Miriam Ross – The Tablet
Once the greatest threats to agriculture were bad weather and poor farming. Now this has been surpassed by an even greater threat: escalating prices caused by speculation. But politicians have an opportunity to act to help the hungry
Harvest should be a season of plenty and, around the world, there is indeed more than enough food to go round. But whether we can afford it is another matter. This summer, newspaper headlines have yet again been dominated by rocketing food prices as the world experiences the third price spike in the space of five years.
Over the next few weeks, members of the European Parliament and finance ministers, including the Chancellor of the Exchequer, George Osborne, will thrash out new rules that will influence the price we pay for food. The decisions they make could have a huge impact, not only on the price you or I pay for our weekly groceries, but also on the number of hungry people worldwide. Here in the UK, at a time when incomes are shrinking, we’re paying 37.9 per cent more for our food than we did just seven years ago. Globally, the price of maize hit record levels in July and in Mozambique, one of many countries where maize is a staple, it cost twice as much in July as it did in April.
In developing countries, where people often spend between half and 90 per cent of their incomes on food, sudden increases in the price of basic foods can spell disaster.
Nuria Mohammed, a vegetable farmer in Ethiopia’s Oromiya region, remembers how in 2008 a local drought left her completely dependent on wheat and maize. Prices in the local market had more than doubled at that time and she had to sell her five cattle in order to buy food for her family. The cattle had become so thin that they fetched about a quarter of their normal price.
Nuria’s children, Faiza and Fatima, both under five, were treated for malnutrition. “When I was nursing Faiza I was so sick I could not breastfeed her properly,” she recalls.
Selling off vital possessions such as cattle is a typical response to rising food prices. Taking children out of school and cutting out expenditure on “luxuries” like health care are also common coping strategies – and all have long-term impacts on people’s lives.
So why are food prices rising so much? The most immediate answer is often to be found in poor harvests caused by extreme weather, such as this summer’s drought in the US Midwest. The growing appetite for biofuels is also a culprit as it diverts agricultural products used in food away from people’s stomachs and into the tanks of cars. But financial speculation is also playing a major role in pushing up food prices, leading to widespread calls for regulation to limit its effects. Proposals to do precisely this are the battleground for the brewing EU food row. Financial speculation allows banks like Barclays and Goldman Sachs to make massive profits by buying and selling food “futures contracts”, effectively betting on the price of basic foods like wheat, maize and sugar.
Futures contracts were invented in the US in the nineteenth century to help farmers deal with the uncertainty of growing crops, by allowing them to sell their produce at a future date at a guaranteed price. For example, a farmer might agree to sell a tonne of wheat at harvest time for £100. This type of contract meant that farmers could plan ahead without worrying that the price of their produce might suddenly drop during the course of the year while their crops were in the ground. Similarly, a miller could agree a contract to buy a tonne of wheat for a particular price at a future date, which would insure them against sudden increases in the price.
By the 1900s, however, futures contracts were being bought and sold by bankers and traders who had little or no involvement in the actual food being traded, instead betting on changing food prices as a way to make money. In the 1930s, following the Wall Street crash, regulations were introduced by the US Government to limit bankers’ and traders’ involvement in the markets. These regulations stayed in place as a check on excess speculation until the 1990s, when aggressive lobbying by the finance sector weakened the regulations and the doors were opened for rampant betting on food. The price of food in a futures contract helps to determine the real price of food. For example, if a tonne of wheat is selling for £100 today but through a futures contract a farmer can sell it for £200 in three months’ time, then he may well choose to hold back from selling the wheat until then. By restricting the quantity of wheat available for sale, prices are pushed up.
Since deregulation, banks and hedge funds have created new, complicated investment products to enable them to make money from speculating on food. Barclays, the biggest UK player in the commodity markets, is estimated to have made as much as £500 million from food prices in the past two years alone. Despite the huge amounts of money pouring into agricultural commodity markets, not a penny of it is spent on improving food production. The money merely feeds the financial markets.
Speculation can be curbed through relatively simple regulation, that would bring it into the open and also limit the number of contracts that financial players could hold in the commodity markets at any one time. Legislation to do this has already been passed in the US, although its implementation has been delayed by a sustained attack from Wall Street.
The European proposals for similar legislation have been the subject of a war of amendments and counter-amendments. In the coming weeks, the decisions made by the finance ministers and MEPs examining the regulation will determine whether or not the new rules are strong enough to tackle speculation. As in the US, the finance sector on this side of the Atlantic is lobbying hard against tough controls. And the UK Government, with its ear to the City of London, has been one of the main blocks to effective regulation.
Nevertheless, the voices calling for action on speculation are getting louder, and come from quarters as diverse as the global peasants’ movement La Via Campesina, the UN Conference on Trade and Development and businesses like Starbucks, where CEO Howard Schultz says his business has been affected by soaring coffee prices.
With George Osborne likely to play a key role at the EU, the World Development Movement has launched a photo petition, asking people to send us a photo of themselves with a written message to the Chancellor, which we will present to him before he meets the other finance ministers to make their decision. We have a unique opportunity to restore some balance to food markets and help prevent the price spikes that push millions of people from poverty and hunger. It must not be wasted.
• Miriam Ross works for the anti-poverty campaign group the World Development Movement. To add your voice to the food speculation campaign, or to find out more, visit http://www.wdm.org.uk or call
020 7820 4900.
You can take part in the World Development Movement’s photo petition here