goes through a rapid process of industrialization and modernization.
All these factors mean that commodities and in particular oil will continue to rise in price leading to permanent global inflation as the cost of the production process, transporting goods and the cost of the materials which go into producing these goods also rise.
The SSP would put the burden for these price rises on the large Oil and Commodity companies and impose a super tax on them to capture some of the billions of pounds they are making from just sitting on stockpiles of commodities which are rising in price. Rather than as the UK government currently do by taxing the ordinary person by the high excise duties on the petrol that we buy at the pump.
We would also implement a free public transport policy which would move people away from the use of private cars to a commonly owned public transport network which would lead to a reduction and dependence on petrol use.
Combine rising commodity prices with the rising cost of food and the
reasons for this and we see that the modern capitalism of the new millennium
will permanently be dogged with inflation. But it is the poor and working
people of the planet who will pay the price through higher prices for
goods and services and as a consequence a much lower standard of living.
Only a rationally democratically planned economy where it is need and
not greed that is met can put an end to the scrooge that is inflation.