Agribusiness uses the food crisis to pass new Forest Code

Saturday, April 2, 2011

k. abreuBy Valéria Nader
From this point forward, the agribusiness 'shock troops' can now count on the support of one of the most powerful speakers with the widest visibility and circulation in the country, the newspaper Folha de São Paulo.

Kátia Abreu, Senator of the Democratas (DEM) party, will write a fortnightly column in the newspaper. She is one of the most famous and enthusiastic figures of the ruralist camp in Congress.

The theme, nothing is for free, was chosen for the premiere of her column in Folha's Mercado magazine, last Saturday, March 19. In a climate in which the food crisis once again returns to the spotlight, with a lack of products and a consequent rise in prices, the senator wrote a piece in which she vehemently defended reform of the Forest Code.

The text skillfully captures the most favorable moment in which to unleash a battery of arguments in favor of agribusiness.

 The clever bit

 In the introduction to her text, Kátia Abreu superficially recounts the factors that have been put forward by several scholars to explain the origins of the crisis. By doing so, she avoids being charged with a lack of knowledge on the food crisis question. Kátia Abreu then reveals her true intention: to establish a 'direct' and 'unquestionable' link between the current Forest Code and the food crisis.

 For the senator, speculation on agricultural products in future markets has practically nothing to do with the current rise in food prices. She is convinced of the power of the free market to sort out any mismatches between supply and demand. The price of products cannot be considered in isolation from this basic foundation except for short periods.

 As to climatic factors (which lead to droughts, food shortages etc.), they would still occur in the country but would become far less problematic in terms of food supply since, for Kátia Abreu, the market would also work to to establish communication channels between “grains and meats produced today across Brazil's vast expanse.”

 The only motive that would explain the current rise in prices, according to the Senator, would be “a demand in the poor regions of the world, especially in Asia, where hundreds of millions of people are leaving misery behind and are eating more and better as a consequence.” In this deterministic and unidirectional scenario, where excess demand is the problem, the solution could not be different: an increase in supply, with greater production of grains, meats and fruits.

 Here comes the clever bit. According to Kátia Abreu, the previous governments understood the importance of not ceding to potentially harmful interventionist temptations, such as price controls and stock formation.

However, we would still live under the backward rule of law which predates the agricultural revolution of the 1970s. This would be the case of the Forest Code, which for her, is an obstacle to the expansion of agricultural production. A change would offer something positive in this current climate of crisis. The urgency lies, therefore, in the Code's 'revision' and 'updating', something that would not involve deforestation, but would implicate the regularization of open production areas with “great sacrifice and elevated costs.”

 The food crisis and its causes

The senator's speech is hardly surprising in a country where the ruralist cause often imposes itself on the political and economic scene. In 2008, at a time which predates the worsening food crisis, the then governor of Mato Grosso, Blairo Maggi, who is now also a Senator, suggested an increase in legal deforestation as a way of coping with high prices. This is not much different than what Kátia Abreu is proposing now, albeit she does so in a much more ingenious way.

 At that time, the geographer and retired professor from the University of São Paulo (USP), Ariovaldo Umbelino, in various press articles and in an interview in the Correio da Cidadania, drew attention to the foolishness of this approach. In a country that has 120 million hectares of land which has been proven to be unproductive, itself recorded in the register of the National Institute of Settlement and Agrarian Reform (INCRA), and in a country that does not conduct agrarian reform because the government does not want it, this assessment should be seen as a madness of the agribusiness model. Umbelino also emphasized the various causes that have been at work since then, starting with the situational factors such as rising oil prices and moving on to the structural ones, related to the new forms of organization of capitalist production.

 Although the improvement of economic conditions in countries with large populations, especially China and India, has increased food imports and as a consequence has reflected on price increases, this was not and isn't the main reason for this increase, as we are led to believe, and as the senator would like us to believe.

 At the beginning of the 90s, there was a shift in food production and marketing, with a deepening of the neoliberal model and the imposition of new rules by the World Trade Organization (WTO) based on free trade and free markets. Since then, with the regulation of the commodity market having been abolished, contracts of the purchase and selling of food have been transformed into derivatives of various types, without any link to agricultural activities.

 Hence, food speculation was only temporary. Gold, petroleum, and now basic foodstuffs such as soya, coffee and sugar have turned into global commodities negotiable on futures markets.

 The fact is that food commodity speculation has become increasingly ferocious since the subprime mortgage crisis in the US, which evolved into the world financial crisis in 2008. Taking advantage of price deregulation in the global commodity market, the same investors whose financial transactions had resulted in the crisis of 2008 ran in search of more secure investments, among which food was one. Much of the investment funds were  directed in this way to the purchase of commodities (in futures markets) which accelerated the fall in food stocks and directly impacted prices.

 An evaluation and some points of view

In light of this discussion, it would be wise to take a precautionary approach against eventual and foreseeable accusations of  'bias.' It is not merely the more progressive scholars and experts, connected as they may be to agrarian and social movements (often seen as 'Jurassic'), who bring these views to the fore. Let us take a look at some of them.

 According to Francisco López Ollés, an expert in raw materials and foreign exchange, “There is practically no other product in which to invest at this moment where demand is so high, that is to say, that has such good grounds...In the end, all of this is a result of the actions of the central banks to bring about more liquidity in the markets (known as quantitative easing). Money has to find somewhere profitable.” (cited by Belén Carreño in Pú, 7 March 2011).

 For Paulo Picchetti, Ph.D. in Economics from the University of Illinois and professor of EESP/FGV (Getúlio Vargas Foundation), in an article written for the Mercado magazine of Folha de São Paulo on 19 February, “any new announcement which foresees a fall in productivity is followed by an intense movement of prices in the markets. In the latter especially, speculative behavior itself becomes an additional pressure factor on the price of foods.

 As an example of this assessment made by Picchetti, Belén Carreño narrates a very revealing case: “One hedge fund has for several months grabbed all of the world's chocolate producers by the neck. The investment firm, Armajaro, run by prominent British businessman, Anthony Ward (…), last July bought 240,000 tons of cocoa, an equivalent of 7% of the world's production, in one operation. The purchase, which was made on the Euronext market where there are no limits on this type of material, raised the price of cocoa to it's highest since 1977. The thousands of tons of cocoa continue being accumulated (…) in warehouses in Hamburg, Antwerp and Amsterdam. Ward placed his bet in cocoa, seeing as one of its main producers, the Ivory Coast, is practically in a state of civil war, and its export is soon to dry up.”

 According to an article by John Vidal in The Observer, translated on 2 March by Wilson Sobrinho for the site Carta Maior, “Olivier de Schutter, UN Special Rapporteur on the right to food, there is no doubt that speculators are behind the rise in prices. He says that 'Prices of wheat, maize and rice have increased very significantly but this is not linked to low stock levels or harvests, but rather to traders reacting to information and speculating on the markets.”

 Recall further that in 2008, when called to the US Senate to explain his speculative activities, it was the infamous speculator George Soros who admitted to the highly destabilizing effects caused by speculation on prices of raw materials! Such destabilizing effects may very well be felt near to us.

 In the Brazilian domestic market, the population's basic foodstuffs such as rice, beans and cassava, have not significantly increased in production since 1992, as geographer Ariovaldo Umbelino has repeatedly warned. Beans have even been lacking on the domestic market. This may be explained on the one hand by the distortion caused by an agricultural policy that does not allow producers, especially small ones, to sell above production costs. On the other hand, it may be explained by speculation itself, which is turning less profitable cropland into that which is the darling of international markets. Sugar cane for instance, which is the basis of our prestigious ethanol, has recently transformed the southern and south eastern regions of the country into a giant sugar plantation.

 The oligopolistic control that a mere few companies have over the world agricultural market should not be forgotten. With almost absolute power to set prices independent of the actual costs of production, these companies hold the leverage over the deleterious  effects of supply and food prices.

 In light of these real and bleak circumstances, we should be alert to Umbelino's warnings. According to the geographer, “We are the only country in the world in which this neoliberal madness is preached and where food is offered on the market to those who can pay more. This prevents the country from having any form of food security whatsoever, as well as denying it real sovereignty. The market for food cannot survive the free market. Following this path puts survival at risk. The market isn't able to regulate anything, except for profits and benefits for the capitalists. And the problem of hunger is a demonstration of this inability.”

 Courageous or just well-connected?

 In the midst of some tremendous natural disasters that have taken place in Brazil and in the world – the most recent being the human and environmental tragedy in Japan – it must be admitted that senator Kátia Abreu had a lot of courage to weave such an argument in light of the situation as described above. After all, it does not take an expert to realize that the decline of both natural reserve areas and of the permanent protection of our forests – an objective of the revised Forest Code – will no doubt have a negative impact on the climate and the environment. Yet, when we take a look at the web of complicity and collaboration in which the senator is entangled, it looks as though it doesn't take much courage after all.

 The large media groups aligned with conservative interests and linked to powerful lobbies and economic groups, which in most cases deny the population from voicing and defending their interests, is not a new phenomenon in Brazil. Even the organs that describe themselves as progressive and which purport to cherish democratic communication and presentation of diverse opinions on a range of different themes, have increasingly ceded ground to the one side that is of interest to them. There's only one way, 'the only way', which imposes itself with growing efficacy.

 Folha de São Paulo is a significant example. Always evasive in its articulations in a bid to preserve its progressive face, the newspaper has revealed its true character. The recent change from the magazine Dinheiro (Money) to Mercado (Market), without columnists able to consider more widely and more deeply certain aspects of the national and international economy, and its replacement of names for those connected to very specific interest groups, illustrates very clearly the paper's bias. The resignation made a few months ago by the renowned economist Paulo Nogueira Batista Júnior, the appearance of new names like Antonio Palloci, today the darling of the financial system, and now Kátia Abreu, need no further comment.

 More alarming than the support that figures like the senator get from the media, however, is the unequivocal support the government lends to such stances. For those who closely follow the agrarian and land situations in Brazil and the social movements associated with them, it is hardly surprising that the large producers and controversial works are now enjoying the fruits of the Lula government's policies. The small producers, the promise of an effective agrarian reform and an attitude of true respect for the environment have been thrown onto the back burner. And there is nothing to suggest that the new government will change its stance.

 A change in direction would be out of sorts since this is a new government supported by the old, and whose president-elect was practically thrust into the Planalto by Lula. In her honeymoon period with the public, typical at the start of mandates, and while she could still surf on the tremendous popularity left by Lula, some suggestive measures were put forward by the new president-elect. They should set the tone of concern about what lies ahead.

 In addition to the general policies already underway, such as the squeeze on the economy, the result of resource constraints and interest rate hikes, there are some more specific and less visible measures. In line with the technocratic style of the new president, study is being made of “management shock” in the area of environmental licensing. The quest is to find simpler rules, as well as shorter times and a reduction in costs for investors with the immediate objective of accelerating the approval of large PAC works (The Plan for Acceleration of Growth), the majority of which are surrounded by social and environmental controversy.

 It is on these kinds of prosaic arrangements that one should keep a close eye. The government – which seeks to maintain its popularity and brands itself as popular – could through such measures end up deepening the relentless conservative route imposed by the chosen economic model.

Translated by Eric H. and Gilmara da Silva Sousa