The global food system is a sick patient, suffering from unequal distribution and excessive liberalization. Indeed, there is a striking parallel between the 2007-08 food crisis and the financial crisis. How big a hand did financial speculation on food prices have in the food crisis?

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Carlos Oya is senior lecturer in political economy of development at the School of Oriental and African studies, University of London, UK.

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Malfunctioning markets

Local and global food distribution

Carlos Oya | December 07, 2010

The global food system is a sick patient, suffering from unequal distribution and excessive liberalization. Indeed, there is a striking parallel between the 2007-08 food crisis and the financial crisis. How big a hand did financial speculation on food prices have in the food crisis?

Access to food, and by inference food distribution, is at least as crucial to alleviating poverty and reducing hunger as the ability to increase worldwide food production. The dramatic coexistence of the over-consumption of food in some parts of the world and malnutrition in others is a powerful reminder of this. The current global food regime has exposed these contrasts more starkly than ever.

The global food system has become increasingly dysfunctional. This is true of the system's entire chain, from production, processing and distribution to waste disposal. Understanding the unequal access to food requires an understanding of how food distribution systems work today.

Food markets are critical for food distribution, especially in a world dominated by free-market principles and trade liberalization. Markets and their intrinsic volatility have compounded the problem of unequal access in recent decades. The economic, social and political consequences are far-reaching.

Therefore, instead of liberalizing and deregulating even more, we should be looking for more sensible ways of regulating and stabilizing food supply systems at the global and local levels. We should not focus on expanding existing markets or making them work ‘better’. Rather, we should devise alternatives that make food distribution systems less dysfunctional and unequal. This implies that not just the food market, but also the energy, health, labour and technology markets will need to be carefully regulated at both the national and international levels.

Tim Lang, David Barling and Martin Caraher, all three of whom are food policy experts at the City University London, argue in their 2009 book Food Policy: Integrating Health, Environment and Society that a more sensible food policy cannot simply emerge in isolation. And it certainly cannot come about without taking into account current global challenges, such as climate change, public health scares and the ongoing depletion of non-renewable fossil fuel reserves.

Distribution, distribution, distribution

Food distribution matters – perhaps even more than food production. Nobel economics laureate Amartya Sen argues exactly this in his 1981 work Poverty and Famines. In this book, he provides compelling evidence in his analysis of famines, particularly the 1943 famine in Bengal on the Indian subcontinent and the Ethiopian famines of 1973 and 1974, that some of the most devastating famines occurred in countries or regions where neither food availability nor food production had declined.

Sen’s key focus was people’s ability to access food either through their own means of production or through their incomes. He developed a framework for analyzing theories from these – otherwise not particularly novel – insights, which became known as the entitlement approach. It has been hugely influential in development studies, and wrongly elevated to the category of theory. Andrew Fischer, senior lecturer in population and social policy at from the International Institute of Social Studies in The Hague, reminds us in his article 'The demographic imperative' (see The Broker, issue 22) that this is the old issue of ‘effective demand’ for explaining economic imbalances.

The issue of distribution and access was just as important as production in 19th-century classical political economy. Indeed, capitalism is about a particular mode of production and distribution of commodities and money. Accumulation and profit are its major driving forces. Not surprisingly, food – in the context of trade liberalization – was the subject of intense debate among classic political economists such as David Ricardo, John Stuart Mill and Adam Smith.

The repeal of the Corn Laws in the United Kingdom in 1846 is a good example. The Corn Laws were import tariffs designed to protect corn prices. Their repeal paved the way for industrialization and free trade by eliminating agricultural protection and embracing the import of cheaper food from overseas.

Food distribution was and remains essential to capitalist development and industrialization. It is on a par with technological innovation and the development of infrastructure. This is partly because the creation of mass market commodities made industrialization and a global economy possible. And food played a key role in this.

Herman M. Schwartz convincingly shows in his seminal book States Versus Markets, first published in 1994, that the trade of food and agricultural-related materials were important driving forces during the first phase of globalization before the two world wars. Furthermore, the frequent politicization of the food issue reflects how important food policy is. This importance is also confirmed when political power is contested or when war breaks out (see box). In other words, food distribution is an important political weapon.

Famine, food distribution and conflict

Not all food markets and distribution systems function in peaceful contexts. As famine expert Steven Devereux argues in his 2002 report State of Disaster, contemporary episodes of famine have more to do with politics and conflict than with natural disasters or market volatility.

Economic historian Cormac Ó Gráda also emphasizes the intended and unintended links between political developments and famines in his 2009 book Famine: A Short History. In short, politics, war and famines are closely related, and famine is often seen as an outcome of wars.

Alex de Waal focuses particularly on Sudan and Ethiopia in his 1997 work Famine Crimes. He illustrates the calamity of food being used as a weapon, especially effective against the poor and the internally displaced. The Ethiopian government’s counter-insurgency strategy in the mid-1980s focused precisely on disrupting food distribution. It cut supplies to and from rebel stronghold areas, bombed markets and diverted food aid to its own troops.

Meanwhile, recent controversial reports quoted by Helen Epstein in her 2010 article for The New York Review of Books, ‘Cruel Ethiopia’, now also suggest that the rebel movement, the Tigrayan People’s Liberation Front (TPLF), who now form part of the ruling party, partly manipulated and diverted the food aid mobilized by Bob Geldof’s Band Aid concerts towards TPLF cadres to fund the acquisition of weapons.

This only goes to show that control over food distribution is a critical element of war economies, a key site of accumulation and a powerful negotiating tool for warring parties. Understanding the dynamics of food distribution in conflict scenarios would therefore also help to anticipate some of the worst famine episodes.

Full shelves, empty stomachs

Why are food markets so central to the lives of especially poor people in contemporary developing countries, while shares of food in national expenditure fall across the developed world?

First, a lot of food is traded, locally, nationally and internationally. The liberalization of domestic agriculture and import policies has certainly contributed to the expansion of food markets in developing countries. Many low-income countries remain heavily dependent on agricultural trade, both as exporters and importers, even though the proportion of staples, such as rice, that are traded internationally is not that high. These countries are particularly vulnerable as exporters, but also as importers of basic staples, such as rice and more high-value processed food.

The demand for high-value agricultural commodities in developed countries has also expanded rapidly over the past three decades. This demand is fuelled by a retail-driven ‘agribusiness revolution’ based on flexible global sourcing – that is, purchasing goods and services on the global market across geopolitical boundaries. As a result, supermarket shelves display an ever-increasing range of food products, which are available all year-round. And a globally sourced supply has also all but eliminated seasonality from Northern diets. This has led many developing countries to actually export fresh food that previously was either not produced or simply stayed within national borders. We can now eat oranges and mangos all year-round.

Second, in many developing countries, urbanization and ‘de-agrarianization’ – the rapid displacement from land-based livelihoods despite the absence of industrialization – has caused a large proportion of the rural population and the total population to rely on markets to meet their food needs. Farming is no longer a viable way of making a living for many poor people, particularly in low-income countries, since the post-1980s era of market liberalization and the demise of agricultural subsidies. A rural exodus is well underway as a result.

Greater global market integration may not be a bad thing. Certainly, it enables more and more types of food to be distributed globally through a web of interconnected international, national and local markets. However, this by no means solves the problem of uneven distribution. The capacity to purchase food depends on improved living standards and income levels. For the poorest people it often depends on their ability to find better paid and more secure wage employment.

Income inequality has surely worsened over the past three decades, even though not all scholars agree. The disparity between the ratio of incomes at the extremes is especially marked, particularly if one takes into account the inequality trends in the big ‘converging’ economies, as Bob Sutcliffe calls them in his 2005 article ‘ A Converging or Diverging World’. ‘E ‘emerging’ economies such as China and India are obvious examples.

Inequality has increased in these countries, as has the size of their middle classes. They eat more and buy a wider range of foods, but they coexist with substantial pockets of poverty and malnutrition, especially in India. Moreover, access to (good quality) food remains highly unequal in the poorest countries, and is the source of chronic nutrition problems.

Therefore, greater market integration and the commodification of food – that is, food access becoming increasingly mediated by markets and profit-making imperatives – does not necessarily mean more equal access. A closer analysis of the market imperatives may shed light on how these imperatives create dysfunctional systems of food provision at both the national and global levels.

Distressed sellers, indebted producers

Markets are conventionally viewed as institutions for mediating the voluntary and mutually beneficial exchange of goods and services. Open any undergraduate economics textbook and this is what you will read. However, markets can also be seen as arenas of social conflict or arenas where parties with different bargaining powers interact. In this view, food markets reflect the influence of powerful interests, as in other markets. This situation of markets reflecting interests and power relations is closer to what very poor people face in their everyday lives.

‘Real’ food markets – agricultural markets – and the transactions that take place in them vary widely. There are therefore different ways of analyzing these markets. Ben Crow, for example, notes the importance of distinguishing between ‘local, regional and national aggregations of market activities’ in his 2000 book Markets, Class and Social Change. Similarly, the relationships between buyers and sellers, producers and traders and, state and society, and various institutions also differ.

The nature of social relations in markets – most notably with whom do market players have relationships, what is exchanged and how are the benefits distributed – is critical for understanding who wins and who loses in a market. What some mainstream economists see as ‘market imperfections’, generally pervasive in poor countries, political economists see as the result of unequal power and a range of exploitation mechanisms that often keep the poor stuck in poverty traps.

This inequality is evident in local food markets, where poor people are net food buyers in markets dominated by a few wealthy traders with connections in other markets and links with rural elites. In other words, the poor, especially the poorest, produce and sell some food (if they are not landless), but they buy much of their food in the market or totally depend on the market for food. The poor face a number of unfavorable market conditions:

  • They are distress sellers, who sell their produce right after the harvest, when prices are at their lowest levels
  • They are indebted producers, who may be forced to sell at lower prices or provide casual labour services to meet debts to local traders or creditors
  • They are buyers in the ‘hungry’ season, when food supplies are scarce in markets and prices shoot up

Ben Crow in his 2000 book Markets, Class and Social Change puts it very simply when he writes that ‘the poor sell their grain at low price periods, soon after harvest. The rich sell their grain at high price periods, just before each harvest’. This archetypical situation is still very common in developing countries, where safety nets and food-price stabilization mechanisms are rare.

Indeed many of these mechanisms vanished when structural adjustment reforms took hold in the 1980s. In Africa, for example, the much ‘maligned’ state-owned marketing boards played a role in stabilizing food prices across seasons and places and curbing the hoarding and speculative power of local traders – often at a high fiscal cost – but they have virtually disappeared in most countries. Local private traders, wholesalers and powerful private importers took their place.

Free market famines

Reuters / Romeo Ranoco

When deregulated markets are the leading food distribution mechanism, they cause significant food supply fluctuations from one season to another. These can cause equally dramatic fluctuations in the price of staples, which affect the most vulnerable people in that they can barely cope with the sudden price increases.

Of course, there is much to gain from such volatility. Local traders with the means to hoard and transport food manage to deflect these fluctuations and the high marketing costs associated with extremely poor infrastructure. They cause prices to fluctuate for buyers across seasons, years and locations in an effort to maximize their short-term profits. It is not surprising, then, that there are food security alarms in places not far removed from markets and abundant food supplies. The 2005 Niger food crisis and the 2002 Malawi ‘famine’ demonstrates what can happen under these conditions.

In Niger, a very poor country frequently affected by chronic food insecurity, food is actually abundant in local markets, as was vividly reported during the 2005 crisis by newspapers such as The Guardian, who ran an article with the title ‘Plenty of food – yet the poor are starving’. Only slightly better-off smallholders manage to produce enough to feed their families, and they still buy in the market to complement their stocks. And, as they become better off, their recourse to the market expands as their dietary needs also diversify as a result of better living conditions.

Pastoralist groups almost entirely depend on markets for their food supply. Very poor and marginal rural households rarely produce enough to feed themselves and need to buy food, albeit in minute quantities, regularly from markets to survive on a day-to-day basis. Their meagre incomes, often earned as casual wages, are mostly spent on food.

In 2004, there was a poor harvest in Niger. The early warning systems functioned well, but the warnings were ignored. As a result, more people than usual went to local markets to buy food. Paradoxically, the markets were well stocked. But most of these people could not afford the food prices for staples, which were brought over from other more prosperous regions, or traded (perhaps smuggled) across the border from Nigeria.

Frederic Mousseau and Anuradha Mittal see a direct correlation between the ‘skyrocketing’ price of millet, the main staple in Niger, and malnutrition. In their 2006 report, Sahel: A Prisoner of Starvation, they reveal that the price of millet increased almost threefold between July and August 2005 in some parts of the country, and more than threefold in others.

‘Although 63% of the Nigerien population lives on less than a dollar a day,’ the authors write, ‘in July 2005 a Nigerien farmer paid more for a kilogram of millet at the local market than a European or an American consumer paid for a kilogram of rice in the supermarket.’ The same traders in those markets had previously exported some of the food produced in Niger to neighbouring countries, for better returns. The authors refer to this as a ‘free market famine’.

The main cause of the 2002 famine in Malawi, according to Zoltán Tiba, was a sudden shock that devastated vulnerable food buyers. In an article entitled ‘Maize is life, but rice is money!’, due to be published in the Journal of Agrarian Change in 2011, he explores the effects on Malawian buyers of an exponential increase in the price of all food crops, especially maize, to a level more than six times higher than the year before.

The increase in maize prices severely affected local non-maize producers. It also indirectly created severe imbalances in local labour markets, as more people desperately sought casual jobs to cope with the crisis, while fewer people were able to employ them. In this case, local markets and private traders were closely linked to developments in markets at the national level and the failure of both government and private agents to maintain sufficient stocks.

Steven Devereux points out in his 2002 report State of disaster that prior to the famine the Agricultural Development and Marketing Corporation (ADMARC), the Malawi government marketing agency, had sold most of its grain reserves to comply with advice from the International Monetary Fund to reduce market disincentives and reduce debt. Given the importance of this agency for the national market, private traders responded by buying early, which left ADMARC with no alternative supply source at the time of the crisis. In other words, the famine could have been avoided if ADMARC had been able to sell maize at affordable prices.

Introducing finance capital

The reasons why systems of food provision in the free market are currently dysfunctional are partly linked to the liberalization of the markets in the past few decades and the growing interdependence between national and global markets.

Liberalization of world agricultural trade has been high on the international policy agenda since the 1980s. To be sure, progress towards a fully liberalized agricultural trade system has been hampered by powerful vested interests in the United States, Europe and Japan. These countries have a lot to gain by maintaining their agricultural support systems, despite rhetoric in favour of ‘markets’.

However, it is clear that today many more countries are exposed to the vagaries of prices determined in the ‘market’. Think, for example, of institutions such as the Chicago Board of Trade, which was bought by the Chicago Mercantile Exchange in 2006. More importantly, the integration of these marketplaces comes with the growing integration of different classes of assets, from financial assets to commodities.

Developing countries, especially the poorest ones, have been subjected to increasing trade liberalization, which has reinforced price transmission mechanisms for food. Price transmission refers to the fact that since prices are globally linked, international price changes in one staple can cause prices to change for other agricultural commodities, on world markets then on to national and local markets. This process works both ways and affects both exported commodities like coffee, sugar and cocoa and imported food like rice and wheat.

The effect of agricultural price transmission nationally and locally depends on a host of national and local factors, such as price regulation, marketing and transport costs, and the relative power of traders and importers, exporters and local traders. This may explain, for example, why international prices are asymmetrically transmitted to producers of exported commodities (say coffee growers) and to consumers of imported food. Thus when international agricultural prices increase, primary producers often only receive a small share of this increase, but consumers face a higher proportional increase. In other words, the benefits of these multi-layered transactions tend to disproportionately go to intermediaries and processors as they hinge on power relations along the production-trade chain.

Perhaps the single most significant change in how world agricultural markets work is the growing emergence of finance capital in commodity markets. It took some time for this process to mature, but its frailty was openly exposed by the 2007-08 world food-price crisis. The role finance capital played in this crisis is directly related to the process of ‘financialization’ in global capitalism, which is one of the fundamental aspects of global neoliberalism and the free-market economy.

The woes of financialization

Financialization has a number of interrelated effects on economic activity:

  • A growing dependence on financial assets by non-financial companies (say Wal-Mart or General Motors)
  • A concentration of global profits in finance
  • The spreading of personal and household debt
  • The proliferation of new, highly complex financial services and assets, especially related to the buying and selling of risk
  • The primacy of shareholder value over long-term economic value
  • The resulting expansion of speculative assets at the expense of investments in ‘real’ activity

Gamblers on the food market

How has financialization affected international food markets? There are several competing theories about what triggered the 2007-08 world food-price crisis. The crisis saw a dramatic fluctuation – a massive increase followed by drastic decline – in the prices of basic food commodities such as maize, rice, oilseeds and wheat. The theory that financial speculation is one of the causes of the food crisis is gaining credibility, especially among more progressive critics.

Jayati Ghosh, professor of economics at Jawaharlal Nehru University in New Delhi and a leading economist, discounts the theory that the crisis is the result of demand-supply imbalances. In her 2010 article 'The unnatural coupling: Food and global finance' published in the Journal of Agrarian Change, she argues that the demand-supply theory is 'largely unjustified given that there has been hardly any change in the world demand for food in the past three years'. Indeed, the global food crisis and the global financial crisis are 'intimately connected,' she writes, 'particularly through the impact of financial speculation on the world trade prices of food'.

This financial speculation was driven by powerful institutional investors and investment banks dealing in hedge funds, like Goldman Sachs. They were a driving force in the run-up to the food crisis. Significant deregulation of the financial system and commodity exchanges in the United States in the early 2000s paved the way for the integration of the financial and agricultural commodity markets. Moreover, unregulated commodity trading rapidly led to a dramatic increase in financial transactions, which attracted a growing number of financial speculators. They, in turn, sought to profit from short-term changes in prices. Hedge funds became major players in the futures exchanges of oilseeds, maize and wheat, for example.

On the eve of the crisis, futures prices of these commodities were driving up spot prices – the price quoted for immediate payment of a commodity – creating a spiral of price increases as long as speculators continued to gamble on higher prices. Not surprisingly, this generated massive volatility. In this context, the prospects for poor buyers of food in countries like Niger, Ethiopia and Bangladesh may be even more grim now than before 2007, especially since staples like rice, wheat and maize are being targeted by traders who buy and sell ‘risk’ for profit.

If prospects on the food market are indeed still grim for developing countries, what can be done to rectify the situation? For starters, international commodity markets for agricultural produce need to be isolated from the harmful influence of financial markets. Regulation of commodity exchanges needs to tighten. Agreements need to be developed and signed by the international community designed to stabilize food prices.

It is equally important that developing countries regain their policy autonomy when it comes to food security. This can be achieved by exercising greater policy discretion regarding the protection of their food markets and more control of strategic grain reserves. Free-market advocates despise these kinds of interventions, citing the export bans by Asian countries in the wake of the food crisis. What they do not understand is that governments cannot simply wait and see where markets will lead us to next, while people riot in the streets. Food, after all, should not be gambled with.

For more on food security and agriculture, see the article in this issue about the 'It's Down 2 Earth' conference.


Bernstein H., Crow, B., Mackintosh M. and Martin, C. (eds) (1990) The Food Question: Profits versus People? Earthscan.

Bhaduri, A. (1986) Forced commerce and agrarian growth. World Development, 14 (2): 267-272.

Crow, B., (2001). Markets, Class and Social Change: Trading Networks and Poverty, in Rural South Asia. London: Palgrave.

Devereux, S., (2002) State of Disaster. Causes, Consequences and Policy Lessons for Malawi. Lilongwe: Action Aid.

Epstein, H. (2010) ‘Cruel Ethiopia’. The New York Review of Books, 57(8). See

Fine, B. (2009) ‘Neo-Liberalism in Retrospect? – It’s Financialisation, Stupid’, in Developmental Politics in the Neo-Liberal Era and Beyond, 22-24 October 2009, Center for Social Sciences, Seoul National University.

Ghosh, J. (2010) The Unnatural Coupling: Food and Global Finance. Journal of Agrarian Change, 10 (1): 72-86. View PDF

Harriss-White B. (1999) Power in Peasant Markets, in Harriss-White B. (ed) Agricultural Markets from Theory to Practice. MacMillan, pp. 261-286.

Lang, T., Barling, D. and Caraher, M. (2009) Food Policy: Integrating Health, Environment and Society. Oxford University Press.

McKintosh, M. (1990) Abstract markets and real needs, in Bernstein H., Crow, B., Mackintosh M. and Martin, C. (eds) (1990) The Food Question: Profits versus People? Earthscan, pp. 43-53.

Mousseau, F. and Mittal, A. (2006) Sahel: A Prisoner of Starvation? A Case Study of the 2005 Food Crisis in Niger. The Oakland Institute. View PDF

Ó Gráda , C. (2009) Famine: A Short History. Princeton University Press.

Sutcliffe, B. (2005) ‘A Converging or Diverging World?’ UN DESA Working Paper 2.

Tiba, Z. (2011) “Maize is life, but rice is money!”. A village case study of the 2001-2002 famine in Malawi’, Journal of Agrarian Change, 11 (1). Forthcoming.

UNCTAD (2009) The Global Economic Crisis: Systemic Failures and Multilateral Remedies. Geneva.

Waal, A. de (1997) Famine Crimes: Politics and the Disaster Relief Industry in Africa. James Currey. 

Photo credit main picture: Reuters / Pawel Kopczynski


  • 1.

    See the essays in Bernstein H., Crow, B., Mackintosh M. and Martin, C. (eds) (1990) The Food Question: Profits versus People? Earthscan.

  • 2.

    On these ‘stylized facts’, see Bhaduri, A. (1986) Forced commerce and agrarian growth. World Development, 14 (2): 267-272; Harriss Harriss-White B. (1999) Power in Peasant Markets, in Harriss-White B. (ed) Agricultural Markets from Theory to Practice. MacMillan, pp. 261-286; Crow, B., (2001). Markets, Class and Social Change: Trading Networks and Poverty, in Rural South Asia, London: Palgrave; McKintosh, M. (1990). Abstract markets and real needs, in Bernstein H., Crow, B., Mackintosh M. and Martin, C. (eds) (1990) The Food Question: Profits versus People? Earthscan, pp. 43-53.

  • 3.

    Crow, B., (2001). Markets, Class and Social Change: Trading Networks and Poverty, in Rural South Asia, London: Palgrave, p.18.

  • 4.

    Vasagar, J. (2005) Plenty of food – yet the poor are starving: The two faces of Niger. The Guardian, 1 August. See

  • 5.

    Ghosh, J. (2010) The Unnatural Coupling: Food and Global Finance. Journal of Agrarian Change, 10 (1): 72-86. For the online version of the article, view PDF