The problems of world agriculture today. A vicious circle between monocultures, multinationals, finance

The present: the problems of the agricultural system worldwide

The rise in agricultural prices
The FAO food price index, which measures trends in prices for some of the most important raw foodstuffs, increased by 71% from the beginning of 2007 to March 2008. In the same period, wheat increased by 80% and maize by 90 %.
The consequences for the poor
Consumers worldwide paid more for food. In the countries in the Northern Hemisphere, the average person spends between 10 and 15% of their income on food. For the poorer families in the Southern Hemisphere, this percentage can range from 50 to 90%. Along with the decrease in income caused by the global economic crisis, the increasing price of food and foodstuffs led to a growth in the number of people who are chronically malnourished or undernourished by 75 million in 2007 and by a further 40 million in 2008.
The agricultural monopolies
As has always been true of agriculture, just a few individuals currently control the markets for many significant food products and raw materials, leading to the creation of oligopolies or even monopolies. For example, 5 private companies (Cargill inc, United States; Bunge Ltd., Bermuda; Archer Daniels Midland, United States; Louis Dreyfus, France; Marubeni, Japan) control 90 % of the cereal business worldwide.
The agricultural stock exchanges
The majority of food is produced by small farmers and only a small amount is of interest to the international markets. Nevertheless, the market still sees its end prices imposed by the activity of the international stock exchanges. Prices on the local markets may also vary significantly depending on the production conditions, the climate or other factors. It is however unavoidable that the prices decided in the Chicago and London stock exchanges, and in few other international stock exchanges, are the prices which, like it or not, the whole world must refer to.
Even the climate has a price
Although historically, the prices of agricultural products have always been affected by natural phenomena, today, thanks to climate change, there are many more uncertainties. Droughts, floods and other atmospheric events are becoming ever more frequent and extreme. And to the direct effects of global warming we can add pollution, hydrogeological instability, the consumption of cultivatable land by urbanisation and industrialisation and intensive farming which is leading to a decrease in the yield of many terrains….
Small markets
One characteristic typical of agricultural produce is the fact that there is no single market, rather there are several points of exchange which occur on various levels. There are local markets in villages or small geographical areas, followed by those on a regional scale and national markets, and finally international markets for some products. Even before all of this, it is important to remember that, with very few exceptions, for the basic raw materials of the human diet, most of what is produced is not sold on the markets, rather it is used to sustain the very farmers who produce it and their families, or at most exchanged with nearby farmers in a kind of informal economy. For many products, even those which are subject to intensive farming on an industrial scale or those which are shared on the international stock exchanges, the percentage which is of interest to the international markets is considerably smaller than that produced for local consumption.
The world is rural
More than half of the world’s food is produced by family-run and local farmers, and 75% of the one billion starving people live in the rural areas in the Southern Hemisphere. It may seem paradoxical that the increasing price of food is leading to hunger and poverty, mainly of farmers. We must however note that the majority of small farmers only manage to produce a few raw materials, often only one, due to the size of their facilities, the nature of their land and a variety of other factors.

Farmers at the mercy of volatility
Farmers must therefore buy in all other products, at the mercy of the prices on which they have only marginal impact. Those who gain from the price increases are the intermediate parties and the retailers, thanks to the aforementioned oligopolies further along the distribution chain. In contrast, the increase in the prices of agricultural products has extremely little benefit for the farmers.

The highly volatile prices mean that it is difficult to switch production from one product to another. In addition to the limited options for purchasing seeds and the cost – often prohibitive – of changing production, these are procedures which take months, from the moment the decision is made through to harvesting.

Soaring prices
Over the last few years, the international agricultural market has changed radically. Since 2006, in fact, the prices of almost every agricultural product have risen consistently, with increases between 2007 and 2008 in the order of 224% for rice, 118% for wheat and 77% for maize. The immediate consequence of these rises has been the increase in the number of starving people, which reached a record 1 billion and 23 million in 2009.
Poverty is increasing
By analysing the impact of the second wave of price hikes on poverty, the World Bank has estimated that in 2010, the total number of individuals in poverty increased by 43.7 million: 9.5 in low income countries and in those with medium income. Analysis of trends in cereal prices in the period from 2006 to 2011 shows how there were more price increases than price decreases, leading to a general increase in prices on average. As well as not returning to the levels of before the crisis in 2007-2008, the volatility of the prices, or the speed with which they are oscillating from high to low, has more than doubled compared to the 1990-2006 period. The FAO forecasts for the next decade on the trends in agricultural prices suggest that over the next ten years, the prices of cereal will be on average 20% higher compared to the 2000-2010 decade, while those of livestock are set to increase by 30%. Due to the impact on family income and purchasing power, this volatility may push the more vulnerable sector of the population into a spiral of poverty and hunger. But that’s not all. For producers, this volatility has a negative impact on their capacity for innovation and their opportunities for investment, especially when these require large economic input obtained through borrowing. Every market is characterised by a volatility caused by specific determining factors unique to their context.

Agricultural and energy markets
Increasing agricultural prices have coincided with a simultaneous increase in energy prices, in particular those of oil. Their increase brings added pressure, as the intensive model for production and agricultural commerce depends on oil for the use of fertilisers, pesticides, machinery and transport. Currently, with the boom recorded over the last few years in the production of biofuels, a new sector (the energy market) is absorbing further agricultural produce, and this has led to an integration of two markets and an ever closer link between the prices of particular agricultural products - maize and oil crops – and those of oil.

On an international level, the price of certain agricultural commodities is now closely correlated with that of oil. The most obvious example is that of the maize used to produce ethanol. In fact, when the price of oil exceeds a certain threshold, an increase in 1% of its price causes a respective increase in the price of maize by around 0.9%. According to the FAO, this type of correlation can also be observed in relation to colza, soya and palm oil, another three agricultural commodities used in the production of biofuels. Biofuels, therefore, are one of the causes of the reduction in stocks on a global level, with subsequent impact on the dynamics of agricultural prices.

The expanding production of biofuels, as well as causing a rise in the prices of the relative agricultural commodities, also increases their volatility.

The impact of the financial crisis on agriculture
Over the last ten years, the markets for various commodities, including agricultural produce, have seen an increase in investment by non-traditional parties such as institutional investors, investment banks, hedge funds and pension funds. From 2003 to 2008, thanks to the deregulation of the derivatives markets promised by the US government, investments in derivatives of those commodities increased from 13 to 317 billion dollars, mainly through the use of financial vehicles such as Commodity Index Funds.

Structural problems
Farmers’ struggles worldwide have deep-rooted causes. Since the eighties, both the private and public sectors have shown little interest in investing in the agricultural sector, increasing the poverty of people belonging to this world. Today some attention has come back, but in the form of speculation.

To the majority of the farmers access to land, to credit services, to adequate education and to agricultural technical tools for food production and farming are still precluded.

Moreover, access to markets is often lacking: urban citizens (today about 50% of the world population) mostly consume imported food rather than local food, favoring the unsustainable and inefficient mechanisms of international trade markets.

Lastly, the share of foreign aid allocated to agriculture in DCs has gone from 18% in 1979 to just 4,5% in 2008, significantly limiting the rural economies development.

Worldwide, 4 workers in ten are employed in the agricultural sector. That's more than one billion, 200 million people. 42% of those people are women. In Africa, the percentage of women farmers rises to 60%.
For all of these people, lack of access to land is an age-old problem, which is heightened for women. When compared to their male “colleagues”, women all over the world own less land and less livestock, and use a smaller variety of seeds and fertilisers. And not just that: it is more difficult for women to access credit and insurance, and they have a lower level of education.
In Sub-Saharan Africa, for example, women farmers make up 65% of the total, but they only have access to 15% of the land.
The distribution chains
The first 30 retail chains manage one third of the total global sales of consumable goods. Six multinationals control three quarters of the global pesticide market. 82% of products on the seed market are now patented and approximately 70% of those are sold by ten companies, including Monsanto and DuPont (USA) who cover 40% of the entire market alone. The first 10 companies control 26% of the packaged food products market (Nestle, Pepsi, Unilever etc.).
GM food
The majority of people suffering from hunger actually live in countries which have an excess of food, rather than a lack. Export subsidies, artificially reduced prices and the World Trade Organisation (WTO) are all facilitating dumping (the sale of a good on a foreign market for a lower price than that of the same product on its market of origin) from rich countries to poor countries, based on the current unfair model of agricultural commerce. Both nationally and internationally, research in the agricultural field is often directed towards industrial agricultural models rather than the needs of smaller farmers.
Food security will not be achieved by technical solutions such as genetic engineering. To eat, we need access to land on which to grow food, or money with which to buy food. Technological “solutions” such as GM food mask the social, political, economic and environmental problems which are at the true root of hunger. According to Greenpeace, “the case of Argentina, the world’s second largest producer of GM foods and the only Developing Country to cultivate GM foods on a large scale, clearly shows that transgenic organisms do not lead to improved food security. Millions of tonnes of GM soya are exported from Argentina every year to feed livestock, yet millions of Argentineans do not have the security of regular meals".
The consequences of the European CAP on agriculture in the Southern Hemisphere
One of the main problems with food insecurity in countries today is the growing dependence on food imports, a process which began in 1980. The Common Agricultural Policy (CAP) and the ongoing dumping of European food products on international markets have contributed to this development, worsening food insecurity in many parts of the world. Today, two thirds of developing countries are net importers of food products, especially basic elements such as cereals, dairy, oil-seed, meat and sugar on the global market. Cereals continue to make up the majority of the human diet, in particular in the South where consumption of wheat, maize, rice, sorghum and millet provides 54% of total calories. The main exporters of cereals include just a handful of industrialised countries, while developing countries depend strongly on the global market. The FAO estimates that in 2010/11, of the 275 million tonnes of cereals imported globally, 212 million were purchased by developing countries. Today the EU is the second largest exporter of wheat worldwide, and in the last three retail campaigns from 2008/09 to 2010/11, it controlled 17% of the global market. Africa has become the main destination for wheat exports from the EU, purchasing three quarters of the European cereal sold on the global market.