Food Crisis Preceded the Financial Crisis

Mehdi Shafaeddin

What are consequences of the implementation of Neo-liberal economic philosophy for industrialization and development of poor countries? The answer: de-industrialization of many low-income countries; destruction of their food production (influenced also by protectionist agricultural policies of developed countries), thus their heavy dependence on food imports. The boom in commodity prices had improved the balance of payments of some developing countries temporarily before the “busts” emerged. But even then, it had detrimental impact on some other developing countries, through the hike in food and fuel prices, which were influenced by speculative activities of the trans-national corporations.

The situation in African countries, most of which are among the Least Developed, has been in particular critical. Premature trade liberalization made the continent, particularly Sub-Saharan countries, marginalized from international trade despite slight gain, due to the commodity boom, before the development of the crisis (Table 1). In the particular case of Sub-Saharan countries, not only did growth in GDP  not keep pace with population growth before the recent commodity boom, but more importantly growth of exports was, in contrast to the neo-liberals view, either negative (during 1980s) or slow during 1990s (Table 2). So was growth in investment.

Yet, the process of de-industrialization, which had prevailed in 1980s, continued not only in 1990s but also during 2000-06 despite the commodity boom and some improvement in GDP growth (table 3). Food production was another victim (table 4). As a result, the poor developing countries became heavily dependent on imports of food, particularly from developed countries.  For example, for the African countries as a whole, the ratio of (X-M)/X (the value of exports minus imports, as a share of exports) for total trade in food fell from 51.6 in 1970 to -50.2 in 2005, and the corresponding ratio for trade with developed countries fell from 58 to -86.1 over the same period. To provide one example at the country/commodity level, while Ghana was self-sufficient in rice in 1970s, the liberalization of the agricultural sector led to import/production ratio of 79 in 2003. Import of rice from the USA, the price of which was 34 per cent below the cost of production in 2003, was an important source of imports.

The de-regulation of the market has helped speculative activities by trans-national corporations, not only in the international financial and fuel markets, but also in the internal markets of staple foods of developing countries. For example, in the case of Mexico, speculation by four trans-national corporations resulted in a sharp increase in domestic price of corn in 2006 reaching over 100% of its purchasing price of domestically produced corn. There is ample evidence in other countries. The food and fuel crisis preceded the financial and economic crisis.