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Speculators Are Aggravating The Global Food Crisis

By Countercurrents.org

15 October, 2012

Speculators are “playing” their profit-game in the world food market as a global food crisis looms. They have pumped billions of dollars in their speculation “venture”. The speculation aggravates the world food crisis and threatens billions of people around the world.

Citing the Institute of International Finance Heather Stewart reported[1] that by the middle of last year, $450bn of financial assets was invested in commodities – or derivatives, betting on future price movements.

In a recent paper, "Don't Blame the Physical Markets," the UNCTAD argued that the wall of money flooding into commodities has badly distorted the price signals a well-functioning market should send to producers and consumers.

"It is not commonly recognized that demand from financial investors in the commodity markets has become overwhelming during the last decade," UNCTAD says.

the paper showed that over the past 10 years, the prices of food and of commodities more generally, have moved closely into synch with other financial assets, such as stocks and shares.

In 2002, west Texas oil prices, and an index of other commodities, shifted up and down largely independently of European equities. But by the early part of this year, the three indices were moving in lockstep; and responding dramatically to each twist and turn of the ongoing eurozone crisis. "Eurozone events and market sentiment determine commodity prices, regardless of trade logistics issues, war, drought and other ongoing supply shocks," UNCTAD says.

The financialisation of the market for basic foodstuffs has led to prices drifting far away from the fundamentals of supply and demand, as investors treat betting on the future price of food as just another asset for their portfolio, bringing uncertainty and volatility, and masking the true balance between supply and demand.

When the sub-prime bubble burst, it wrecked the livelihoods of millions of Americans who had battled hard to afford their own home. But in this case, it is the very lives of poor consumers that are at stake, as the price of food zig-zags about because of all-but-irrelevant events in Brussels or Berlin.

UNCTAD urges the world's regulators to take a series of measures to check speculation. One of the steps it recommends, a financial transaction tax, now looks almost certain to be adopted by a coalition of at least 11 willing European countries, though it seems most likely that trading will simply shift to other jurisdictions – including the UK.

Wall Street's geniuses are forever looking for new products to package and sell. [T]hey have persuaded investors […] to plough billions of dollars into commodities, including food.

[T]he price signals emerging from the stampeding herds of Wall Street can be deeply misleading.

Any tougher crackdown – forcing greater transparency about who is betting on what, with whom, for example – looks highly likely to be scuppered by the same kind of concerted lobbying that sank proposals for regulating other derivatives markets in the years before the crisis.

In the US, the Commodity Futures Trading Commission is facing a legal battle over its attempts to impose "position limits", constraining the share of the market single investors can hold in a number of commodities, including corn and cocoa. The proposal was struck down by a court in Washington, in a case brought by several financial sector trade bodies – though the CFTC has not given up on introducing position limits in some form.

[W]e should now have learned repeatedly, allowing the financiers to pile in en masse brings not the hard-nosed judgment of the market, but uncertainty, chaos and confusion.

In another report Deborah Doane said [2]:

The World Development Movement, a global justice charity, has said financial speculation by banks and hedge funds in agriculture commodity markets are partly to blame for food cost rises and "could send prices soaring even higher."

"[W]e may see financial speculation driving prices up even further in the coming months."

“In the absence of effective regulation of the finance sector, banks and hedge funds are effectively gambling on food prices."

“[I]n the UK, the poorest people are already cutting down on fresh fruit and vegetables because they can’t afford them. In developing countries, where people spend up to 90 percent of their incomes on food, price spikes force millions of people to go hungry. "

“Don’t gamble with food! How the German financial industry is making a business out of hunger”, a study[3] by Oxfam published in May 2012 said: “Since 1998, the assets of investment funds engaged in commodities speculation on financial markets have increased from $3 billion to more than $170 billion. Agricultural commodities are significantly affected by these speculations - and food prices on world markets are getting more expensive as a result. This makes it impossible for poorer states to import enough food at acceptable prices.”

The Oxfam study quotes Olivier de Schutter, the UN Special Rapporteur on the Right to Food: “A significant portion of the increases in price and volatility of essential food commodities during the food crisis of 2007/2008 can only be explained by the emergence of a speculative bubble.”

Given the fact that 1 billion people worldwide are going hungry, this is not acceptable – says not only Oxfam, but seven other German NGOs including Gewerkschaft Nahrung-Genuss-Gaststätten (the German Food, Beverages and Catering Union, NGG) and Welthungerhilfe (German Hunger Relief Organization).

Rallying behind the slogan “Don’t gamble with food!”, these eight organizations now collect signatures for a petition they want to hand over to Wolfgang Schäuble, the German Federal Minister of Finance. Among other things, they demand that the German government should stand for limits on food futures trading and advocate a ban to prevent investment funds from operating on agricultural commodity markets.

In an article Current Concerns said[4]:

“Wheat makes you rich!” This internet headline advertises the purchase of wheat at the stock exchange. One can hardly believe one’s eyes and ears at such statements. Wheat is an important foodstuff that has been an object of wild speculation for decades. Most people are far from wishing to engage with vital food speculation, which will have a devastating impact on a large part of mankind, so such a headline evokes total internal discomfort and disgust.

Those who saw the documentary film “September Wheat” in the late 70s and early 80s, can certainly remember, that already that an early a crop failure in the Soviet Union forced up wheat prices on the American stock exchange and investors also rejoiced. It could be that the one or the other could not believe the cruel reality presented in the film and perceived it as a communist distortion of the facts, directed against capitalism at that time and. But 30 years later, with the awareness of the financial and economic crisis, the same procedure leaves a sour taste in one’s mouth again and presents itself as brutal reality. Is this what reality is like in modern society of the 21st century?
The terrible forest and swamp fires, the causes of which are not only the high summer temperatures, which are not so unusual for the continental climate, have urged Russia to impose a strict wheat export stop from August 15 to the end of the year due to the destruction of much of the crop.

This logical step Russia’s is answered by the stock exchange speculators with an upsurge in stock prices. Since late June, the wheat rose by 75%. It is a total disaster for the food supply situation. Victims will be those countries that depend on grain imports in the course of free trade, and have often neglected the cultivation in their own country because of cheaper imports or abandoned it entirely, or countries that are not able to grow enough agricultural products to secure their own country’s supply because of climatic and topographic conditions. But not only the wheat is affected by a speculation gone wild, the price of sugar has risen by nearly one and a half times.

The mankind’s supply of agricultural and food products is a key challenge. According to scientific studies of the world agricultural report this can be addressed by a small-scale, locally and regionally positioned agriculture.

Food security, the food supply of the own population with enough, and food sovereignty, the self-determined national agriculture are the basic principles of success. So free trade à la WTO has served its time. What is needed are honest and equal contracts between the states that will benefit all affected people and not a few large corporations that are filling their coffers with billions of profit.

The disasters in Russia, China, India and Pakistan show the vulnerability of a global, pure profit-oriented agricultural system, even if their causes are not obvious. This year’s summer will bring our country some crop losses, especially of wheat. It is a difficult situation for farming, which is on the limit, financially.

The agrarian economy and the supply of people is too precious as to feed the speculators. To have sufficient food is a human right. Let us stop the myth of free trade and engage ourselves as responsible citizens for an agriculture that meets its basic task: to supply people with sufficient food.


[1] The Observer, “Treating food like stocks and shares is a recipe for disaster”, Oct. 14, 2012, http://www.guardian.co.uk/business/2012/oct/14/food-commodity-speculation-recipe-for-disaster?newsfeed=true

[2] itv news, “Financial speculation 'drives food prices up higher'”, Oct. 10, 2012, http://www.itv.com/news/update/2012-10-10/financial-speculation-drives-food-prices-up-further/

[3] Save food, “Petition against food speculation”, 10.09.2012, http://www.save-food.org/1142_1510.php

[4] “Stop Speculating on Agricultural Products!”, No 16, September 2010, Zurich, http://www.currentconcerns.ch/index.php?id=1104




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