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Think Forward is a blog written by staff of the
Institute for Agriculture and Trade Policy
covering sustainability as it intersects with food, rural development, international trade, the environment and public health.
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April 29, 2011
New primer on excessive speculation in agricultural commodity markets
IATP has just released a first-of-its-kind collection of writings about excessive speculation in commodity markets and the toll it has taken on agricultural prices. Excessive Speculation in Agricultural Commodity Markets: Selected Writings from 2008–2011 includes a total of 19 different pieces covering everything from the basics of what speculation in commodity markets looks like to why such speculation is responsible for the agricultural price crisis, as well as information on regulating excessive speculation.
In the foreward, IATP's Steve Suppan writes:
As former National Director of Intelligence Dennis Blair told a stunned U.S. Senate Select Committee on Intelligence on February 12, 2009, the global economic crisis, triggered by financial and commodity market deregulation, has replaced Al-Qaeda as the number one U.S. national security threat. Blair’s intelligence agencies forecast widespread regime destabilization if the economic crisis continued to fester without major policy and political reform within two years. His agencies did not specify what reforms were needed nor advocate for their enforcement. That is up to us.
Among others, the extensive list of authors includes Olivier De Schutter, the U.N. Special Rapporteur on the right to food, Michael W. Masters and Adam K. White, Daryll E. Ray, Harwood D. Schaffer, David Frenk and IATP's own Steve Suppan.
Download the full text, or each section individually:
Full Text: Excessive Speculation in Commodity Markets: Selected Writings from 2008–2011
Table of Contents and Foreword
Section I. Overview
Section II. Excessive Speculation and the Agricultural Price Crisis
Section III. Regulating Excessive Speculation
April 25, 2011
Fair trade, supply and demand, and Peace Coffee
When IATP started Peace Coffee in 1996, its position as the country's first certified 100-percent organic and fair-trade coffee company was more than just a first—it was the central idea behind the company. Peace Coffee's use of fair-trade, organic green coffee beans helps connect farmer cooperatives around the world to consumers. Over the years, IATP has continued its work advocating for fair trade and Peace Coffee has flourished, with a new coffee shop in Minneapolis and an ever-growing, passionate staff. The piece below first appeared in Peace Coffee's April Peace Spokes newsletter, written by Anna Canning, Peace Coffee's project manager. It addresses the issues affecting the rising price of coffee and what it all means for farmers, co-ops and coffee drinkers.
Harvest Update, by Anna Canning
Perhaps you've already noticed it in the grocery aisle; perhaps you're an avid follower of the commodity markets; or perhaps you've read, seen, or heard the news lately: coffee prices are up. "What's going on in the commodity market?" seems to be the question of the season. It's a complex system and experts disagree on the precise causes of the rapid rise in coffee prices that have now reached 34-year highs -- and no one can say for sure whether they'll continue to rise or fall. General consensus is that we're experiencing the interaction of a few factors. As we reported last year, recent harvests in many areas have been lower, which producers are attributing to changing weather patterns, putting pressure on the available supply of quality coffee. Add to that increasing coffee consumption around the world in producing countries such as Brazil and as well as in emerging markets such as China, where more people are reaching for a coffee mug every day.
So far, that's classic supply and demand, forces whose interactions are sketched quite neatly in a straight diagonal line across the pages of high school econ text books across the country. Real life, however, is not so neat. In recent years, as the rosy glow paled on the notion of investing in real estate and vague mortgage products, investors flocked to diversify into commodities. Increased speculation has increased volatility across the markets for various products and means that an increase in coffee prices can no longer be so cleanly linked to bad weather in Brazil, for example (if curious, our parent organization IATP has thought extensively on this topic.
All these factors impact commodity market prices for basic, Folgers' grade coffee. Similarly, as more coffee drinkers come to appreciate coffee as more than a generic caffeine delivery system, demand is increasing for specialty grade coffee. We've long told the story of the coffee we roast as being unique from region to region, community to community, not just "decaf" or "regular" or the "washed mild" of the trade. That's not just marketing hype and just as the flavor of each bean is unique, so too is the impact of recent developments on each farmer group.
Fifteen years ago, the story of Fair Trade could be distilled into a few talking points: in those days of low market prices, the goal was to pay coffee farmers a fair, stable minimum price, provide access to markets and financing while cutting out the middlemen who profit at the expense of small-scale farmers. When prices are up, the simple story "Fair Trade pays higher prices to farmers" is no longer quite so true. Indeed, high commodity market prices can cause logistical challenges for co-ops as they scramble to communicate with their sometimes far-flung members and compete with deep-pocketed local middlemen for coffee.
Queen Bean Lee recently returned from a trip to Guatemala to visit some of our producer partners there: Apecaform (from whom we've been buying the beans that make up the Guatemalan Dark roast and the backbone to this year's Pollinator Blend) and Chajul, another long-time trading partner. Her stories of this trip sum up some of the evolution of Fair Trade, and what remains relevant in these days of high coffee prices.
Last year when we were beginning to look ahead to this year's harvest and the escalating coffee market, we sat down with the other members of our importing cooperative and the farmers that we buy from. It was quickly clear that this was to be a year in which cash would be crucial. At the request of several savvy farmer co-ops, we increased the amount of pre-financing that we'd help secure and increased the minimum price on the contracts to allow access to that financing (read more on how this works). This means that while some organizations have struggled to come up with the cash to purchase their member's coffee, well-managed co-ops such as Apecaform and Chajul are currently able to collect coffee in a competitive marketplace. For isolated communities such as Chajul, these well-run co-ops play an especially vital role—not only are they paying competitive prices for coffee, they continue to provide much needed community projects (for more on this, see Kyle's account of the trip in this issue).
The next chapter in this new Fair Trade market remains to be written. One thing seems clear: amidst all these changes, it's no longer really meaningful to speak of a Fair Trade market or a specialty coffee market in general; the local market is key. Similarly, the answer to whether these higher prices are good for coffee farmers ends up being a qualified "it depends" on which ones and where. At Apecaform, yields are down which means that while the price per pound may be high, less coffee means that individual farmers aren't getting a raise. Meanwhile, at Chajul, times are good. Weather patterns that have set back other farmers haven't reached their fields. A few months ago when in Ethiopia, Lee observed that country's response to higher prices for the crop that makes up such a large part of the economy: Plant more coffee! Such large-scale projects to increase cultivation of coffee could of course create a glut of Ethiopian coffee in a few years when this spring's seedlings start to set cherries. Yet which of these trends will prevail remains to be seen. What is clear is that a well-managed co-op continues to serve its members well, in good markets and in bad, providing good economic stability and development.
Just as each year's harvest arrives with slightly different nuances in the cup, so too each season's harvest has its themes, its challenges and its successes. While the challenges are clear, it's truly inspiring to see how our long-term producer partners are responding to them. This is the eleventh season that we've been buying coffee from Apecaform and that relationship continues to evolve and to demonstrate the potential for the next decade, whatever it may bring.
April 22, 2011
Lessons for Africa's carbon exchange
Later this month, carbon market investors will gather in Nairobi at a meeting hosted by the World Bank's International Finance Corporation. The meeting will connect heavy hitters in the carbon market world like Barclays Bank, JP Morgan, and the German bank KfW with African project managers.
Part of the reason for the meeting is the March 24 launch of the Africa Carbon Exchange (ACX). The ACX is positioning itself as the hub of climate change business on the African continent. But as IATP's Shefali Sharma writes in a new commentary, "existing and attempted carbon emissions exchanges in Europe and the United States have suffered one blow after another—fraud, carbon credit theft, poor legislative design, even profits for some major polluters—all at the expense of ordinary citizens and the environment." Due to these failures, Bloomberg recently characterized carbon trading as "a backwater of the global commodities market."
Shefali writes, "There is a real danger that carbon offsets will become a major policy distraction and capital diversion from the real climate change challenges that Africa faces: the urgent task of climate change adaptation and ensuring resilience of communities." You can read the full commentary here.
April 21, 2011
IATP announces the 2011–2013 Food and Community Fellows
The Institute for Agriculture and Trade Policy (IATP) is pleased to announce the selection of 14 new Food and Community Fellows. The 2011–2013 class of fellows is a mix of grassroots advocates, thought leaders, writers and entrepreneurs. You can see the full class below and at foodandcommunityfellows.org.
The two-year fellowship provides an annual stipend of $35,000 in addition to communications support, trainings and travel. The program supports leaders working to create a food system that strengthens the health of communities, particularly children. For this class of fellows, a selection committee focused on work that creates a just, equitable and healthy food system from its roots up. Over 560 individuals applied for fellowships.
“We had more than three times the number of applicants of previous classes. Such a talented and diverse pool of people working for food systems change was exciting and challenging for our selection committee and application readers. We look forward to this class building on the great work of previous classes,” said IATP’s Mark Muller. “The six-person selection committee provided a diversity of expertise and perspective that was essential for the decision-making process.”
“This new group of fellows parallels their predecessors in skill, capacity and experience,” says Keecha Harris, a food systems and public health expert, member of the very first fellowship class and member of the selection committee. “The selection process demonstrates that this country has a cadre of profoundly dedicated individuals committed to better food in their communities and improved food policies in all levels of government.” The new class of fellows represents work from Bainbridge Island, Washington to west Georgia, and from southern New Mexico to Queens, New York.
Another selection committee member, August Schumacher, former USDA Undersecretary of Farm and Agriculture Services agrees. “The caliber of the final awardees reflects extraordinary capabilities, outstanding and innovative proposals, and plain hard work,” Schumacher says.
“The Food and Community Fellows have always been change agents,” says Jim Harkness, President of IATP.” We invest in individuals that have a vision and plan for bettering the food system. These fellowships aren’t about incremental change; we want big visions that have the potential to provide our children with new opportunities for growing, processing, eating and thinking about food.”
The Food and Community Fellows program is generously funded by the W.K. Kellogg Foundation in Battle Creek, Mich. and the Woodcock Foundation, based in New York, New York.
To follow the work of the new class of IATP Food and Community Fellows, visit our website and follow us on Facebook and Twitter.
Class VIII IATP Food and Community Fellows
Brahm Ahmadi, founder of People’s Grocery and CEO of People’s Community Market in Oakland, is a social entrepreneur redesigning food retail to better engage, serve and support food desert communities.
Jane Black is a Brooklyn-based food writer who covers food politics, trends and sustainability issues.
Don Bustos is a traditional farmer in New Mexico working on issues of land and water rights using community-based approaches and providing farmer-to-farmer training.
Cheryl Danley, an Academic Specialist with the C.S. Mott Group for Sustainable Food Systems at Michigan State University in East Lansing, engages with communities to strengthen their access to fresh, locally grown, healthy and affordable food.
Nina Kahori Fallenbaum, the Washington, DC-based food and agriculture editor of Hyphen magazine, uses independent media to engage Asian American and Pacific Islander communities in local and national food policy.
Kelvin Graddick, a west Georgia-based, fair food system advocate, manages a cooperative that maintains a local sustainable food system, promotes healthy living, builds cultural and economic knowledge, and creates economic opportunities.
Haile Johnston, a Philadelphia-based social entrepreneur, works to improve the vitality of rural and urban communities through food system connectivity and policy change.
Jenga Mwendo, a community organizer based in New Orleans' Lower Ninth Ward, focuses on strengthening community through urban agriculture.
Raj Patel, a writer, academic and activist in San Francisco, works in support of Food Sovereignty in the US and the Global South through advocacy, analysis and protest.
Kimberly Seals Allers, an award-winning, Queens-based journalist and author, is the leading voice of the African American motherhood experience and a champion for children through her work advocating for improved maternal and infant health and increased breastfeeding in the black community.
Valerie Segrest, a member of the Muckleshoot Tribe outside of Seattle, works as a Community Nutritionist and Native Foods Educator to create a culturally appropriate system of health through traditional foods and medicines.
Kandace Vallejo, a staff member at Austin, Texas-based Proyecto Defensa Laboral/Workers Defense Project, coordinates the organization's Youth Empowerment Program, where she works with low-income, first-generation Latino youth and their families to educate, organize, and take action to create a more just and equitable food system for workers and consumers alike.
Rebecca Wiggins-Reinhard works with La Semilla Food Center to improve access to healthy, affordable, and culturally appropriate foods in the Paso del Norte region of southern New Mexico and El Paso, Texas.
Malik Kenyatta Yakini, an activist and educator, is Interim Executive Director of the Detroit Black Community Food Security Network, chairs the Detroit Food Policy Council and serves on the facilitation team of Undoing Racism in the Detroit Food System.
April 19, 2011
Agriculture in rural India: How will it cope with free trade?
IATP's Shefali Sharma is part of a delegation visiting rural areas in India to assess the human rights impacts of the country's trade and investment policies.You can view her previous post here.
New Delhi – Last I wrote, I was embarking on a journey into some of the most rural villages of Southern India. Over a four-day period, our team met with groups of farmers—men and women—in the State of Andhra Pradesh. We travelled from west to east across Chittoor District and then took an overnight train to the Northern district of Medak, covering hundreds of kilometers.
Our difficult task was to understand what small farmers in India grow, how much they keep for eating and how much they sell to the market. We wanted to understand if they can continue to sustain themselves and their consumption needs through growing food alone and whether they have access not just to food, but adequate nutrition all year long.
We also wanted to understand whether a European Union–India Free Trade Agreement (FTA), currently under negotiation, would have an impact on their livelihoods. In particular, what role does dairy and poultry play for their income and food security and what would liberalizing investment with the European Union do to land access and natural resources for local farmers. Historically, the European Union has a habit of dumping both dairy products and poultry parts in developing countries, decimating small-scale dairy and poultry producers in the process. For example, Ghana’s poultry sector was wiped out when frozen poultry parts flooded Ghanian markets and the EU-India FTA is likely to include an “asset”-based definition of investment, including both “movable and immovable property.”
In the village of Yalakallu, we met both with small producers and landless agricultural wage workers (all photos here by Harneet Singh). Often the small farmers were also wage laborers because they did not have income all year from growing food and were forced to work for daily wages as income. A small farmer in the Indian context means ownership of as little as .5 to 5 acres of land. The farmers with whom we met owned on average only one to three acres of land. The bulk of their growing sustains food consumption for their families and any surpluses are sold to the local market. Water, however, is an acute problem in the village and most of the agriculture is rainfed. Increasingly erratic weather means heavy rains at unwanted times and drought in other parts of the growing season. These farmers have two growing seasons. They grow crops like rice, finger millet and vegetables in the rainy season (July to October), and grow lentils like red gram and green gram in the dry season (November to May or June). Some are also growing tomatoes and cabbage to sell to wholesale retailers, but because the prices of tomatoes had recently crashed, many of the tomato growers said they would be watching their tomatoes wither in the fields this year.
For these farmers, dairy plays an important role because they receive payments every two weeks from cows and buffalo they raise on the farm while feeding them with crop residues from their own fields. Most of the farmers we talked with owned one or two cows that deliver 2–4 litres of milk a day. But a system of small traders delivers this milk to the local dairy. For decades, India has invested in developing a cooperative dairy sector that has been increasingly privatized over the past decade. Cheap imports of skim milk powder from Europe to make cheap reconstituted milk would certainly impact these small farmers.
It was immediately evident that their ability to withstand even a little risk was very small. Some farmers we talked with have tried ventures like small poultry operations (from 1000 to 5000 chicks) to supply to domestic chains, but when the chicks die or get diseases, the company they sell to can abruptly terminate the contract. These risky business arrangements can involve loans and indebtedness—a common feature amongst all of these farmers. Rising food prices haven't necessarily helped these farmers yet because the wholesalers and retailers have retained most of those gains. In other parts of the same district, farmers with up to five acres of land are contracting with domestic broiler chicken firms. They are raising up to 5000 chicks, taking out loans to do the initial investment in setting up these farms. At the end of the year, they earn about 100,000 Indian rupees—spending 50,000 INR on loan repayment, keeping the rest for themselves. The profit margins are low to minimal and debts pass over from year to year. Water for the chickens competes with water for their farms.
Our visit to the next neighborhood in Yalakallu was with landless Dalits (the lowest caste in India’s extremely hierarchical caste system). The women and men depend on wage labor and forest produce for feeding their families. Thanks to India’s public food distribution system, they are able to procure rice and sometimes lentils from government-subsidized ration shops at prices as low as 2 rupees per kilon but rising food prices mean their income brings less and less food. During these times, they compromise on food security—eating rice or finger millet with a watery juice of tamarind. In better times, their diet is supplemented with leafy vegetables and lentils, a key source of protein in these villages.
Owning livestock is difficult. Without land, farmers cannot supplement their income and nutrition through dairy or goats, though many of them keep raise poultry, feeding them with kitchen waste, and local chicken varieties are much hardier than chickens produced for the broiler industry.
It quickly became evident that these small farmers and landless laborers are facing obstacles when it comes to accessing land. Urbanization, real estate developers and industrial operations are increasingly fencing these people out of grazing land. Access to land is critical. Those who own land, even a small plot, can feed their families through most of the year, and have a much better chance at nutrition and healthier lives than their counterparts who live on wage labor alone.
The EU and India’s investment provisions will mean more demand for land and natural resources as EU investors look to extract minerals in India and set up mechanized processing plants. This has already been the case with Indian companies taking over land in the countryside. It also means greater competition for scarce water and electricity.
We heard numerous stories over the last few days about the tradeoffs and choices these small food growers and agricultural laborers are making, even now. More difficult choices may not be far off.
April 15, 2011
The U.S.-Colombia trade agreement: A volatile agenda on agriculture
The new Obama trade policy, as embodied in its free-trade agreement with Colombia, sadly resembles the old Bush trade policy: promoting growth in exports and investment at the expense of local economies and resilient food systems. This is unfortunate, not only because it fails to deliver Obama’s promised “21st-century” trade agenda, but also because it ignores some of the key lessons from NAFTA and the 2008 food-price crisis. Globalization has tied our economies together so that price changes in one country transmit around the world, increasing hunger and undermining efforts to rebuild rural communities and resilient food systems.
For decades, the primary problem for agriculture had been low prices, stimulated by U.S. and European agricultural policies that compelled farmers to continue to produce more and more to make up in volume what was lost in falling prices, and to seek ever expanding markets, whether at home or abroad. Cheap imports flooded the markets of developing countries, devastating small-scale farmers in poor countries while failing to stabilize farm incomes in the U.S. and Europe.
Trade policy is not neutral; it is a specific set of rules, embodied in agreements that tend to favor specific actors. Rather than learning the lessons of the 2008 food-price crisis, that governments need the ability to shield key markets from extremes so they can rebuild food systems, the rules in the Obama administration’s first two trade agreements proudly replicate the 20th-century model. White House fact sheets on the U.S.-Colombia Trade Promotion Agreement proclaim that the trade deal:
Immediately eliminates duties on almost 70 percent of U.S. farm exports including wheat, barley, soybeans, soybean meal and flour, high-quality beef, bacon, almost all fruit and vegetable products, peanuts, whey, cotton, and the vast majority of processed products.[i]
Like NAFTA, the Colombia agreement would subject local farmers to immediate competition from U.S. exports on a broad range of products. While prices are high for now, many Colombian farmers will find it difficult to compete with goods whose prices can vary so dramatically. As in Mexico under NAFTA, tariffs on corn and a few other sensitive products will be phased out over a longer period (although the agreement does allow countries to speed up that transition). The Mexican experience—in which more than 2 million farmers have been displaced from agriculture—shows that even a long transition may be inadequate when no real alternatives for rural employment exist. Many of those farmers were compelled to migrate to urban areas or the United States to find work.
The White House fact sheet also boasts that the agreement:
Immediately eliminates Colombia’s use of Andean Price Bands (variable tariffs), thereby ensuring that Colombia stops applying high duties under this mechanism.[ii]
Colombia and other Andean countries have utilized price bands to stabilize prices. When prices are high, tariffs remain low, and when prices drop, tariffs are raised temporarily to stabilize prices. This is similar to the Special Safeguard Mechanism, one of the central proposals made by developing countries in the WTO talks to protect food security and rural livelihoods, a proposal resisted by the U.S. government since the Bush administration. Its removal could undermine Colombian farmers, as well as contribute to rising food-price volatility in other Andean countries.
While Article 2.18 of the Colombia FTA allows for temporary safeguards, they can only be triggered by sudden increases in the quantity of goods, not volatility in prices. Those safeguards could only be applied to goods not already subject to duty-free treatment. That provision also specifies that any safeguard mechanisms agreed to at the WTO would not apply to goods from parties in this agreement.
In describing “Trade and the U.S.-Colombia Partnership,” the administration cites the Colombian government’s proposals to restore land to those displaced by civil conflicts.[iii] Whatever the merits may be of that program, there is no assurance that farmers facing competition from exports, or new investments facilitated by expanded trade, would be able to stay on their land. ActionAid Guatemala has documented numerous cases of Guatemalan farmers pressured by palm oil and sugar producers to sell their land to make way for industrial-scale monocrop production. Many of these farmers had been granted titles in the wake of that country’s civil war, only to lose them again when inadequate access to credit and other inputs made it impossible for them to earn a living.[iv] Deregulation of financial services provided for in the new trade deal could reduce available farm credit. The U.S.-Colombia accord replicates most of the investment and financial services provisions in NAFTA and CAFTA.
The lessons of this export-led model are not encouraging for U.S. farmers either. Despite rising agricultural exports, the number of small but commercially viable farms has dropped by 40 percent in the last 25 years. Very small farms serving local markets (and relying on off-farm income), and very large farms, have increased substantially. In a new report,[v] Tim Wise documents shrinking farm incomes among small- to medium-scale farms, as “Expenses have risen to gobble up higher sales revenues, and government payments have declined because some are triggered by lower prices. With the recession, off-farm income has declined dramatically, leaving family farm households worse off than they were earlier when crop prices were low.”
U.S. farmers, like their Colombian counterparts, need reliable public support and consistent market signals so that they can invest in local, regional and national food production to feed their communities and their nations. Trade should supplement local food systems, not seek to replace them. The U.S.-Colombia Trade Promotion Agreement will leave farmers and consumers at the mercy of volatile prices and markets rather than learning from the very real experiences of very recent history to build a new approach that ensures fair, healthy and resilient food systems for all. We’re still waiting for a 21st-century trade policy.
– Karen Hansen Kuhn is the director of IATP's International program.
i U.S.-Colombia Trade Promotion Agreement: Expanding Markets For America’s Farmers And Ranchers, Fact Sheet, http://www.whitehouse.gov/sites/default/files/rss_viewer/IncreasingAgriculturalExportstoColombia.pdf, accessed April 12, 2011.
[iii] Trade & The U.S.-Colombia Partnership, Fact Sheet, http://www.whitehouse.gov/sites/default/files/rss_viewer/TradeandUSColombiaPartnership.pdf.
[iv] Danilo Valladares, “Evictions of Native Families Add Fuel to Fire over Land Access,” Inter-Press Service, March 29, 2011.
[v] Tim Wise, “Still Waiting for the Farm Boom,” GDAE Policy Brief 11-01, March 2011, available at http://www.ase.tufts.edu/gdae/Pubs/rp/PB11-01FarmIncomeMarch2011.pdf.
April 14, 2011
Safe Chemicals Act introduced, good news for people and families
Today, the Senate introduced the Safe Chemicals Act, which seeks to reform the outdated and badly broken Toxic Substances Control Act (TSCA). We think this is good news for people and families across the United States. Why? Because TSCA has failed so completely to protect our health! Of the more than 80,000 chemicals on the market today, only about 200 have ever been tested for safety. Of those, only five have been banned. Despite 10 years of rulemaking, the EPA could not even ban asbestos, a substance widely known to be harmful to health.
Now, more than 35 years after TSCA was passed, there is no shortage of stories about toxic chemicals, like BPA, phthalates, formaldehyde and lead ending up in the products we use everyday. These chemicals don't just end up in our products, they end up in food. For example, one of the most prevelant exposure routes for people to BPA is canned foods (can linings almost always contain BPA, which leaches into the contents of the can). A recent study from Environmental Health Perspectives found that by eliminating canned foods, levels of BPA were reduced by an average of 60 percent in study participants, after only three days!
The Safe Chemicals Act will change all of that by changing the way we review and regulate chemicals.
Here's what we like about the bill:
- Takes fast action to address highest risk chemicals.
- Further evaluates chemicals that could pose unacceptable risk.
- Ensures safety threshold is met for all chemicals on the market.
- Provide broad public, market and worker access to reliable chemical information.
- Promotes innovation, green chemistry and safer alternatives to chemicals of concern.
Toxic chemicals, and their health effects, know no party lines. Let's hope Congress moves this bill forward quickly.
Free trade and human rights: a voyage into India's countryside
IATP's Shefali Sharma is part of a delegation visiting rural areas in India to assess the human rights impacts of the country's trade and investment policies.
I am in Bangalore tonight—a key metropolis for India’s economic growth story. In Bangalore reside many of India’s premier IT companies and back-end offices for multinational companies, be it for telecommunications or travel. But I won’t be staying in the silicon valley of India for long. Tomorrow, a team of us—from an Indian NGO called Anthra, a German development organization called Misereor, the Heinrich Boell Foundation, a photographer and I—will be waking up at the crack of dawn and driving three hours from the South Indian state of Karnataka to another southern state called Andhra Pradesh.
Over the next four days, we'll visit the districts of Chittoor and Medak and talk to people in the villages of Yallakulu, Raipedu and Chennapur. Our purpose? To understand how changes in India’s international trade and investment policies are likely to affect dairy farmers and food growers in some of the most rural areas of India.
India is negotiating a free trade agreement with the European Union and talking about possibilities of a future trade deal with the United States. While such deals often take place behind closed doors between governments and their industrial lobbies, such agreements can have drastic impacts on environmental and other public interest laws and regulations. Trade and investment policies also have a lot to say about who will continue to eke out a living while facing increased competition. Under these agreements, the most powerful and the least powerful must be treated “alike” under the free trade concept of nondiscrimination.
Human rights law, on the other hand, stresses the need to discriminate in favor of the marginalized and vulnerable populations and claims supremacy over all other international law. This principle sets the stage for our next few days where we will be learning about the lives of people dependant on dairy production (something the European Union wants to import into India with much greater ease) and growing other agriculture commodities. In particular, based on the stories they will tell us, we will analyze to what extent the right to food—the “physical and economic access at all times to adequate food or the means to its procurement”—is being respected under the liberalization policies the Indian government has steadily been adopting. And how a Free Trade Agreement (FTA) with the EU may strengthen or undermine this critical right.
We begin this journey after an intensive, two-day consultation in New Delhi on building a Human Rights Impact Assessment of key areas of the FTA that are likely to impact small food producers in India. These consultations provided us with data and information we needed to understand the changes that are taking place in the dairy, poultry, food retail, India’s public food distribution system and in land-based investments. Now, we go to the field to see how these changes are playing out in the lives of vulnerable people themselves. Stay tuned.
April 13, 2011
Who's benefitting from higher farm prices
Higher prices for crops mean higher profits for farmers, right? Not so fast, says a new Policy Brief by Timothy Wise at the Global Development and Environment Institute at Tufts University. Looking at the latest data available (through 2009), Wise finds that while agriculture commodity prices are rising, so are costs to farmers. In fact, small- and mid-sized farmers (between $100,000 and $250,000 in sales, not profit), with an average of 1,100 acres, have seen a decline in net farm income. In 2009, small- and mid-sized farms had an average net farm income of just $19,274—continuing to rely heavily on non-farm income to stay on the land.
Where is all the money going? "As any farmer knows, those small gains were obliterated by higher costs, as prices for fertilizers, chemicals, seeds, feed, fuel and other inputs followed the same upward curve as crop prices," Wise writes, accompanied by graphs like the one to the right.
In the current climate of rabid budget cutting, and higher commodity prices, agriculture programs have been a popular target. The media are trumpeting the farm boom but Wise's paper reminds us that if we want small- and mid-sized farmers to survive and thrive, we need to look deeper than the headlines—and pay closer attention to who is really reaping the rewards of higher prices.
April 12, 2011
Five reasons carbon markets won't work for agriculture
Carbon markets are viewed as the primary source of climate financing. The experience to date demands a reevaluation of their ability to exact real, sustainable change, particularly in relation to agriculture. Here are five reasons why poorly designed and regulated carbon markets should not be part of a global climate treaty.
1. The high cost to people, health and the climate
Market-based mechanisms aim “to enhance the cost-effectiveness of, and to promote, mitigation actions.” But thus far, carbon emissions trading has been cost-effective only for those firms that have received billions of dollars in carbon credits for free from governments that can afford to subsidize their industries. It is certainly not cost-effective for the millions of people whose health is impaired because they live near industrial facilities that choose to buy offset credits rather than invest in pollution prevention. (U.S. courts are beginning to investigate the public health effects of carbon markets.) Nor is it cost-effective for the indigenous peoples dispossessed of their land to make way for carbon-offset investors’ projects.
Market-based mechanisms should be evaluated according to broader criteria, such as vulnerability, harm to food production and sustainable development, and on the basis of equity and common but differentiated responsibilities.
2. Fostering excessive speculation
One new market proposal is “green sectoral bonds” from the International Emissions Trading Association (IETA). Under this proposal, “green sectoral bond” investors would receive developing-country carbon credits to repackage and trade as derivatives. Developing countries would incur debt in contracts for which they, and not private contractors of mitigation technologies, would bear liability for failure to meet stipulated GHG reductions. Because countries, not private firms, are liable for bond performance failure, an ensuing chain of climate debt could prevent developing countries from accessing capital markets. This proposal would also shift historic responsibility for mitigation significantly to developing countries.
The derivatives component of market proposals are vulnerable to excessive speculation that has plagued commodity markets since at least 2007 and exacerbated price volatility. There is considerable evidence of excessive speculation in commodity markets, aided by deregulation, especially in energy. Carbon and energy prices tend to move together. When hedge funds and commodity index funds add carbon to their portfolios, this speculation—and volatility—will increase.
Market mechanisms are also vulnerable to the common crimes, deceptive market practices and tax fraud that have plagued trading under the European Union’s Emissions Trading Scheme (ETS).
3. Exacerbating food price volatility
When wheat and other cereal prices surged in September 2010, the FAO’s Committee on Commodity Problems held an emergency meeting. The committee found that speculation was one of the key factors in the prevailing volatile and escalating prices in the cereal market and agreed that further work must be done to enhance transparency and manage the risks associated with new sources of market volatility.”
Carbon is considered a commodity like oil, rice, maize and wheat. Excessive speculation in carbon is likely to exacerbate food and commodity price volatility. Bundling carbon derivatives into index funds with other commodities would also tend to destabilize prices. Highly volatile oil and food commodity prices impact economic stability and the agriculture sector as a whole, given the high dependence on fossil fuels for synthetic fertilizers, transport, distribution and storage.
4. Measurement difficulties and transaction costs
Offset projects in the agricultural sector would create significant challenges of measurement and environmental integrity. Like the forestry sector, leakage (carbon sequestered in one project leaked through land-use changes elsewhere), permanence (carbon is highly variable in soil and may not be stored permanently) and additionality (the degree to which the carbon stored is additional to what would have been stored in a business-as-usual scenario) are significant barriers to the environmental integrity of soil-carbon offsets.
There is a lack of data and measurements of in situ soil types, climate variability, past and future land use, and management practices. Soil carbon content can be highly variable depending on crops and their cropping cycles, human activity, land tenure and the climate itself. A costly combination of quantitative and qualitative field data with sophisticated models would be required to achieve greater accuracy with no guarantee of lasting emissions reductions.
The World Bank BioCarbon Fund’s pilot soil-carbon sequestration project in Western Kenya acknowledges that it cannot accurately measure carbon in the soil. Instead, the World Bank will use a series of proxies to measure for soil-carbon sequestration. The transaction costs associated with this project are more than 1 million USD.
The FAO acknowledges the high transaction costs involved in these projects and the potential impacts on small-scale farmers and food security. It estimates that close to 17 billion euros could be required between 2010 and 2030 to establish appropriate mitigation measures, monitoring, reporting and verifying methodologies and convert them into carbon credit equivalents.
Carbon market “readiness” projects that include agriculture will divert institutional, human and monetary resources away from direct support of climate adaptation for small-scale farmers.
5. Undermining the transition to sustainable agriculture that respects human rights
Offset projects could create additional challenges for land rights and food security. To be profitable, agriculture soil carbon projects will require that a large number of farmers’ activities are aggregated into a “carbon pool.” Such schemes require a large number of hectares to be profitable for project developers, investors and traders. Aggregating small farmers for the sake of carbon credits will create the potential for increased social conflict and human rights violations around land tenure, land grabbing and the displacement of food production in favor of more easily calculated carbon sinks.
Such aggregated projects could foster a range of untested, costly and controversial technologies that farmers are asked to adopt as “quick fixes” for ease of measurability. Technologies such as biochar and genetically modified mono-cropping could be promoted at the expense of locally appropriate, affordable and ecological approaches that help small producers adapt to climate change while sequestering carbon.
A different approach
There is a real risk that the market-based approaches under consideration at the UNFCCC will continue to fail—both financially and environmentally. Market-based offsets that do not result in emissions reductions further jeopardize the agriculture sector’s ability to adapt to a dangerously warming planet. The focus on market mechanisms is a critical distraction from curbing the real sources of pollution and supporting agricultural practices that reduce emissions while ensuring food security, environmental integrity and rural livelihoods. The reduction of nitrous oxides associated with synthetic fertilizers and emissions from the industrial livestock industry should be starting points for mitigation actions related to agriculture. Direct public support for local seed banks, agroforestry and organic practices are only a few of many that are much less costly and can provide adaptive and mitigation benefits.
Alternative proposals for climate finance exist and need the political courage of governments be to put into action.
Download the PDF of this factsheet or see the fully cited February 21, 2011 comment to the UNFCCC it is based upon.
April 08, 2011
U.S. subsidizes Brazilian cotton to protect Monsanto's profits
On February 18, Republicans in the House of Representatives defeated an obscure amendment to the House Appropriations bill by a 2-to-1 margin. The Kind Amendment would have eliminated $147 million dollars that the federal government pays every year directly to Brazilian cotton farmers. In an era of nationwide belt tightening, with funding for things like education and the U.S. Farm Bill on the chopping block, defending payments to Brazilian farmers may seem curious.
In order to understand this peculiar political move, one has to look all the way back to 2002, when Brazil filed a case in the WTO challenging U.S. cotton subsidies. In 2004, the Dispute Settlement Body of the WTO found in favor of Brazil, ruling that government subsidies afforded U.S. cotton producers an unfair advantage and suppressed the world market price, which damaged Brazil's interests. After multiple appeals the WTO upheld the original ruling, and by 2009 the U.S. still had not reformed its cotton programs. Brazil then asked the WTO for permission to retaliate against the U.S. by imposing trade sanctions. The WTO decided that Brazil was entitled to impose 100-percent tariffs on over 100 different goods of U.S. origin. Even more importantly, however, Brazil was entitled to suspend intellectual property rights for U.S. companies, including patent protections on genetically engineered seeds.
In WTO language, Brazil was allowed to suspend its obligations to U.S. companies under the Trade-related Aspects of Intellectual Property Rights (TRIPS) agreement. This constituted a major threat to the profits of U.S. agribusiness giants Monsanto and Pioneer, since Brazil is the second largest grower of biotech crops in the world. Fifty percent of Brazil’s corn harvest is engineered to produce the pesticide Bt, and Monsanto’s YieldGard VT Pro is a popular product among Brazilian corn farmers. By targeting the profits of major U.S. corporations, the Brazilian government put the U.S. in a tough spot: either let the subsidies stand and allow Brazilian farmers to plant Monsanto and Pioneer seeds without paying royalties, or substantially reform the cotton program. In essence, Brazil was pitting the interests of Big Agribusiness against those of Big Cotton, and the U.S. government was caught in the middle.
The two governments, however, managed to come up with a creative solution. In a 2009 WTO “framework agreement,” the U.S. created the Commodity Conservation Corporation (CCC), and Brazil created the Brazilian Cotton Institute (BCI). Rather than eliminating or substantially reforming cotton subsidies, the CCC pays the BCI $147 million dollars a year in “technical assistance,” which happens to be the same amount the WTO authorized for trade retaliation specifically for cotton payments. In essence, then, the U.S. government pays a subsidy to Brazilian cotton farmers every year to protect the U.S. cotton program—and the profits of companies like Monsanto and Pioneer.
In 2005, I attended the committee meeting of Brazil’s foreign trade ministry where Pedro Camargo Neto—a Brazilian trade lawyer and then-president of the Brazilian pork producers association—proposed suspension of the TRIPS agreement as retaliation for U.S. non-compliance with the WTO ruling on cotton. It was a brilliant political tactic, and dramatically shows the power of private firms in both countries to influence trade policy in the WTO. When I interviewed him as part of my dissertation, Camargo said the Brazilian cotton case would never have been launched without political pressure and funding from Brazil’s powerful cotton industry. Despite facing substantial resistance from the Brazilian government in launching the case, he said, “the producers were really backing it.”
Today in the U.S., taxpayers are bearing the cost of the cotton subsidies and the cost of failure to reform them. Although major news outlets called the payments yet another insane perversion of already insane U.S. agricultural policy, it clearly wasn’t just about preserving subsidies. In 2006, Steve Suppan anticipated the use—and drawbacks—of TRIPS suspension as a one of few tools of cross-retaliation available to poorer countries. However, because of the size of the market for genetically modified seeds there, TRIPS suspension was Brazil’s trump card. Apparently when the stakes are high enough for American business interests, the government will make sure that American taxpayers subsidize not just agriculture, but intellectual property, too.
Emelie Peine is an assistant professor of international political economy at the University of Puget Sound.
Emelie Kaye Peine
Buying better chicken for schools, hospitals and other organizations
Making healthy choices can be difficult, even when you know what you're looking for. The myriad of standards and certifications can be hard to navigate, especially in poultry: Does antibiotic-free mean no antibiotics in the feed or no antibiotics used in raising the animal? Do poultry producers have to list whether or not arsenic is used? Now, imagine being responsible for feeding a school's student body, or a hospital. Getting enough of the right product, and getting it on time, can be difficult when trying to source healthier alternatives.
Large-scale food purchasers now have a resource guide to help them make healthy decisions when purchasing poultry for their organizations. Today, IATP is releasing a new fact sheet entitled "Buying Better Chicken," which helps sort out the complicated system of certifications, standards and terminology in the poultry industry.
Take a look at the guide.