Oxfam, Food, Oil and Commodity prices

Some say commodity prices reflect supply and demand. They do, but rising prices almost never reflect a shortage of the commodity but an overabundance of money.

Oxfam’s latest iteration of the “we’re all fucked, everything’s fucked” hypothesis is just as much bollocks as every other time the end of the world has been called. The assumption that oil, food, gold prices are to keep going up is just wrong, and in calling for price controls, Oxfam essentially calls for a policy which has led directly to famine or shortages of staples almost every time it’s been tried (perhaps, if am I being cynical, keeping Oxfam in a job?). It also calls for controls on futures markets, support for small farmers, and more aid. In short a complete recipe for continued third-world poverty. Notice as soon as a country, India, for example abandon this stupidity, famines happen less and less often and people start getting richer? Thus “Growing a better future, Food Justice in a resource-constrained world” can be dismissed as the work of anti-economic left-wing idealists and rejected as complete crap.

The reason for food price inflation is simple. It’s not shortages, It’s certainly not climate change. It’s not “speculation”, for futures markets allow hedging and for every long speculator, there’s a short speculator. It’s not drought, or crop failure, as this is poorly correlated to world food market prices. One area may have a poor harvest, another a good one (this is also a reason for diversifying your supply rather than relying on local producers – against the wishes of the more stupid element in the environmental/charity movement). Nor is population growth, or the increased demand for meat in China, or biofuel in the USA to blame. These processes have been going on for decades during which time, long periods of FALLING food prices have been observed.

The real reason Food prices are rising is the simple observation that if you increase the number of US dollars in circulation, each dollar buys less. Another way of putting this is that the price of things goes up. Now in response to the credit crunch, the USA printed money, as did the UK and other major trading powers. Is anyone surprised that this coincided with sharp increases in the price of shares, bonds, oil, grain, copper, gold, and almost anything else of value you care to mention (or in the case of house prices, prevented a much-needed collapse)? Indeed this is EXACTLY WHAT IT WAS INTENDED TO DO: prevent prices falling, a situation called ‘deflation’, which everyone is agreed is BAD.

So. If quantitative easing is to end, and interest rates (the price of money) are to rise around the world, we can expect commodity prices to fall. Which will lead to OXFAM’s next report demanding that prices be supported to favour their favoured small farmers, as western countries are accused of dumping excess production.

What is really necessary to help African farmers is decent infrastructure to prevent 40% of their produce rotting in the fields, or supply-chain; and access to western markets. Indeed access to western markets would be the stimulus for such infrastructure development. Such a policy would involve reform of US farm subsidies, and the E.U.’s truly evil Common Agricultural Policy, which when taken together are responsible for more death and human misery than almost any other policy in the western arsenal (the war on drugs runs it close).

Make no bones about it, we rich westerners have a boot on the African face, but not in the manner that Oxfam describe.

1 reply
  1. Anonymous
    Anonymous says:

    Agree. Unfortunately I think its a low probability outcome that the susbsidy junkies of France or the US agribuisness community voluntarily deny themselves politcial power…

    Reform is not politically possible.


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