The Role of Speculators in the Global Food Crisis
By Beat Balzli and Frank Hornig
Biofuels and global warming have been blamed for shortages driving up the price of food, and both trends have played their role. The planet’s grain reserves are almost empty for a number of reasons, including global population growth and greater prosperity in some countries like India. Feed corn is in short supply because industrialized nations have used it for ethanol. Droughts — in Australia, for example — have devastated rice and wheat harvests. Wheat reserves worldwide are only sufficient right now to cover about 60 days of demand.
This helps to explain why commodity prices have rallied since early 2006, with the price of rice ballooning 217 percent, wheat 136 percent, corn 125 percent and soybeans 107 percent.
But classic supply and demand theory offers only a partial explanation. Sudden price hikes since last January have been alarming. The UN estimates that at least $500 million (€312 million) in immediate aid will be needed by May 1 to avoid serious famines. Agricultural scientists at the world body’s Educational, Scientific and Cultural Organization (UNESCO) have presented a report on the world food crisis. And criticism is growing that hedge funds, index funds, pension funds and investment banks bear part of the blame.
Obvious really. Allowing our food supply to be manipulated by investors is insane – a few people are getting very rich speculating on the price of food, while millions starve. This is capitalism doing what it is best at.
But now speculators are taking advantage of this mechanism. They can buy futures contracts for wheat, for example, at a low price, betting that the price will go up. If the price of the grain rises by the agreed delivery date, they profit.
Some experts now believe these investors have taken over the market, buying futures at unprecedented levels and driving up short-term prices. Since last August, this mechanism has led to a doubling in the price of rice — including the 500,000 tons that the Philippine government plans to buy in early May to address its own shortage.
Greg Warner has worked in the grain wholesaling business for more than two decades. His office sits a block away from the Chicago Futures Exchange. He’s an analyst with the firm AgResource, and he says what is happening now in the wheat market is unprecedented.
“What we normally have is a predictable group of sellers and buyers — mainly farmers and silo operators,” he says. But the landscape has changed since the influx of large index funds. Fund managers seek to maximize their profits using futures contracts, and prices, says Warner, “keep climbing up and up.”
He’s calculated that financial investors now hold the rights to two complete annual harvests of a type of grain traded in Chicago called “soft red winter wheat.”
Wagner is stunned by such developments. He sees them as evidence that capitalism is literally consuming itself.
A recent post from Little Blog in the Woods is calling us all to ACT now. The media is pretty much ignoring the role that speculation in the food markets is having on the price of foodstuffs. We can change this, if enough people draw attention to the immoral activities of investors, making huge profits from betting that food will increase in price (and therefore pushing up those prices).
So. For the first time, I’m going to ask the readers of this blog to DO something. For us all.
Many of the causes of the world food crisis are beyond our immediate reach; we can’t fix global warming this morning.
But one cause is NOT beyond reach. It’s HUGE- and virtually UNRECOGNIZED.
It’s Food “Investment” – otherwise known as- SPECULATION.
Blog reader DC sent in a comment with this link; International Herald Tribune. Even some insiders know it.
The politically engaged population of the US – and the WORLD – does not know it’s there; and do not know that potentially- it could be OUTLAWED. Next week.
It could. Life-critical resources have always been protected from speculation (theoretically!) – it’s an absolute obscenity to sell water to people dying of thirst- the whole species feels that way.
That’s the anger we need to stir; and this post has been written as an introduction to the situation.
So: PLEASE DO THIS:
Do you have a blog? Link to this post. Write about it. Spread it to other blogs. Tell them to read the previous several posts here, too.
In 15 minutes: Email this post to 10 of your contacts who may think as you do. Ask them to pass it on.
Email this post to your legislators; if you know some, personally, send it personally, and ask to talk to them about launching legislation.
Do you have friends in hungry countries? Email them this post- ask them to pass it on. Get them to put it in the hands of their government.
Get this post to your pastor, rabbi, or imam- ask them to turn it into a sermon- and get your congregation RILED.
Do you have contacts in universities? Get this post to activist groups on campuses- get them to work on… DEMONSTRATIONS. There should be THOUSANDS marching down Wall Street, with banners saying-
“MURDERERS!!”
Please join us in bringing this obscene situation into the spotlight. Access to food is a human right, and rich investors should not be allowed to profit from the misery of other people. The internet is a great medium for enabling ordinary people to spread information – do you have a blog or a website? Please publish something about the role speculation is having on world food prices. Spread the word.
