Stopping bankers betting on hunger
On World Food Day, the World Development Movement‘s Miriam Ross says we are less than a month away from a major breakthrough on financial speculation on food – or another Tory vote for the bankers.
Photo: World Development Movement
Food prices are rising again, with poor harvests in the UK as well as in major grain producing countries like the US. This week, the National Farmers’ Union (NFU) said wheat yields in England were down by almost 15 per cent on the five-year average. In July, the global price of maize hit a record high following predictions of poor harvests in the US.
News stories about soaring food prices are starting to seem familiar: the current price spike is the third in the space of five years. Each one has a devastating effect on the world’s poorest people – the World Bank estimates that rising prices pushed 44 million people into poverty in the last six months of 2010 alone.
But food prices are not determined solely by the amount of food available. During the 2008 food price crisis, which prompted riots in more than 30 countries, prices rose to levels far beyond what could be explained by changes to supply and demand.
The events of 2008 led many analysts to examine the impact of financial markets on food prices, and to conclude that excessive levels of speculation in commodity derivative markets were fuelling sharp price spikes, often amplifying the effects of poor harvests. In effect, banks and hedge funds are betting on food prices.
Regulation to reign in speculation is on the table at the EU, and campaigners across Europe have been pushing to ensure that the new rules are strong enough to prevent speculation pushing up prices.
Predictably, the finance sector has been lobbying hard in the other direction.
The UK arm of the campaign has been led by the World Development Movement, and has generated widespread media attention. But at the EU, the UK Treasury is one of the main opponents of tough regulation.
George Osborne and other European finance ministers are due to vote on the proposed legislation on 13 November, so on the eve of the Tory party conference we projected messages onto the conference venue in Birmingham. And on Monday morning before his keynote speech, we brought a costumed ‘Lady Luck’ with a croupier and a roulette wheel to the ICC, to ask the Chancellor to support strong rules.
Following the finance ministers’ decision, a final agreement will be hammered out between the parliament, the ministers and the European Commission – so the vote on 13 November is key to determining how effective the new regulation will be.
The World Development Movement is asking people to email George Osborne, calling on him to reign in the speculators. The window of opportunity to influence European regulation is narrowing, and this moment is our best chance to make commodity markets work for rather than against the public interest.
The proposal doesn’t make much sense. High food prices are caused by food shortages. Food shortages are caused by poor weather, and by poor governance in certain regions of the world which results in low food yields due to poor property rights and loan access for farmers, poor transportation systems, outdated technology, etc.
Economists agree that speculation reduces overall food price volatility ie when prices are low it raises them and when prices are high it lowers them. Futures markets help farmers because the farmers who know their costs can sell their produce in advance and not have to worry that the price will drop below their costs. Speculators provide a service by taking food price risk away from the farmers who want to focus on growing food. Those speculators who guess right about the weather also make a profit. Those who guess wrong lose money.
Banning or limiting speculation will raise food price volatility and cause more small farmers to go bankrupt. This will allow large corporations with deep pockets to buy up bankrupt farmers’ land and achieve even greater dominance over food production. I wonder who is funding all the well-meaning groups pushing for this regulation?
Prices are also increasing because of the growing use of crops for bio fuels. There’s also the continuing artificial inflating of farm production prices by the EU.
the increase in energy prices also feeds through into the cost of food.
Farmers always whine about the weather and anything else which helps them get higher prices.