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At the beginning of the
eighteenth century, fifty years before the time of Quesnay, Bandini of Sienna
had shown, both from reason and experience, that there never had been a
scarcity of food, except in those countries where the government had itself
interfered to supply the peoplee. Jean-Baptiste Say, Treatise on Political
Economy
In recent weeks, pictures
of people queuing restively beside piles of rice sacks or clamouring for a
dole of corn have supplanted those of polar bears frolicking on icebergs as the
iconic image of the global alarmists. Though no-one could have predicted the
exact timing of the tragedy, its occurrence will not have come as a surprise
to any who were aware of a number of fundamental trends which first became
identifiable quite some time ago.
Indeed, having spent the
last few years propounding the theme that agricultural commodities were
headed for significant increases in price, it is at once deeply gratifying
and yet curiously irritating to see an argument that was initially treated
with a certain weary scepticism now becoming a conversational commonplace
(though not over the dinner table, one hopes!), even if it is one whose causes are still greatly misapprised.
As is by now well known,
the current crisis has arisen, in part, because
of the strain imposed by a global population which is not only increasing
numerically but which, more importantly, was one beginning to enjoy an even
more rapid rise in monetary income, an advance which has brought with it an
associated enrichment of dietary expectations and tastes.
Alongside this, there has
been an ongoing depletion of the stockpiles built up during the lean years of
subsidised overproduction. This has been accelerated by the signal shift to
the subsidised over-consumption which the whole mummery of the biofuel
movement represents — a folly akin to Joseph telling Pharaoh to set
light to the surplus spilling out of his granaries, in order to economise on
firewood.
However heart-rending the
TV coverage, please don't misunderstand the situation: there is no need to
subscribe to the views espoused the grant-grubbing and headline-hungry hordes
of green St. Johns who shriek that modern industrial society has imprecated a
divine vengeance upon our heads. This is the case whether their dire warnings
take the form of pathological Carbophobia, 'Peak Oil', or any of the other
millenarian cults of Famine, War, Pestilence, and Death currently so
fashionable among the Nomenklatura.
Like many commodity
businesses, the simple truth is that global agriculture has suffered for
years from chronic underinvestment; a shortfall for which the
politicians’ feather-bedding of relatively well-off Western farmers is
greatly to blame (not that such programmes have been too effective in
assisting their intended smallholder beneficiaries, rather than the giant
agribusiness concerns, mind you).
With grants not grains the
primary bounty of farmers, real food prices were driven down to levels not
seen since Adam was expelled from the Garden of Eden. As a consequence, this
loot of consumers’ and tax-payers’ pocket-books discouraged the
formation and deployment of the capital needed to maximise productive
efficiency all along the supply chain. That this occurred well beyond the
field boundaries can be surmised from a glance at the rocketing prices of
agricultural inputs such as fertilizer and at the emergence of localized seed
shortages.
Political short-termism,
together with poorly defined or non-existent property rights, have led, in
too many potentially fertile parts of the world, to a ‘tragedy of the
commons’, often leading to maltreated topsoils, which have been
stripped of nutrients and allowed to become dispersed in the dust storms or
flash flood run-offs which typically ensue. A little scrutiny will often
reveal that, in many instances, the ‘desertification’ which the
Malthusians so frequently include in their litany of woe is little more than
a characteristic failure of either collectivism or state banditry.
Furthermore, Western
‘aid’ — usually a naked ploy to buy the support of both
foreign elites and domestic farm lobbies in the same cynical transaction
— has stultified entrepreneurial efforts across the Third
World, disincentivizing local development and demoralizing good
husbandry in the recipient nations. This has perpetuated a sorry dependence
on the self-serving ranks of professional, Dior-clad Donorate and has made
misery chronic among the poor, especially where those poor are unfortunate
enough to come from the ‘wrong’ party or tribe.
Water, we are frequently
told by the viridian Ultras, is in ‘short supply’ — and
this on a planet which contains the greatest known concentration of the stuff
in the universe! The truth is that, for lack of capital investment,
irrigation practices on the bulk of the world’s acreage remain woefully
primitive and wasteful and thus susceptible of a vast improvement in their
efficacy. In addition, fertilizer and nutrient use is frequently far from
optimal, meaning that chemical overkill can be as much of a problem as is a
lack of effective treatment.
Finally, the witch-hunt
against GM-organisms has become so febrile that starving Africans have even
been denied emergency food deliveries by local overlords who are frightened
of upsetting the prejudices of their Michelin-star, NGO, enviro-chic sponsors
and thus of being cut off from other, more personally rewarding monies, if
they demur. While it is impossible not to sympathize with people complaining
that their children’s bellies are empty, it would nonetheless be a
failure of rationality not to point out that that none of the political
‘fixes’ so far promulgated in this crisis will do anything other
than exacerbate the problem.
Moves to raise minimum
wages and welfare payments, or to subsidise prices only increase demand. Capping
prices and taxing or banning exports can only shift the burden to the very
producers we need to earn the means to increase future output. Concluding
primitive bilateral accords means the benefits of comparative advantage are
being sacrificed –and hence real income is being reduced - by both
counterparties to the deal.
As in all crises of
scarcity, the cry has gone up to “Hang the speculators!” — figuratively, at least. Such hackneyed demagoguery
overlooks the fact that the bulk of the money pouring into agricultural
commodities is coming from retail investors and from pension and insurance
funds — i.e. the switch out of crumbling financial assets is being
undertaken on behalf of the ordinary person, in the hope of warding off some
of the worst effects of rising food prices on both his daily standard of
living and the value of his savings.
It is also fine for
well-nourished, tax-sheltered Über-eaucrats
like World Bank President Zoellick and IMF Chief Strauss-Kahn
to call for hundreds of millions of dollars to cobble together a ‘New
Deal’ on food, but it should not be overlooked that this call is
effectively one that Western taxpayers should face even more pain in order to
mitigate past mistakes committed by the very same governing class which is
now sanctimoniously affecting to save the world.
Though he is already being
belaboured by the self-haters in the left-wing commentariat, the Western
consumer did not choose to implement costly and economically (energetically?)
nonsensical biofuel policies; he had such ill-thought out intervention
foisted upon him. It seems a little harsh, therefore, to castigate him for
his selfishness, using the well-worn propaganda factoid that ‘an SUV
tankful of biofuel requires enough grain to feed an African for a
year’, when it was Leviathan who forced him to put the blasted hooch in
his tank, in the first place!
Having had to pay once to
support such programmes — rather than sensibly directing his money
towards ensuring a greater, longer term supply of hydrocarbons (whether
through action on the demand or the supply side); having been hurt a second
time by the soaring grocery bills and higher fuel prices which have resulted,
that same Westerner is now facing the prospect of being bilked thrice over in
order to have those food prices preferentially bid up against him by the aid
lobbies, again using his own money!
Though some lip-service has
been paid to the idea (largely as a back-door means of criticizing the US
above all others), no-one will seriously consider removing all artificial
support payments for biofuel; no-one will be amenable to the repeal of all
the arbitrary, Stalinist, percentage-use mandates which undergird this
structure; no-one will even allow free trade in, e.g., cost-effective,
Brazilian sugar-cane ethanol in order to alleviate the current painful
scarcity of grains.
Make fuel from corn, by all
means, if the free market signals that this the most pressing need and,
hence, the most lucrative use for the crop. Otherwise, let farmers plant for
food and feed and let the fruits of their labours circulate unhindered around
the world — absent tariffs, quotas or subsidy payments — so
ensuring both their most equitable distribution and the least possibility of
giving off false signals and creating perverse incentives to mislead either
consumers or producers.
Then, hand back to
taxpayers the money which has been spared so as to reinforce the increase in
disposable incomes which will arise from lower food prices — and we
will reduce industrial strife and political tension at a stroke. Encourage
also, the kind of long-term, free investment in oil, gas, and nuclear power
which Dr. Birol of the IEA so bemoans ‘the market’ will not
provide, but which is actually being hampered by the joint efforts of autarkic (if not plain xenophobic) governments and
the hateful shrilling of the eco-eugenicists who positively ache for great
swathes of that ‘pest species’, humanity, to perish and whose
most fervent prayer is for ‘capitalism’ to lead its plunge into
the abyss.
Sadly, it is the
world’s loss that nothing like this will ever be undertaken.
Instead, the policies
actually being pursued can only enhance scarcity, while the inability to
finance such mechanisms of self-defeat honestly can only lead to a further
descent into inflation – an age-old curse poised to undermine
prosperity further and to seed the commonwealth with the kind of venomous
discontent which is the wellspring of an even more self-destructive politics
of fear, anger and hatred.
Feed the world? —
Then free the market!
Sean
Corrigan
Sean Corrigan is Chief
Investment Strategist at Diapason Commodities Management (Lausanne and London)
Copyright © 2006 - Copyright © Diapason Commodities Management
- Sean Corrigan
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