When I first started writing about food speculation, I hadn’t really come across many other people or campaigns who were addressing the problem. It seemed to be an overlooked issue, one of the many sub-plots of the financial crisis. That’s changed in the last couple of years. It’s risen up the agenda and in the last week there was something of a breakthrough: Barclays have announced that they will withdraw from speculating on food prices.
But let’s recap for a moment. We’ve had grain exchanges for a long time. They play a vital role in agriculture, allowing farmers to sell their harvests in advance and securing supplies for producers. The absence of markets in developing countries is one of the major obstacles to food security. So what went wrong?
In the past, the commodity exchanges were reserved for people who had real products to buy or sell. It was geared towards farmers and cooperatives and the processors and producers who bought their harvests, as it always had been. In the 80s and 90s the wave of deregulation in the financial markets threw the commodity exchanges open to everyone. Then digitisation made it possible to trade on commodities without being physically present on the trading floor.
It was now possible for anyone to buy and sell futures on vital commodities, including electricity and oil as well as food. Banks and hedge funds began to take an interest, seeking to diversify their portfolios, and there was a boom in commodity trading. When the financial crisis began to hit, the stock market looked like a bad bet and there was a rush into commodities. The oil price went wild, and food prices spiked dramatically.
That didn’t affect us too badly in Britain, but then we spend a fairly small percentage of our incomes of food. In developing countries, people may spend as much as 50 or 60% of their incomes on food. If the price of food doubles, you can simply no longer afford to eat. If those prices shot up because banks and hedge funds were betting they would, then they are essentially gambling on hunger. Nobody should be able to profit from pushing others into starvation. Even among the multiple scandals of the financial sector, it’s hard to think of a more inhuman way of making money.
Speculating on key food crops isn’t the only reason for price spikes of course. Weather is another, rising demand for meat, and crops diverted into biofuels are all far more significant. But food speculation exacerbates and accelerates the problem, and it’s something that can and should be curbed. With a growing population and an increasingly unpredictable climate, there is a squeeze on food supplies that will only get more serious in the coming years. Decades of progress on reducing hunger has been reversed in the last couple of years. Food speculation by banks and hedge funds is a predatory form of investment that we can’t afford.
Barclays have announced their withdrawal from food speculation as part of a drive to clean up their ethics and rebuild public trust in their brand. We’ll see how serious that turns out to be as it rolls out. Others are free to carry on however. Goldman Sachs made an estimated quarter of a billion on the food markets last year.
There is a real possibility of action. The EU parliament has already voted to deal with food speculation, not with a ban, but by putting a cap on the positions that traders can take. This isn’t banker bashing or anti-market rhetoric – it’s the law keeping up with changes in trading. To put things into context, there was around $10 billion invested in the commodity indices in the early years of the last decade. By July 2008 the total had hit $371 billion, before collapsing. Would you really expect the systems that regulated a $10 billion market to still function adequately at 35 times the size?
Capitalising on Barclays’ admission that food speculation was incompatible with a new ethical approach, the World Development Movement have upped their campaign to get this proposed legislation moving. They’ve launched Bankers Anonymous, a five-step programme to get the investment banks to kick the habit. It’s a little gimmicky, but it’s headed in the right direction and if you’ve got a minute, head over and sign the petition.