Announcement

Collapse
No announcement yet.

The real hunger games: How banks gamble on food prices - and ...

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • The real hunger games: How banks gamble on food prices - and ...

    http://www.independent.co.uk/news/world/politics/the-real-hunger-games-how-banks-gamble-on-food-prices--and-the-poor-lose-out-7606263.html

    The real hunger games: How banks gamble on food prices - and the poor lose out

    In the last decade, financiers have speculated billions of pounds in food, helping to make prices dearer and more volatile

    Grace Livingstone
    Sunday 01 April 2012


    Speculation by large investment banks is driving up food prices for
    the world's poorest people, tipping millions into hunger and
    poverty. Investment in food commodities by banks and hedge funds has
    risen from $65bn to $126bn (£41bn to £79bn) in the past five
    years, helping to push prices to 30-year highs and causing sharp price
    fluctuations that have little to do with the actual supply of food,
    says the United Nations' leading expert on food.


    Hedge funds, pension funds and investment banks such as Goldman Sachs,
    Morgan Stanley and Barclays Capital now dominate the food commodities
    markets, dwarfing the amount traded by actual food producers and
    buyers. Purely financial players, for example, account for 61 per cent
    of investment on the wheat futures market, according to the World
    Development Movement report Broken Markets.

    Speculative investment in agricultural commodities in 2011 was 20
    times the amount spent by all countries on agricultural aid. Goldman
    Sachs, the largest player in the agricultural commodities market,
    earned £600m from food speculation in 2009, and Barclays Capital,
    the world's third-largest player and largest British bank in this
    market, earned up to £340m in 2010, according to the
    report. Goldman Sachs and Barclays Capital declined to comment.

    Before it was deregulated in the year 2000, the agricultural
    commodities futures market was used mainly by farmers and food buyers
    seeking to insure themselves against changes in the prices of products
    such as wheat, maize and sugar. When George W Bush passed the
    Commodities Futures Modernization Act 12 years ago, there was an
    influx, led by Goldman Sachs, of purely financial players who had no
    interest in ever buying food, but who sought solely to profit from
    changes in food prices, says Olivier De Schutter, the UN special
    rapporteur on the right to food.

    He added: "What we are seeing now is that these financial markets have
    developed massively with the arrival of these new financial investors,
    who are purely interested in the short-term monetary gain and are not
    really interested in the physical thing - they never actually buy the
    ton of wheat or maize; they only buy a promise to buy or to sell. The
    result of this financialisation of the commodities market is that the
    prices of the products respond increasingly to a purely speculative
    logic. This explains why in very short periods of time we see prices
    spiking or bubbles exploding, because prices are less and less
    determined by the real match between supply and demand."

    Food prices reached a 30-year high in 2008, sparking food riots from
    Mexico to Bangladesh. Prices rose even higher in September 2010 and,
    although they have dipped since, they remain above the 2008 crisis
    level. This has resulted in a "silent tsunami of hunger", according to
    the UN World Food Programme. High prices for basic foodstuffs,
    combined with the global economic slump, have pushed 115 million more
    people into hunger and poverty since 2008, bringing the total number
    of hungry people in the world today to 925 million.

    High prices are "an absolute catastrophe" for poor consumers, says De
    Schutter, because they typically spend more than 60 per cent of their
    household budget on food.

    It is not just the places normally associated with food crises that
    are feeling the effect of the speculators. According to Oxfam, in
    Armenia, between September 2010 and September 2011, the prices of
    basic foodstuffs rose as follows: sugar 46 per cent; eggs 49 per cent;
    cheese 38 per cent; pork 34 per cent; milk powder 30 per cent; and
    butter 26 per cent. The result was that all income groups in Armenia
    reduced food consumption: the poor by 14 per cent, and even
    middle-income groups by 5 per cent.

    Karen Badishyan, from Gyumri, is an economist with a doctorate, and is
    married with two children. He said: "Seventy per cent of our household
    budget is spent on food and so we need to save more and more and we
    really lack money. We've borrowed a lot of money and we have no idea
    how we will pay it back. In Armenia, even if you have a job and work
    hard, your salary is too low to give your family a decent standard of
    living."

    Violet Waithira is a Kenyan, unemployed, single mother looking after
    her eight-year-old daughter and 83-year-old father. When prices rose
    sharply in Kenya recently, the family were forced to drastically cut
    back: "We stopped eating lunch, and saved the little we had to eat for
    supper. We drank tea without sugar and sometimes we also missed
    breakfast. I had to travel so much to wash clothes to get money for
    food, but sometimes I was so weak I fell down. For supper, we had one
    or two cups of flour mixed with water and salt. Our life was so hard."

    There have been many reasons for high food prices in Kenya, including
    post-election violence and drought, says Njoki Njoroge Njehu of the
    Daughters of Mumbi Global Resource Centre, but there were also global
    factors: "Corporations were speculating on food and made a lot of
    money. But it was done at the expense of ordinary people in Kenya, in
    Mexico, in Argentina and other places where there were food riots."

    Experts disagree on whether speculation actually causes price rises or
    simply aggravates other factors such as climate shocks, the rise in
    world demand for food and the growth of biofuels. Jayati Ghosh,
    professor of economics at Jawaharlal Nehru University in New Delhi,
    was one of 450 economists who last year called on the G20 to regulate
    the commodities market. She says that, although factors such as
    biofuels are important, speculation is now another "driving force"
    behind price hikes. She cites the example of world wheat prices
    doubling between June and December 2010, even though there was no fall
    in the global supply of wheat.

    David Hallam of the UN's Food and Agriculture Organization says that
    while he does not believe speculation is the cause of price rises, it
    does exacerbate swings in prices and should be regulated. "If you have
    something which is amplifying price movements, then that is a terribly
    important issue that needs to be addressed."

    The Obama administration introduced regulation of commodity trading as
    part of the Dodd-Frank Act, passed in 2010. However, legal challenges
    by Wall Street mean the regulations have not yet come into force. The
    G20 summit last June made a commitment to introduce so-called
    "position limits" which cap the number of agricultural commodities
    contracts any one investor can buy, but as yet no country, apart from
    the United States, has adopted these. The one measure taken by the G20
    is the creation of the Agricultural Markets Information System, which
    pools data about crop levels or bad harvests from around the world to
    try to prevent misinformation or rumours sparking panics on the
    markets.

    The European Union is currently discussing regulation of the
    commodities market. Christine Haigh, a campaigner from the World
    Development Movement, says the EU's proposals "need more teeth", but
    there is "still all to play for". The WDM is particularly concerned
    that Britain is advocating a weaker form of regulation known as
    "position management", rather than strict caps. "The food-price spikes
    we have seen over the past few years have had a devastating impact on
    the world's poorest people and it is morally abhorrent that banks and
    other financial institutions are contributing to that. It is vital
    that we get proper regulation of these markets," she says.

    Making the market more transparent is also essential, says the UN's
    food rapporteur. At present, 82 per cent of trading in the European
    commodities market is "over-the-counter" - private deals made between
    two parties that are not registered on any exchange. This makes it
    impossible to see what's driving the price changes.

Working...
X