Don't Blame the Market for the Global Food Crisis!


“I don’t want to alarm anybody, but maybe it’s time for Americans to start stockpiling food,” begins The Wall Street Journal’s Brett Arends in an article earlier this week, Load Up the Pantry. (Yes, The Wall Street Journal!) Mr. Arends blames “the surge in demand from China and India” and “the growing demand for ethanol as a fuel additive.” Both statements are correct, but miss the underlying source of the crisis.

“There is more than enough grain to feed every hungry human on the planet, but the poor cannot compete with wealthier buyers of meat and biofuels,” says truthout’s Kelpie Wilson, also this week, in Why More Food Is Not the Answer. Her statement is accurate, as are the facts that “it takes about seven pounds of grain to produce one pound of beef” and that “[t]he grain used to fill an SUV tank with ethanol could feed one person for a year.” However, in approvingly citing a report that “indicts markets with failing to eradicate hunger and poverty,” Ms. Wilson misses the root cause of the problem.

Before we identify that root problem, let’s look at the crisis we face.

Food riots have occurred across the globe and are threatening governments in poor countries. Last year there were tortilla demonstrations in Mexico and pasta demonstrations in Italy. More recently, in sub-Saharan Africa, Egypt, and Haiti, people have taken to the streets demanding rice. Argentina, Russia, Ukraine, and Kazakhstan have banned the export of wheat. Indonesia, Vietnam, Egypt, China, Cambodia, and India have done the same with rice. South Korea has issued price controls on basic foodstuffs. Japan has run out of butter, and with wheat and barley prices skyrocketing, is resorting to government reserves to buy grains from overseas. In the United States, Sam’s Club is rationing rice and citizens are heeding Mr. Amends’ advice and stockpiling food. It has been reported that global grain reserves stand at eight to twelve weeks.

The root of this crisis lies in the fact that grains are being used not to feed people, but to feed cattle and cars. And, not surprisingly, both ideas came from the State and have been financed with State funds, confiscated, it goes without saying, from the citizenry.

How the Nixon administration dealt with a similar rise in grain costs not only informs us what approach not to take in the current crisis, but was also the fundamental cause of the current crisis. In 1972, it was Americans who took to the streets demanding government action on rising grain costs, after a grain deal with the Soviet Union fell through. Nixon’s agriculture secretary, Earl Butz, was charged with the task of reducing the cost of grains by any means necessary.

(This same Earl Butz is the main villain of The Unsettling of America by Wendell Berry, the 1977 classic detailing the profound cultural consequences of Mr. Butz’ imperative for farmers to “get big or get out,” which led to the death of the family farm; State intervention, not the free market, led to the birth of agribusiness.)

Mr. Butz engineered a system in which massive subsidies replaced loans to American farmers, causing grain prices to artificially plummet, giving rise to the state-subsidized corn industrial complex. Corn cost less to buy than it did to grow, inconceivable in a free economy. New products, impossible if corn had been sold at its market value, were developed to make use of the artificially low cost commodity. The ubiquitous high fructose corn syrup replaced sugar and became the sine qua non of the modern American diet, leading to today’s “obesity epidemic,” detailed by Michael Pollan in his October 2003 article for The New York Times, The (Agri)Cultural Contradictions Of Obesity. Importantly to today’s crisis, corn feed became the staple for cattle, grass-eating animals whose stomachs are not designed to eat grains. Thus, they require massive injections of enzymes and antibiotics to be able to digest what we force-feed them, a process whose consequences are described in graphic detail by Corby Kummer in his May 2003 article for The Atlantic, Back To Grass.

Hence, we now have a global agricultural system in which an artificial demand for cheap corn led to an artificial dependency on it. Thus, the “the surge in demand from China and India” mentioned by Mr. Arends only exacerbates the problem as more folks enter the middle class in those countries and want to eat meat on something more than an irregular basis.

If using corn to force-feed grazers like cattle flies in the face of reason and sound market principles, using it to fuel cars is absurd. In essence, ethanol is nothing more than the continuation ad absurdum of the same policies begun in the Nixon administration as part of its corporate welfare package to agribusiness. At least with the above examples, corn was converted into food, or, more accurately, “edible foodlike substances,” to use Michael Pollan’s phrase from his book In Defense of Food: An Eater’s Manifesto. With ethanol as a biofuel, corn is being converted into something entirely unfeasible.

“Ethanol is so costly that it wouldn’t make it in a free market,” said Walter E. Williams in an article last month for Human Events, Ethanol Hoax Spreads Economic Havoc. The economic absurdity of ethanol is made clear by the fact that “it takes more than one gallon of fossil fuel — oil and natural gas — to produce one gallon of ethanol.” The only reason it is produced in the first place is that it is subsidized, and subsidized heavily, with money confiscated from citizens, while cheaper and more efficient Brazilian ethanol made from sugar is targeted with stiff tariffs.

Ethanol, like corn feed, creates an artificial, State-subsidized demand, which has caused the prices of other grains to skyrocket. The United States, once the breadbasket of the world, is still the world’s major producer and exporter of grains, and its irresponsible State corporatist policies have thrown the world grain market out of whack. To use an agricultural proverb, “The chickens have come to roost.” Tragically, it is the poorest of the poor in other countries, not those who put these policies into place, who are paying the heaviest price.

The Austrian School teaches us that State intervention in markets leads to often unforeseen and disastrous consequences. The global food crisis is a result of State intervention in that most vital of markets, the grain market. We may well be headed for an unprecedented global catastrophe.

Is the legacy of Nixon’s corporatism leading to similar results as those of Stalin’s collectivism, and bringing about an unintentional global Holodomor? Will Bush’s insistence on making the great leap forward to biofuels lead to a similar catastrophe as that caused by Mao’s Great Leap Forward? We pray not, but like those 20th Century disasters, the growing 21st Century Global Food Crisis has as its cause reckless State intervention in the economy.