Food for thought: Co-operative News

 The Paul Gosling Column

Food prices in the UK rose 7.4% over the last year – with some items rising in price by a third. Uncomfortable enough, but this represents only a small indicator of the global problem. In Kenya, for instance, annualised food price inflation is a whopping 44%.

And when you look at what is happening on staple foods, it is clear that we are entering “a danger zone”, as the World Bank’s president phrases it. Wheat prices rose, globally, 120% in a year; rice prices by 75% in just two months; maize jumped 30% in a mere three weeks. This is crisis territory – as reflected by the food riots that have taken place in some countries.

If a 7.4% hike creates anger in Britain, just think about the impact of nearly doubling food costs in countries where food accounts for as much as 80% of income. The result, in perhaps a quarter of the world or more, is a reduction in food consumed, or a move to cheaper foods. And those affected the most are those already without enough to eat.

There are several causes for this dramatic food price inflation – much of it directly or indirectly related to climate change. Extreme weather in Australia, Asia and the United States has damaged agricultural production. The diversion of agricultural production from food to biofuels is another important factor. The US produces 40% of the world’s maize crops, and 30% of this is now being diverted to biofuels. Simply ending the diversion of maize to biofuels would cut world maize prices by an estimated 20%.

But there are demand as well as supply factors. As China and India expand their middle classes and incomes, so many people are eating more meat and less grain. Animals consume several times the amount of grain to produce the same weight in food, so the quantity of grain required rises. Nor can we ignore the fact that the global population is continuing to rise – India is predicted to have a 50% population increase in the next 50 years, while the least developed nations are expected to significantly more than double in population size in that period.

All these pressures will (at least when the credit crunch ends) mean that the value of land will rise, alongside that of food prices. This might be assumed to be good news for farmers in developing nations, but this is not necessarily true. Rather, it may be the cause of more global tension, conflict and a new type of empire. We can already see indications of how the mismatch between new wealth and indigenous resources will be played out.

While the Gulf States, in particular, have highly valuable oil resources, they are short of many other resources – and even of local businesses in which to invest in. As a result, the oil nations’ sovereign wealth funds (governments’ international trading surpluses, used as private equity funds) are being invested elsewhere, for example taking over some of the world’s largest (US-based) banks and buying-up land in other countries.

Abu Dhabi is involved in developing new economic zones in Sudan and in controlling agricultural lands there. Similarly, China has created close links with several African countries to exploit their resources on an exclusive basis. Japan, meanwhile, is buying rights to burn carbon from the underused carbon permits of developing nations. It is also likely that richer countries will use natural energy resources – such as solar, hydro and wave – in developing nations to help meet their energy requirements.

These are all early indicators of how land in the third world will increasingly be regarded as a potential and comparitively cheap asset by the richest nations and their largest companies. Global agri-businesses are seeing opportunities in developing nations to transform agricultural practices: in particular, using genetically-engineered crops. Private equity firms – the modern economy’s belweather of the main chance – are showing interest in buying land in developing nations as a resource that can be exploited, with much higher agricultural and financial returns than are being achieved at present.

Yet similar improvements in land yields could be achieved if a larger number of isolated farmers in Africa and Asia operated as part of agricultural co-operatives. Farmers in the developing world hold assets that are at long last being recognised as having a real value. Sadly those who best understand this are those who are least likely to pay the farmers that real value. This was seen recently in India, where farmers rioted when their land was expropriated at below what they regarded as the market price for use for free trade zones – enticing first world corporations, at the expense of indigenous-owned farms.

Nor are governments necessarily supporting co-operatives as the means to increase the rewards for agriculatural output. There are complaints in India that state governments are encouraging farmers to enter into direct contracts with global food retailers, such as Wal-Mart, rather than organising themselves into stronger co-operative organisations, that would increase the prices they can achieve for their produce.

“With million of households in India possessing very little land, and millions more landless, co-operative farming is essential to pull subsidence farming out of the current abyss,” wrote Dr Sudhirendar Sharma, a former World Bank official, who is now director of Delhi’s Ecological Foundation. There are similar, and growing, calls in much of Africa for farmers to be supported to organise through agricultural co-operatives. Independent farmers in much of Africa and Asia could improve the returns and yields on their farms if they organised through co-ops – sharing expertise and knowledge, increasing access to markets and technologies, marketing their products and raising finance via micro-lending and other institutions.

Academic studies have shown that agricultural co-operatives have helped smaller farmers achieve economies of scale – indeed, this is self-evident from the experience of successful farming co-operatives in the UK and Ireland. Co-ops can also play an important role in helping small and family farms to remain independent and sustain local communities.

However, studies also suggest that where agricultural co-operatives have been formed by governments on a top-down basis, this has failed to change the fundamental relationships within or between farms. Moves towards co-operation must, naturally enough, be voluntary, not compulsory. To be successful they probably need to operate within some type of market economy, rather than a planned economy. There are, for instance, concerns about the level of autonomy achieved by farming co-operatives in China.

In fact, agricultural co-operatives appear to have been more effective in developed than in developing nations. According to the International Co-operative Alliance, over half of all agriculural co-operatives are located in the United States. France, Germany and the Netherlands have significant numbers of agricultural co-ops, while the very large co-ops are located in Japan and South Korea.

Peter Davis, director of the Unit for Membership Based Organisations at Leicester University, suggests that these statistics probably understate the role of farming co-ops in China and India. In terms of the numbers of members, he says, “the biggest, almost undoubtedly, is in China”. He says that one agricultural co-op in India has more than a million members, while one co-op in China has more members than the total population of Europe.

The role of agricultural co-ops in advanced economies has been strongly recognised. The US Rural Business-Co-operative Service, which is backed by the federal government, states: “Co-operatives… have contributed greatly to the development of one of the world’s most productive and scientific-based agricultural systems…. Co-operatives have also played an important role in rural communities, where they are an integral part of the social fabric.”

Yet those acknowledged benefits have not prevented the demutualisation of some of the largest and most profitable agricultural co-operatives in the United States and Canada, or in Ireland. Just as in the UK financial services sector, short-term trading surpluses have been seen as ‘freewheeling’ assets that can be plucked for personal gain – ignoring both the collective endeavour that engendered them in the first place, and that they are actually needed as reserves for when the good times end.

Let us hope, first, that more farmers in the developing nations can be assisted to gain from the mutualised economy – and secondly that these are not squandered down the line by the demutualisers.