World Development Movement
27-04-2012 | Banks are reaping huge profits from betting on food prices in unregulated financial markets. The result is instability and inflated global food prices, making poor families around the world go hungry and forcing millions into deeper poverty. Deborah Doane, director of the World Development Movement, explains why ultimately we all pay the price for food speculation.
All at stake
"After the sub-prime mortgage crisis we saw banks looking for somewhere to put their money for some easy cash. The next thing on the rise was food commodities. Following the crisis, we saw an immediate spike of investment pouring into food commodities as a quick win.
"A futures contract means a farmer can sell their crops at a future date at a guaranteed price. But contracts can also be bought and sold by speculators who have no interest in the actual food being traded. Instead, by buying and selling the contracts they can profit from the prices changing over time - betting on the price of food. Speculators used to make up less than 15% of commodity markets - now it's over 60%.
"The problem is that the trading is disconnected from what's really happening on the ground. There's this myth that commodity pricing is only linked to supply and demand, but the reality is that when we've seen the biggest price spikes, supply has actually been extremely high. This has a massive negative impact on producers and consumers across the board.
"Food price volatility isn’t good for anyone, except maybe a few wealthy bankers."
Deborah Doane, director, WDM
A price too high
"Obviously there's a moral argument that this is problematic, but there are economic problems as well. The volatility isn't good for anyone, except maybe a few wealthy bankers. It doesn't help small producers plan ahead because the price of their crop could drop as quickly as it rose. They don't know what to predict, what to plant next year. Ultimately they may have to sell off their assets, take their children - usually girls first - out of school, and move off the land into urban areas. So a short term crisis becomes a long-term chronic problem.
"For the poorest consumers in developing countries, we see their food prices go up by 50%, 60%, or 70%. Even in the UK we've seen food inflation of 5-6% - which can hit poor people very hard. There have been reports of poorer consumers forgoing fruit and vegetables, leading to a malnutrition impact. It's something we certainly see in the developing world but it happens over here as well.
"Regulation is the only thing that can put an end to this. The World Development Movement is calling for two elements to be regulated. The first is transparency. Most contracts are currently done in private, meaning it's impossible to know how much of a commodity is being traded. Contracts need to be brought out into the open, in the same way that shares are traded on the stock exchange. The second is a limit on the volume that's traded. If you're a legitimate food producer, your volume of trading is not going to be that high - it's going to be what you actually need. The big volume and the massive hot money going in and out of these markets, especially in the short-term, is just pure speculation. We have to control these markets because food is not a commodity that we just buy and sell and have fun with - it is a human right, it is a human need."
CV - Deborah Doane
Deborah is director of the World Development Movement, which campaigns for justice for the world's poor. She has worked on ethical trading, human rights and sustainable development issues since 1996. Prior to joining the World Development Movement, she was head of sustainable consumption at WWF-UK. She was also director of the CORE Coalition of over 130 NGOs, which achieved groundbreaking changes to UK Company Law to improve governance of social and environmental impacts. Previously, Deborah was head of corporate accountability at the New Economics Foundation, and led the Humanitarian Ombudsman Project for the British Red Cross. She is on the board of the Fairtrade Foundation and is also a co-founder of Anti-Apathy, which supports people to take creative approaches to social and environmental issues.
Words: Will Ferguson