How business starves the world’s poor

[Rajiv]

The Sunday Herald: How business starves the world’s poor

THE SUMS just don't add up. There's a world food supply crisis, the cost of a basket of groceries has shot up by between 10% and 12.5%, yet our supermarkets are recording healthy profits - Tesco's profits last year, for instance, showed a 11.8% rise.

Meanwhile, farmers - the people who produce our food, say that they are being paid less than they were years ago. Many are selling meat and milk at below the cost of production. Their situation is pretty desperate. It's no coincidence the homepages of farming websites flag up the 24-hour helpline numbers for the Samaritans and the Farm Crisis Network. Suicide among farmers is at record rate
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So there's the mental arithmetic problem. If the farmer gets less, the consumer pays more and the supermarket makes more, where's all the profit in the food chain going?

An interesting insight into this murky maths was provided this week by EU agriculture commissioner, Mariann Fischer Boel. She says that only about two-thirds of the rise in food prices we have seen in Europe can be attributed to increases in the cost of ingredients. "Energy, transport and labour costs have risen, but it is possible that somewhere along the food chain someone may be doing well out of this," she adds.

She has released figures showing that the cost of many grocery staples has gone up by more than the value of basic commodities used to make them. Bread, for example, increased 10% between February 2007 and 2008, but the near-doubling of the price of wheat should have led to only a 3% rise.

[Master Shake]

Re: How business starves the world’s poor

Hello. This is my first post here and I hate it to be negative, but that article sounds like a steaming pantsload to me, something you might read in The Daily Worker. Where's the data that farmers are getting less than they were a year ago? Not in Kansas, that's for sure.

WICHITA, Kan. (AP) -- Bolstered by good fall crops and soaring commodity prices, Kansas farm families saw their income more than double in 2007, a new report shows.
The average net farm income in Kansas last year was $115,035, according to the Kansas Farm Management Association at Kansas State University. That compared with a statewide average of $46,593 the previous year.

http://www.hdnews.net/wirestories/k1...hru-05-09-0589

Cheers!

[Nervous Drake]

Re: How business starves the world’s poor

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[Master Shake]

Re: How business starves the world’s poor

Kansas is booming right now. Boeings being manufactured at record rates, people in prisons being recruited because there's so much demand for labor. Not sure if it is the best example.

Kansas is booming because of those high commodity prices, no? Which are making farmers richer, not poorer, as claimed in the original article. I doubt that Willie Nelson will be needing to do anymore Farm Aid concerts for a while.

[metalman]

Re: How business starves the world’s poor

Hello. This is my first post here and I hate it to be negative, but that article sounds like a steaming pantsload to me, something you might read in The Daily Worker. Where's the data that farmers are getting less than they were a year ago? Not in Kansas, that's for sure.

WICHITA, Kan. (AP) -- Bolstered by good fall crops and soaring commodity prices, Kansas farm families saw their income more than double in 2007, a new report shows.
The average net farm income in Kansas last year was $115,035, according to the Kansas Farm Management Association at Kansas State University. That compared with a statewide average of $46,593 the previous year.

http://www.hdnews.net/wirestories/k1...hru-05-09-0589

Cheers!

$115k will buy a lot of beans in kansas! that ain't negative, that's the fact.

rajiv is our beloved lead lefty liberal. keeps the rest of us libertarians honest... but no harm in setting the record straight. he may have a counter.

that said, the mining business is not benefiting from inflation the way agriculture is. input costs are rising faster. in the case of food, output prices are rising faster. that's the way to play currency depreciation inflation... invest in businesses that have pricing power to pass on costs or that export. for those of you with the balls to play in the stock market. after a brief relief rally is looking like the debt deflation bear is ongoing.

[Rajiv]

Re: How business starves the world’s poor

To put this in perspective, here is a piece from Deseret News Utah
Farm debt: Agriculture could be heading toward a crisis

At a time of record agricultural profits, concerns are mounting that American farmers could be edging toward a financial crisis not seen since the 1980s farm-economy collapse.

Soaring land values, increasing debt and a reliance on government subsidies for ethanol production have prompted economists to warn that what some describe as a golden age of agriculture could come to a sudden end. At risk are the livelihoods of thousands of farmers, the health of hundreds of banks and the vitality of an agricultural industry that has been one of the nation's few economic bright spots in recent months.

"We're in a very risky time, and yet we don't seem concerned about that risk nearly as much as we should be," said Barry L. Flinchbaugh, an agricultural economist at Kansas State University.

The potential problem, economists said, is that strong demand for corn and other grains has caused prices to reach historic highs. That has led to record farmland values and steadily increasing debt as farmers borrow money to buy more land, finance the higher costs of fertilizer and seed and upgrade their equipment.
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As prices have climbed, so have farmland values. In Iowa, the nation's biggest corn producer, the average price per acre of farmland has increased 67 percent in the past five years.

Harl, who has written extensively on the 1980s farm crisis, said the key is how much debt farmers take on, and it appears that amount is increasing significantly.

According to the U.S. Department of Agriculture, farm business debt is expected to reach $228 billion by the end of this year, an $8 billion increase from last year and a new record for the fourth consecutive year.

Now on to farmer suicides
India's debt-ridden farmers committing suicide

While India's economy surges forward on the crest of globalization, thousands of farmers are taking their own lives every year to escape mounting debt and an uncertain future. According to the National Crime Records Bureau, at least 87,567 farmers committed suicide between 2002 and 2006. In Maharashtra state, there were 4,453 suicides in 2006, the last year for which statistics were made available, an increase of 527 compared with 2005. Sharp increases have also been reported in Andhra Pradesh and Chhattisgarh states.
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Analysts cite several factors for the suicides, including crop failure due to agrochemicals and climate change, lower prices due to U.S. farm subsidies, state restrictions on export trade, and the dumping of surplus crops in an oversaturated domestic market.

"The phenomena of indebtedness will recur as long as policies to depress agricultural prices continue," said Sharad Joshi, founder of Shetkari Sanghatana, a leading farmers' rights organization.

Ironically, many farmers are facing a backlash of their own remarkable transformation.

In the 1960s, India underwent a green revolution in favor of high-yield farming to counter acute food shortages. Plant breeding, irrigation development and the use of synthetic fertilizers ramped up production. Today, India is a major exporter of rice, and the world's second-largest producer of fruits and vegetables after the United States.

The changes caused higher operating costs and production that created a market glut exceeding demand at home and abroad. To remain in business, many farmers were forced to take out loans at high interest rates. Once credit had been exhausted, they turned to private lenders, who charged even more exorbitant interest rates.

And that's when the suicides started, most activists say.

Often, things are not what they appear to be on the surface. Things often appear rosy to people who are not in farming. The income volatility in farming is high, and gross margins are low. Thus debt and debt service become critical components to net farm income.

High agricultural prices typically come because decreased per acre production -- total production may be higher because of increased land use -- but that means higher costs per unit of produce, and a higher indebtedness -- demand for agricultural products generally tends to be inelastic (The demand for a good is relatively inelastic when the quantity demanded does not change much with the price change. Goods and services for which no substitutes exist are generally inelastic)

Corn for ethanol throws a little bit of a monkey wrench in this inelasticity -- because of substitutability of other energy sources, and the very low EROI of corn ethanol -- and hence the reliance on subsidies.

So yes, the boom in agricultural prices is not necessarily making the farmers rich.

For the US, see 2008 Net Farm Income Is Forecast To Be $92.3 Billion

Net farm income is forecast to be $92.3 billion, up 4.1 percent

the value of crop production ($175.5 billion), which is forecast to exceed the 2007 record by $25.9 billion (a 17-percent increase)

In 2008, average farm household income is projected to be $89,434, up 6.3 percent from 2007

Average off-farm income of $75,805 in 2008, up 4.6 percent from 2007, accounts for nearly 85 percent of the average farm operator household's income.

[c1ue]

Re: How business starves the world’s poor

Look at some of the articles in Sapiens section - there is a series talking about how banks screw farmers out of the value of their production.

While sale prices are up, the question is how farmers are getting credit to buy seeds, gasoline, tractor parts, and living expenses.

It might be a situation where individual farmers are taking on huge risk (and loans) in order to be able to produce, but are then vulnerable to swings in commodity prices.

This might not happen this time, but it has happened before.

[Guest]

Re: How business starves the world’s poor

Borrowing to pay for seed and supplies to put in and harvest a crop seems so normal today. But it used to be called "undercapitalized". This whole debt-based economy thing has gotten out of control. The idea of operating a business from retained earnings or initially from savings is so old fashioned and quaint today.