Tens of millions of people are now suffering the effects of increased and volatile food and fuel prices, including the world's 450 million smallholder farming households, home to around two billion people. Average food prices rose 83 per cent between 2005 and 2008
However, as Daleep Mukarji argued in a powerful presentation at the conference, this crisis is not new, it has just intensified. Over 800m people were already malnourished, but rocketing food and fuel prices have pushed another 119m people into poverty since 2005.
A major long-term cause of this crisis is that poor countries have been forced by wealthy governments and international financial institutions to accept a raft of trade liberalisation measures in return for trade and aid, particularly the notorious economic shock therapy 'structural adjustment' programmes. In a drive to 'commercialise' agriculture over the last 25 years, states withdrew from their key agricultural support roles of buying farmer produce at fixed market prices, providing subsidies on inputs like fertiliser and credit, and imposing tariffs on agricultural imports to protect local producers and raise revenue. These policies have effectively dismantled national farming systems and ruined the ability of poor countries to feed themselves.
Smallholder farmers, who make up 75 per cent of the world's poor, have been neglected by poor and rich country governments alike. Public spending on agriculture has stagnated or declined since 1980 across Africa, Latin America and Asia. African governments currently spend just 4 to 5 per cent of their national budget on agriculture, despite the Maputo Declaration of 2003 when they pledged to spend at least 10 per cent within five years. The volume of aid directed at agriculture from rich donor countries dropped from $7.6bn in 1980 to $3.9bn in 2006, with very little of this aid going directly to farmers by funding useful things like agricultural inputs or rural credit. In 2000, nearly half of it was being spent on 'agriculture policy and management', i.e. promoting agricultural liberalisation.
Smallholder farmers have had to contend with a long term slump in real commodity prices. For example, world cocoa prices have decreased sharply since 1960, even as chocolate prices increased. In France, cocoa bean prices accounted for 20 per cent of the value of a chocolate bar in 1960, against 5 per cent today. Farmers everywhere face a global food system increasingly dominated by a small number of large corporations, and the power of supermarkets in supply chains has grown. Three companies – ADM, Cargill and Bunge – control 90 per cent of the world's grain trade. Five companies – ADM, Barry-Callebaut, Cargill, Hamester and Blommer – account for half of world cocoa grindings. Similarly, chocolate sales are dominated by a few large companies: Mars and Hershey in the US; Cadbury, Nestlé and Mars in the UK.
Already in crisis, smallholder farmers have been hit hard over the last few years by rising and volatile food and fuel prices, and now by the global recession. Average food prices rose 83 per cent between 2005 and 2008 and, though they have fallen back a little since then, it is predicted that real prices of food staples will be 10 per cent to 35 per cent higher over the next decade than in the previous one. Most smallholder farming households spend 60 per cent to 80 per cent of their income on food, so across the developing world families are now significantly reducing their food consumption. Fuel prices have been extremely volatile, with oil prices fluctuating between $147 a barrel in July 2008 and $40 a barrel in February 2009. And the costs of fertiliser and other inputs have also risen sharply.
Commodities that are traded internationally – such as coffee, tea, cocoa and sugar – have risen in price too, although in real terms they are still lower than in the period between 1961 and 1977. This ought to be of benefit to smallholder farmers, especially Fairtrade farmers, but because the majority of them are net buyers of food, the gains of rising commodity prices have generally been undone by increased food prices. High world prices do not always result in high farm gate prices and much of the profits accrue to others in the supply chain. The world's massive transnational grain traders and fertiliser corporations made billions of dollars profits in 2007 and 2008 on the back of food and commodity price rises.
The evidence shows that Fairtrade is as vital as ever in supporting smallholder farmers in a time of high commodity prices, even though the movement was conceived in response to low commodity prices. The Fairtrade model helps producers deal with the price volatility of commodities, food, inputs and fuel. The Fairtrade minimum price means that farmers can plan ahead with confidence, whatever happens in the volatile global agricultural system in future. The Fairtrade premium means farmers can invest in community development and business improvements in a harsh environment. And Fairtrade requires and supports co-operative-based producer organisations, increasing the collective bargaining power and political confidence of farmers.