It is considered a fundamental human right. But that right is vulnerable to climate, famine, wars, which can affect the size and quality of the crop or the access of people to it. Nevertheless, there are other man-made factors at work, which can bring starvation to millions even in the event of a good harvest. This is the deliberate massaging of food prices through speculation by leading financial institutions such as Barclays Bank and Goldman Sachs.
Barclay’s is the UK banking sector’s market leader in food speculation and is the only UK bank that has any real presence in commodities trading. So what are the secrets of ‘speculation’ and ‘commodities trading’?
It started out relatively simply and was mainly practised by organisations with connections to land and agriculture. Historically, food speculation or ‘futures contracts’ were created in US financial markets to help farmers deal with the uncertainty of growing crops – such as unforeseen weather conditions. A ‘futures contract’ enabled farmers to sell their crops at a future date at a guaranteed price. In the beginning it seemed to work and the practice was well regulated. However, during the 1990s and early 2000s, aggressive lobbying by bankers, led by Goldman Sachs and free market politicians in the US and UK, led to the introduction of weaker regulations over food speculation. New and more complicated financial products such as ‘hedge funds’ and ‘derivatives’ were created to allow more ways to make money by betting on food. Existing contracts were turned into ‘derivatives’ that could be bought and sold among traders who had nothing to do with agriculture and who cared even less about the knock-on effects of their speculation. Each time the contract was sold on at a higher price to a more daring speculator, the price to the farmer remained the same and the price of the food (the ‘commodity’) went up. It was this attitude that led to the steep food price rises in 2007-2008, which caused food riots in some countries. Markets that used to allow people to buy and sell food are now being used to make huge profits for speculators at the expense of producers and consumers.
The end result is that while bankers are reaping huge profits, poor families across the world are paying the price in hunger and malnutrition. Robert Fox of Oxfam Canada said in reference to the estimated billion people who go hungry today: ‘ There is no food shortage in the world. Food is simply priced out of the reach of the world’s poorest people’. According to the UN Food & Agriculture Organisation (FAO), the average cost of buying food increased 32% from June to December 2010 and experts say that nothing but price speculation can explain wheat prices jumping 70% over the same period.
For Olivier De Schutter, the UN Special Rapporteur on the issue, the Right to Food is the right of each household to have the means to produce its own food or to have sufficient purchasing power to buy the food it needs. For this to happen, the price of staple foods, such as wheat, maize and rice need to be kept stable and protected from huge ‘spikes’ in price caused by unmonitored speculation. Such ‘spikes’ directly contravene the very first of the eight Millennium Goals: to eradicate extreme poverty and hunger by 2015. Food prices are now rising by 10% a year in the UK and Europe – ‘ and what is more’, says the UN, ‘prices can be expected to rise at least 40% in the next decade’.
Food prices do not have to rise by this amount – they are artificially driven up by the greed of investment bankers. (It is estimated that Barclays may have made £340 million in profit in 2010 alone from speculating on food). What does this say about our society? One charity – and it seems to be the only one to date – is protesting vigorously against it. Deborah Doane, Director of the World Development Movement in London, says that ‘People die from hunger while banks make a killing from betting on food’. The World Development Movement (WDM) is campaigning to stop excessive speculation on basic foods. WDM members held a protest outside Barclay’s AGM in London and organised protests at Barclay’s branches around the country to expose the bank’s involvement in driving up food prices. WDM is putting pressure on the UK government to back proposals to regulate betting on food prices in financial markets and they are calling on the UK government to support proposals for:
· All futures contracts to be cleared through regulated exchanges. Most contracts are currently done in private, which means it is impossible to know how much of what is being traded. Contracts need to be brought out into the open.
· Strict limits to be set on the amount bankers can bet on food prices.
The Obama administration and the European Commission are also calling for regulation to curb betting on food prices in financial markets, but there is heavy lobbying against these proposals from the banking industry.
It is vital that the UK government supports the introduction of this regulation and does not side with the City of London and block progress towards better regulation on both sides of the Atlantic.
So three cheers for the WDM - which campaigns for a world without poverty and injustice – for taking on the government and the financial giants. They are acting on our behalf and we can help them take action against reckless bankers by checking out the website for their latest actions: www.wdm.org.uk/food
The immoral practice of betting on food prices must be stopped now – before another price bubble bursts and the poor, as usual, pay the biggest price.
- Convention on the Rights of the Child (Art. 24 (2) (c) and 27(3); the Convention on the Elimination of All Forms of Discrimination Against Women (Art. 12 (2); Universal Declaration of Human Rights (Article 25); the International Covenant on Economic, Social and Cultural Rights (Article 11).
- Betting on Hunger (WDM paper – available on website)