The past few weeks have increasingly
seen disturbing headlines being made by the soaring cost of basic food commodities and
subsequent ‘food riots' in many countries around the world. The price of wheat
alone has increased an astonishing 120% in the last year, with the price
of rice increasing by 75% in the last two months alone. The World Bank has warned that these price levels will be maintained
until the year 2015. Many poor people around the world who already spend most
of their disposable incomes on food are suddenly finding it impossible just to
feed themselves. With riots and protests seen as far as wide from Haiti to
Indonesia, the lack of food has the potential to create geo-political upheaval.
Several reasons have been put forward by Western politicians' and the mainstream Western media to explain the sudden price surge. The most commonly offered explanation is that food demand has just increased globally over the last few years. In particular they cite the growing economies of China and India as having tightened global supplies of wheat, rice and corn; as they grow more affluent they are increasing their demand for meat based products for which these food stuffs are essential. They also cite poor harvests recently, particularly in Australia the worlds number two wheat producers, due to the ongoing drought the country is experiencing. Another reason put forward is that a wheat fungus is striking parts of Eastern Africa, Yemen, Iran and possibly Pakistan as well. These increases together with the increase in Corn price have been blamed on the growth in countries such as Brazil and America using land to grow Corn for bio-fuel derived Ethanol as a substitute for petrol. Thus, according to their argument, the land that could be used to grow wheat and rice is being lost.
These reasons in themselves whilst
having some merit for consideration, do not explain the sudden surge in prices
globally in such a short space of time. Despite all the claims about corn being
used for bio-fuel, corn price has only increased by a relative
modest 31% as compared to the triple digit increases in wheat
and rice prices in the last year. The populations of
India and China have not increased to their present size in the space of a
year, let alone two months. Neither have they grown proportionately affluent in
the same space of time. China's economic growth has been underway for the last
30 years since it first started to reform its centrally controlled economy.
India too has also introduced free market reforms since the early 1990s.
Moreover global food production has increased twice as fast as the increase in the
world population in the last 25 years. Last year the world produced a record
2.1 billion tonnes of grains, an increase of 5% on the year before. Moreover there
is room to increase global yields. The most shocking
statistic perhaps though is that of the total 2.3 billion tonnes of food to be
produced this year, only 1.01 billion is expected to be consumed.
This highlights globally the failure to
make better use of existing food produce and to distribute it more efficiently
and fairly. Whilst some food stock will inevitably be destroyed due to poor
storage, the fact remains that man-made policies have encouraged poor use and
wastefulness. The European Union has for many years given its farmers generous
subsidies under it's Common Agricultural Programme (CAP). The result
has been that overproduction has taken place where excess ‘food mountains' have been deliberately destroyed
in the past. Where they have been have given to the poor in other parts of the
world, they have been dumped at lower than the production cost, ruining local producers. America too provides
it's farmers generous subsidies. The result is that whilst the IMF and the
World bank force third world countries to end any support they may give to
their farming industry under the pretext of encouraging efficiency, market
liberalisation and structural reforms, Western farmers derive a major portion of their income from government
subsidies.
However none of this explains the
sudden rise in global commodity prices. Yet what is apparent is that in almost
the same period the global credit crisis has dramatically matured. Western
bankers, economists and politicians have all failed to publicly link the two crisises;
in reality these are two sides of the same coin, the failure of Western imposed
global Capitalism.
The cause of the global credit crisis
lies at the feet of the prized global ‘investment' banks. Hedge fund managers
who ‘betted' correctly on the direction of the US housing
market have made billions of dollars out of the misery of
millions. Even western banking officials admit that the cause of the global financial
crisis lies in the lavish compensation packages designed for banking executives
and fund managers who had no long term interest in the banks and the financial
system that employed them.
Part of the reason why food prices have
now surged is because of the role of traders or speculators who have sought to
diversify investments away from bonds, securities and generally mortgage
related debt held by these banks. These are now regarded as very bad
investments. With money being diverted into buying stocks of wheat, corn and
oil at some point in the future, using futures' contracts, this speculation is
a self feeding cycle of frenzied increases.
However this is only part of the
reason. In the period that has passed we have seen Western Central Banks led by
the Federal Reserve Bank of America pump hundreds of billions of dollars into
the Western banking system to save their banks and their financial system. This
is one of the consequences that America has utilized ever since it de-linked
it's currency from the Gold standard. To a lesser extent we have also seen
billions of pounds and euros also injected by their respective central
banks. Western governments have chosen to bail out these banks by printing and
lending them money, an expansionist monetary policy, rather than risk the
inevitable political consequences of these banks going bankrupt. The result of
this increase in the global money supply has been global inflation. This in turn has naturally
forced up the prices of goods and services denominated in dollars, pounds and
euros. As the supply of dollars globally has increased, the dollar has
devalued. This situation has been compounded by the bloating US trade and
budget deficits in recent years. The total US external debt is estimated at over $12 trillion
dollars, or 88% of GDP.
Most commodities including oil and
food, such as rice, wheat and corn, are denominated and traded in dollars. By
far the biggest injection of more money has been in dollars. The current crisis
has been exasperated by the fact that most countries around the world,
particularly poorer third world countries, hold foreign currency reserves
mostly in dollars. As the value of the dollar has decreased, the worth of these
dollar reserves has eroded whilst food prices have increased in proportion to the dollar's fall. Countries
which rely on importing food grains, especially those traded in currencies
other than the dollar have suffered greatly (the following poor countries
import the stated percentage of their food: Eritrea (88%), Sierra Leone (85%),
Niger (81%), Liberia (75%), Botswana (72%), Haiti (67%) and Bangladesh (65%)).
As a result prices for food and other imported goods and services have
increased in proportion to the inflationary effect. The sub-prime credit crisis
has been exported to the poorest parts of the world by America, Britain and
other Western governments in order to save their financial system from ruin by
literally printing more paper.
Another reason why this bad situation
has become even worse is because of the record oil price. Oil itself is traded
in dollars and thus is subject to the same inflationary effect seen with food
commodities. Yet the apparent reason given for the increase in the oil price is
increased political uncertainty in the Middle East and tightening of supply
because of growing demand from India and China. However India and China have
made steady economic progress over years, not over the last few months. As such
their oil demand will be already factored into futures oil contracts. The oil
price though has seen consistent huge increases in the last few months. Iraq's
oil production too despite all the problems of occupation has recovered to pre-war levels and with no loss of
supply elsewhere this argument is also not credible. Even if one accepted the
argument over the role of oil speculators, it only serves to prove the flaws in
the Western financial trading system. These speculators can demand oil price
increases merely on ‘political uncertainty' even though there is no actual
reduction in oil supply, causing immense hardship to people around the world.
With Western oil giants’ continuing to make record profits it is clear that on the other hand
the cost of oil production is still low and supplies of oil sustained. These
oil prices could be held down by passing on to the consumer what they are now
taking in hugely increased profit. To put this in perspective, Shell made $9.65 billion in the
entire year of 2002. In the first quarter of 2008 Shell made $7.8 billion
alone.
The result is that oil derived fertilisers,
pesticides and other inputs essential for agriculture have all increased in
cost. Like anything else, food also needs to be distributed and transported.
With the cost of fuel so high, it is inevitable that this growing increase in
fuel price will be passed on to the end consumer. All of these factors taken
together have contributed to the catastrophic increase in the price of food
globally.
In the Muslim world this situation has been made worse because Arab
countries such as Saudi Arabia have pegged their currencies to the dollar. As
the US dollar's value has fallen, so has the value of their local currency.
This has pushed up the cost of every item that is
imported, cruelly exposing the ordinary person. Salaries and wages have not
increased for many people, resulting in the current severe price increases
being seen. In Egypt, people are finding it difficult to obtain their daily bread and the army has been drafted in to
try to produce and distribute bread using army supplies. Egypt faces an inflationary crisis. The betrayal of the Muslim
rulers is most apparent here again; there is no economic advantage to be gained
by pegging their domestic currency to the dollar. Yet these treacherous rulers
continue to do so as the price they must pay in return for American protection
and support. If they ditched the dollar it would further erode the already
plummeting value of the dollar, thus precipitating a real economic crisis for
America, perhaps something worse. Together with the fact that oil is also
denominated in dollars by countries such as Saudi Arabia, these Muslim rulers
are helping to prop up America's economy and thus its ability to continue
waging war in Iraq, Afghanistan and elsewhere.
In Islam, it is an obligation upon the
ruler, the Khaleefah, to ensure that people have access to food, clothing and
shelter. The Khilafah must ensure these needs are fulfilled. This is because Muhammad
(SAW) said:
"The son of Adam has no better right than that
he would have a house wherein he may live and a piece of cloth whereby he may
hide his nakedness and a piece of bread and some water"
(Tirmidhi)
Whilst Islam allows individuals and
companies to trade amongst each other to make profit, it does not allow
essential public utilities and resources to be placed under private ownership. Muhammad
(SAW) elaborated on this saying:
"Muslims are partners in three things: in water,
pastures and fire" (Narrated by Ibn
‘Abbas and reported by Abu Dawud)
This means that resources such as oil
and gas would not be turned over to private companies to be ruthlessly exploited
as is the case today.
The global food shortage in the coming
months will further intensify as the increase in money supply slowly
distributes itself through the western dominated financial system and economies
around the world. As Western governments continue to pump money into their
failed financial systems, the full effects of inflationary pressures are yet to
be felt. In all of this the one thing that stands out is the failure and greed
bred by the Western enforced global capitalist system. With minimal regulation
in Western countries, mainly as the result of close ties between politicians'
and big business, this was a situation that was waiting to happen. As a result
the poor and vulnerable around the world have to suffer for the folly of
Western bankers. The Western democratic and capitalist system has truely
demonstrated its failure on a global scale.
Or,
See this Link:
No comments:
Post a Comment