The Observer | Sunday 8 November 2009
Soaring demand for food and land may not stop the world's rural communities from plunging deeper into poverty
The villagers of Thatarber Manihatty in south India knew they had no choice but to mortgage their small plots of farmland when they found they could not afford to bury dead relatives or send children to school without the generosity of neighbours.
Six thousand feet up in the breathtaking Nilgiri hills of Tamil Nadu, hope was thin on the ground until Sumani Subramani, a 30-year-old former office clerk, drew a line in the brick-red soil.
Quitting her desk job, Subramani organised the farmers into a co-operative. Banding together, they first negotiated better prices from local tea processing factories. Then, pooling meagre profits from plucking leaves on the steep hills, the new co-op collected 20,000 rupees (£260) a month and, plot by plot, began to reclaim land from the banks.
"For 10 years we suffered because of low prices, and money makers took our land and we have to pay interest to them," Subramani explains. "So women got together to form a group and we saved money to start this business."
Shoppers in Britain, who, after Iraq, consume more tea per head than anywhere else in the world, may have barely noticed that the price of a cuppa in supermarkets has increased by 15%. Severe droughts in Kenya – the world's biggest producer of tea for tea bags – and the central Indian state of Andhra Pradesh, together with political instability disrupting production in Sri Lanka, have hit supply and sparked a 50% price surge on world markets.
For the 800 inhabitants of Thatarber Manihatty, misfortune elsewhere has proved advantageous. Higher tea prices and generous state support have enabled 20 smallholders out of 56 to reclaim their land. But nothing comes easy for the people here. Rain has fallen in Kenya in recent weeks and, with that, tea prices have dropped. It is uncertain whether the village will earn enough for the remaining 36 smallholders to buy back their land.
"Whenever there's a shortage we prosper," says Narayanaswamy Sriram, a prominent tea broker in Tamil Nadu. "If everything is fine, we're doomed."
To RD Naseem, the energetic executive director of the Tamil Nadu Tea Board, based in the bustling tea town of Coonoor, the postwar history of commodity prices is a troubling, relentless decline (see graphs, above), creating a huge challenge. "Have you ever wondered which is the cheapest beverage in the world? Even in India?" he asks. "Tea is cheaper than bottled water. Please go back and ask your grandmothers how much they paid for a kilo of tea, and you'll be surprised that today you are paying less than what your grans were paying 50 years back."
Sentiments such as these are no doubt shared by the majority of the world's smallholders. Tea, coffee, cocoa, cotton and rice prices have all fallen in real terms over the past four decades, plunging 500 million smallholder families deeper into poverty while helping the developed world get richer.
But could this be about to change? Last week, Jeffrey Currie, global head of commodities research at Goldman Sachs, said America and Europe should prepare for huge rises in oil and food prices: "Developed markets will pay more for copper, soya beans and oil. Primarily, America will have to make significant adjustments in the way it consumes natural resources."
He added: "Emerging markets will crowd out developed-market demand. We saw a hint of it last year. Once we have a recovery in economic activity, these problems will resume. Even without recovery we will have a problem."
A growing world population, increased prosperity in emerging economies, a transfer of agricultural land to biofuel crops, and a dramatic rise in land-grabs by China, South Korea and Saudi Arabia have combined with speculative investing to fuel startling gyrations in commodity prices on world markets.
First, there was the spike that saw oil rise to $147 a barrel 15 months ago, pulling agricultural commodities in its slipstream. While the bank crisis saw a rapid puncturing of bubbles as banks deleveraged, analysts confirm that in the past six months, up to half of the new liquidity given to banks by governments has gone into commodities, sparking a fresh boom.
Andrew Jarvis, a former policy adviser in the Cabinet Office and now a senior research fellow at Chatham House, says: "There are a lot of stories on food markets that are all simultaneously true."
On the face of it, this should play into the hands of food producers in the developing world. But higher inputs – the cost of fertilisers, seeds and machinery – have hurt them badly. The result is that the number of people starving has risen from 830 million to one billion in just over one year, according to the UN's Food and Agriculture Organisation.
That is why, after decades of investing in infrastructure and industrial projects in poor nations, the World Bank last year announced a 50% increase in money going to farming, to $6bn.
"The World Bank was insufficiently engaged in harnessing the power of agriculture and development and we are now gradually moving to engagement," says Mark Cackler, manager of the agriculture and rural development department at the World Bank. "Seventy-five per cent of the poor are mostly engaged in farming. To achieve a reduction in poverty we have to work with [them]."
That may be, but smallholders are having to cope with a new threat: land-grabs. Concern in China, South Korea and Gulf states over how they will feed their growing populations amid pressure on water resources and the effects of climate change has prompted a new rush for land in Africa, eastern Europe and parts of Asia. The International Food Policy Research Institute has reported that 8.66m hectares – an area about the same size as Italy's arable land – has been snapped up in Africa by emerging economies. But the real figure could be much higher.
Commodity experts such as Goldman Sachs's Currie believe that land-grabbing is a good thing. He argues it will lead to more investment in agriculture. But others worry that the phenomenon will see farmers thrown off their land as more powerful forces move in.
The billionaire speculator George Soros highlighted the land-buying frenzy earlier this year. "I'm convinced farm land is going to be one of the best investments of our time," he said. "Eventually, of course, food prices will get high enough that the market probably will be flooded with supply through development of new land or technology or both, and the bull market will end. But that's a long way away yet."
Especially if recent UN projections are to be believed. They suggest that if the world's population reaches 9.1 billion by 2050, it will require a 70% increase in food production from 2007 levels, including a 900m tonne (43%) increase in cereal production and a 200m tonne (74%) increase in meat production.
G8 world leaders, at their summit in Italy in July, promised $20bn (£12bn) to combat the growing food crisis in the developing world. But senior observers have suggested this will amount to just $3bn of new money.In two weeks, the UN will hold its second emergency food summit in Rome. Leaders of 30 countries and the Pope are slated to attend. For Sumani Subramani, the villagers of Thatarber Manihatty and the two billion people who rely on smallholder farming to eat, the world's leaders need to furnish them with the wherewithal to survive.