What is the problem?

Speculation in basic foodstuffs is a scandal when there are a billion starving people in the world. We must ensure markets contribute to sustainable growth. I am fighting for a fairer world and I want Europe to take the lead on that."
-Michel Barnier, european commissioner for the internal market

Banks, hedge funds and pension funds are betting on food prices in financial markets, causing drastic price swings in staple foods such as wheat, maize and soy.

These markets were originally developed for the benefit of those involved in the production of food, yet over the last 10 years they have changed almost beyond recognition. Deregulation has enabled speculators to dominate, causing drastic spikes and crashes in prices. 

Effects of rising food prices

Massive food price increases are catastrophic for people in poverty in the global south, who spend most of their income on food. This results in:

• Increased hunger as food becomes unaffordable.
• Malnutrition as smaller quantities of expensive foods such as fruit and vegetables are eaten in order to afford staple foods
• Increased burden on women to earn more money by taking up risky employment such as sex work or domestic work.
• Households using up savings, going into debt or selling assets to pay for food.
• Families unable to afford healthcare and education as more of their income is needed to buy basic food.

In the last six months of 2010 alone, more than 44 million people were driven into extreme poverty as a result of rising food prices. At the same time, banks and financial investors are making a killing. We estimate that Barclays makes up to £340 million a year from betting, or speculating, on food prices. In the last five years, the amount of financial speculation on food has nearly doubled, from $65 billion to $126 billion.

Our report, The great hunger lottery explains food speculation and its impacts on the world’s poorest people while our latest report, Broken markets provides a more technical explanation of how financial speculation drives up food prices. 

How did we end up like this?

‘Futures contracts’ have been used for hundreds of years, helping farmers deal with the uncertainty of growing crops (such as unforeseen weather conditions). A futures contract means a farmer can sell his or her crops at a future date at a guaranteed price. However, these 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 could profit from the prices changing over time – betting on the price of food.

These markets for futures contracts worked well until the late 1990s, when aggressive lobbying by bankers led to regulations being rolled back. New and complicated financial products created more ways to make money from betting on food. 

Since 1996, the share of the markets for basic foods like wheat held by speculators – who have no connection to food – has increased from 12 per cent to 61 per cent. 

Find out what we are doing about it.

Who is supporting us?

WDM is not alone in identifying excessive speculation as a key factor in driving up global food prices. Lots of world leaders, civil social organisations, financial and business experts, academics and media commentators all support regulation of these markets.

The movement supporting the campaign. 

What is being done?

If we do nothing, we risk having food riots in the poorest countries and also an unfavourable impact on global growth. We want regulation of the financial markets for commodities.”
- Nicholas Sarkozy, French president

We are putting pressure on the UK government to back proposals to regulate betting on food prices in financial markets.

Since July 2010, we have campaigned to raise the issue and it is now firmly on the political agenda in Europe. Proposals for regulation are being drawn up in the EU, but the financial industry, with the help of George Osborne and the UK Treasury, is lobbying hard against them.

These coming months are going to be crucial. The proposals for regulation were published in October 2011 and we will have to keep up the pressure to ensure that they are not watered down by the banking lobby or by the UK government. You can help us now by writing to the Treasury.

Click on this timeline to have a look at what we have done so far.

What are we calling for?

Regulating food speculation is relatively straightfoward. WDM is calling for two key measures to be included in Europe’s proposals for financial reform:

• Transparency – 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, in the same way that shares are traded on the stock exchange.
• Strict limits to be set on the amount that bankers can bet on food prices. Caps should be set on the amount of the market that can be held by the biggest players, and on the amount of the market that can be held by financial speculators as a whole.

If we get these two changes into place these markets will work better both for those who use them to insure against risk and for food consumers throughout the world.

What's happening in the United States?

Following work by the Stop gambling on hunger campaign in the US, regulation of food speculation was included in the Dodd-Frank Act in 2010 which was brought in following the financial crisis. This shows what a successful campaign can achieve.

However, Wall Street is now lobbying hard to hinder the implementation of the new regulations and the US campaign has another fight on its hands. Strong regulation in Europe would help our US allies overcome this final hurdle.  

Food speculation resources

“It is deeply alarming that the greatest proportion of activity in the futures markets no longer involves those in the supply chain but is, instead, taken up by speculators. Food commodities are too important to be played about with by day traders and speculators”
- President of National Farmers’ Union Scotland

Since we launched the campaign on food speculation in July 2010, we've produced and collected a range of resources on the issue. Here are some of the best.

• 

  Introducing the issue

• 

  Food speculation videos

• 

  In the media

• 

  In-depth research

Take action on food speculation

The European Commission and the French and US governments have all said they want to bring food speculation into the open and regulate it to stabilise prices. We need to you to help pressure the UK government to ensure that it backs proposals for regulation and not to take sides with the banks to block reform.

Email George Osborne at the Treasury, asking him to support strong and effective regulation to stop banks from betting on hunger. The Treasury is the government department which decides whether the UK will support international regulation to rein in excessive speculation on food prices

 

 

The movement supporting the campaign

The impact of financial speculation on food prices is now widely recognised, and this needs to be subject to control without delay.” 
- Olivier De Schutter, UN special rapporteur on the right to food

WDM is not alone in identifying excessive speculation as a key factor in driving up global food prices. Lots of world leaders, civil social organisations, financial and business experts, academics and media commentators all support regulation of commodity futures markets.

Campaign allies

Friends of the Earth Europe

World Ecology, Economy and Development, Germany

SOMO, the Netherlands

New economics foundation, UK

CRBM

Corporate Europe Observatory, Belgium

Oxfam International

Stop Gambling on Hunger, USA

Institute for Agriculture and Trade Policy, USA

Wider civil society

Over 100 civil society organisations globally supporting the campaign aims.

Economists

Over 450 economists in more than 40 countries calling for regulation of food speculation.

World leaders

European commissioner for the internal market, Michel Barnier, January 2010: 

“Speculation in basic foodstuffs is a scandal when there are a billion starving people in the world. We must ensure markets contribute to sustainable growth. I am fighting for a fairer world and I want Europe to take the lead on that."

United Nations special rapporteur on the right to food, Olivier de Schutter, September 2010:

“The global food price crisis that occurred between 2007 and 2008, and which affects many developing countries to this day, had a number of causes. The initial causes related to market fundamentals, including the supply and demand for food commodities, transportation and storage costs, and an increase in the price of agricultural inputs. However, a significant portion of the increases in price and volatility of essential food commodities can only be explained by the emergence of a speculative bubble.”

French president, Nicolas Sarkozy, January 2011:

“If we do nothing, we risk having food riots in the poorest countries and also an unfavourable impact on global growth. We want regulation of the financial markets for commodities.” J

Then director-general of the UN Food and Agriculture Organisation (FAO), Jacques Diouf, January 2011:

“[There is] a pressing need for new measures of transparency and regulation to deal with speculation on agricultural commodity futures markets."          

Civil society groups in the global south

La Via Campesina, international movement of small scale food producers, October 2011:

“Financial speculation is and has been widely recognised as the major cause of the food crisis of 2007-2008 and should therefore be efficiently stopped at the international or regional level if we really want to prevent this from happening again.”               

80 NGOs including Labour, Health and Human Rights Development Centre, Nigeria, Centre For Social Concern, Malawi, and Grupo de Solidaridad-Arenal, Nicaragua, March 2010:

“Undue influence on food and energy commodity prices by speculators continues today as seen in unusually high oil prices… With global food production heavily dependent on oil … volatile energy commodity prices means volatile food prices.”     

Financial experts

Manager of Masters Capital Management hedge fund, Michael Masters, May 2008:

“Are institutional investors contributing to food and energy price inflation? … My unequivocal answer is “YES.” … What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: … pension funds, sovereign wealth funds, university endowments and other institutional investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.”          

Chief economist of Goldman Sachs, Jim O’Neill, April 2009:

“I see so much focus on food, and it seems to be so trendy in the investment world. … The markets seem to me to have a bubble-like quality.”                     

Chairman of the US regulator, Commodity Futures Trading Commission, Gary Gensler, June 2009:

“Over the past few years, price spikes and unprecedented volatility in the commodity markets have hurt farmers, consumers and businesses."           

Academics 

Professor of economics at Jawaharlal Nehru University, New Delhi, Jayati Ghosh, May 2010:

“Globally the world trade prices of food have been rising since about April 2009, and all the indications are that they're rising for the same reasons that they rose way back in 2007-2008, which is to say that it's not driven so much by global supply and demand factors, but it's driven by financial involvement in the commodity futures markets.”    

18 economists including Ilene Grabel and Martin Wolfson in a letter to US Congress, June 2010:

“Deregulation that began in 2000 … encouraged hyper-speculative activities by market players who had no interest in the underlying physical commodities being traded. This produced severe price swings for both oil and food in 2008-09 and destabilized business and household budgets in the US and throughout the world.”

Business leaders

Founder of Virgin Group, Sir Richard Branson, October 2010:

“There is strong evidence that speculation exacerbated the last oil and food bubble. Speculation will fuel the next one too, unless meaningful speculative position limits are established.”       

Chief executive of Unilever, Paul Polman, January 2011:

“One of the main things in food inflation is that it has attracted the speculators for short-term profit at the expense of people living a dignified life. It is difficult to understand that if you really want to work for the long-term interests of society.”

Chief executive of Starbucks, Howard Schultz, May 2011:

“Without any real supply or demand issues we are witness to the fact that most agricultural food commodities are at record highs at once, and coffee is at a 34-year high. Through financial speculation … the commodities market is in a very unfortunate position.”    

Frequently asked questions

• How does betting on food prices in financial markets work? How does that affect the price?
• How do futures prices affect today’s food prices? 
• How is speculation on food prices done and who does it?
• Doesn’t speculation simply follow market trends, not create them? 
• But isn’t speculation supposed to help stabilise markets?
• How do high food prices affect poor people?
• Is it the high price of food or the fluctuations in food price which are the problem? 
• Aren’t high prices good for poor farmers in developing countries as they’ll get better prices for their produce?
• We buy Fairtrade products because it guarantees a high price. Aren’t high prices a good thing?
• Aren’t low commodity prices also a problem for developing countries, surely high prices are a good thing?
• Did the price of all foods rise in 2007 and 2008?
• What has happened to food prices since the food crisis of 2008? Are food prices stable now or are they still volatile?
• Wasn’t it the high oil price which caused high food prices in 2007 and 2008?
• What regulation is needed to curb speculation on food?
• What’s the problem with the UK government’s plans?
• What are the other benefits of regulating commodity speculation?
• What are the benefits of futures contracts?
• What is happening elsewhere on food and speculation?

How does betting on food prices in financial markets work? How does that affect the price?

‘Futures contracts’ were first created in the United States in the 19th century to help farmers deal with the uncertainties involved in growing crops, such as unforeseen weather conditions.  A ‘futures contract’ enables farmers to sell their crops at a future date, at a guaranteed price. This gives farmers greater certainty when choosing which crops to grow.  

To buy a futures contract you do not need to buy or sell actual food and so financial players entered the market to make money from these contracts. Following the Wall Street Crash in the 1930s, regulations were introduced by the US government to limit speculation on food prices. But these regulations were weakened in the 1990s through corporate lobbying which allowed rampant betting on the price of staple foods by bankers. 

Complex contracts were created called ‘derivatives’. This just means that the value of the contract is ‘derived’ from the commodity being traded. But no actual trading of the physical commodity needs to take place. Derivatives are based on the concept of a ‘futures’ contract but have become more complex.

The price of derivatives in food is affected by demand and supply. As more derivatives in a food are bought, the more the price of a derivative contract rises. This causes the ‘future’ price of food to rise. As mentioned above, this rising price of food in the future has a knock-on effect on the real price of food now.

How do futures prices affect today’s food prices? 

To buy a futures contract you do not need to buy or sell actual food. However, the price of food in a futures contract helps to determine the real price of food. If futures prices rise, it is likely to cause the real price of food to rise. 

For example, if a tonne of wheat is selling for £100 today but through a futures contract the farmer can sell that same tonne of wheat for £200 in three months then the farmer may choose to hold back the sale of wheat until then. This reduces the quantity of wheat being sold and with less wheat being sold, today’s prices will be pushed up. Alternatively, the farmer may demand £200 now from buyers, in which case the price today will also be pushed up. 

Rising prices can also increase demand as buyers look to make purchases sooner to avoid future price increases. This increase in demand then pushes up the price of food.

How is speculation on food prices done and who does it?

The main way that investors speculate on food commodities is through ‘commodity index funds’. These indexes put money into derivatives across a range of commodities (such as oil, metals and food). They were mainly created by banks such as Goldman Sachs and Deutsche Bank. It is estimated the total money in such index funds increased from US$46 billion in 2005 to US$250 billion by early 2008. Money began to be taken out of the index funds in the months before food prices began to fall dramatically in mid-2008.

Commodity indexes are open for anyone to invest in, just like the FTSE 100 index for shares. However, they are rarely marketed at ‘ordinary’ people, and instead tend to be used by institutional investors such as pension funds, insurance companies and mutual funds (a professionally managed fund which pools money from individual investors).

Banks play an important part in the working of index funds. Banks tend to arrange the buying of derivatives contracts for their clients as well as act as the seller of contracts the index fund is buying. This effectively means banks are trading against their own clients. 

The banks at the centre of commodity speculation include Goldman Sachs, Morgan Stanley, Barclays Capital, Citibank, Deutsche Bank, HSBC and JP Morgan. 

Doesn’t speculation simply follow market trends, not create them? 

Some speculation does follow market trends. This has the potential to amplify market changes, making them more extreme. However, speculation by index funds in particular does not pay attention to demand and supply in a particular commodity market. In addition financial speculators as a whole are less likely to pay attention to supply and demand than commercial traders.

Financial traders who put money into commodity speculation do so to diversify the kinds of things they have money in, in addition to more traditional places to put money such as shares, currencies and government bonds. Money therefore comes and goes into and out of commodities for reasons unrelated to the supply and demand of that commodity. This can create price trends, increasing price inflation and volatility.  

But isn’t speculation supposed to help stabilise markets?

Defenders of speculation argue that the extra cash (or liquidity) that it brings helps to smooth the process of buying and selling, stabilising the market. They claim that because speculators are believed to buy when prices are low and sell when prices are high they even out price volatility. 

However, once speculators dominate the market, they can end up creating and following price trends to form bubbles that distort prices – at least in the short and medium term. 

Even temporary spikes in food prices can have devastating effects on consumers in poorer countries. 

How do high food prices affect poor people?

High food prices means buying less food, or having less money to spend on other things. Higher food prices are causing more people to go hungry. The 2007-8 food crisis pushed another 115 million people into hunger. Food price rises forced 44 million people into extreme poverty in the last six months of 2010 alone. Nearly 1 billion people are now chronically malnourished. 

But the impact of high prices goes well beyond not getting enough to eat. Poor households in developing countries tend to spend between 50 and 90 per cent of their income on food, compared to an average of 10-15 per cent in developed countries. As well as eating less food, households have been forced to: 

• Eat less fruit, vegetables, dairy and meat in order to afford staple foods such as wheat. This can have drastic impacts on protein and vitamin intake. Nutritional deficiencies particularly affect children, pregnant women and unborn children.

• Reduce any savings or take out loans. This can include selling off assets vital to future income such as land or cattle. 

• Reduce spending on healthcare, education or family planning.

• Women tend to manage the food budget and often bear much of the suffering. Women may also try to increase income through taking on insecure and risky employment as domestic workers, mail-order brides and sex workers.

Even in countries such as the UK, low-income households are badly hit by food price inflation, with prices 6.9 per cent higher in June 2011 than a year earlier. 

Is it the high price of food or the fluctuations in food price which are the problem? 

Both. The extreme increase in the price of food caused  major problems for households in developing countries as mentioned above. But increased fluctuations also create problems.

In recent years, there have been greater fluctuations in food prices. These price swings make it difficult for both producers and consumers of food. For instance, farmers may choose to plant a certain crop on the basis of its high price, but find that the price has collapsed by the time they harvest.

Extreme variations in food and oil prices also make it more difficult for governments to plan how to run their economies. Whether they are net importers or exporters of food and oil, big price changes can play havoc with growth rates, tax revenues, debt and inflation. All of which make it more difficult to manage the economy in a sustainable way.

For instance, the FAO says: “At the national level, many developing countries are still highly dependent on primary  commodities, either in their exports or imports. While sharp price spikes can be a temporary boon to an exporter’s economy, they can also heighten the cost of importing foodstuffs and agricultural inputs. At the same time, large fluctuations in prices can have a destabilizing effect on real exchange rates of countries, putting a severe strain on their economy and hampering their efforts to reduce poverty.”

Aren’t high prices good for poor farmers in developing countries as they’ll get better prices for their produce?

No, high food prices affect poor farmers as well as the urban poor. Very few poor farmers produce a significant surplus to sell and a high percentage of rural households are net  buyers of staple foods. In Kenya and Mozambique, around 60 per cent of rural householders are net buyers of maize. 

In Zambia, 80 per cent of farm households grow maize, but fewer than 30 per cent sell any. Any farmers who do have a surplus to sell may see little benefit of higher prices. The FAO says that consumers in urban areas are more likely to see the effects of higher prices than producers in rural areas. Moreover, large producers which are part of large (sometimes multinational) companies are most able to benefit from high prices. 

Africa has gone from being a net exporter of food in 1970 to a massive net importer. Around 55 per cent of developing countries are net food importers and almost all countries in Africa are now net importers of cereals. This means they are hugely reliant on the world food prices of their staple foods and higher prices have a direct impact on their ability to feed themselves. 

We buy Fairtrade products because it guarantees a high price. Aren’t high prices a good thing?

Fairtrade products guarantee a fairer, higher price for farmers growing crops in developing countries which are exported to countries like the UK. Typical Fairtrade crops are ‘cash crops’ like cocoa, coffee and sugar. Higher prices received for such products are good for farmers and  communities growing such crops.

One key aspect of Fairtrade is that it guarantees stable prices. Therefore farmers do not suffer from the wild fluctuations in prices (see above) which are partly caused by financial speculation. However, even farmers benefiting from stable higher prices for their cash crops due to Fairtrade still have to buy staple crops for their own consumption, which continue to fluctuate wildly in price. 

The Fairtrade Foundation states that the majority of its “farmers like most smallholders, are net food buyers and as such only a minority have gained from increased commodity prices”.

Aren’t low commodity prices also a problem for developing countries, surely high prices are a good thing?

Through the 1980s and 1990s many developing countries suffered from low commodity prices, particularly for  tropical commodities such as sugar, cocoa, coffee, tea, jute, cotton and rubber. One estimate is that by 2002, developing countries were losing $240 billion a year from the fall in price of then top ten tropical commodity exports since the 1980s. The price of commodities was due to rise.

Whether or not a country’s economy has been helped or hindered by high commodity prices in recent years depends on how much the price of commodities it exports increases compared to those it imports. During 2007 and 2008 the price of oil and staple foods, such as wheat and maize, tended to increase a lot more than that of cash crop exports such as cotton, coffee and cocoa. This meant that the amount they were paying to buy the food they ate outweighed the income received from selling cash crops. 

More fundamentally, what is most important for developing countries as a whole is to receive stable prices on which they can plan their economic development. One of the reasons low prices for crops such as coffee were so damaging in the 1990s is that the World Bank had made countries start growing a small number of popular crops assuming that the price would be higher. 

Speculation destabilises countries because it makes prices more volatile as they fluctuate more. Pedro Paez, former Ecuadorian minister for economic policy coordination, says that both high and low prices “are bad because both are the result of a distortion in the market. For example, the oil price because of speculation on futures went as high as $150 per barrel, and then due to short-selling dropped in four weeks to less than $40. How as an importer or exporter can you plan a sustainable economy under those conditions? If you export just three basic commodities but don’t have any idea what the future price will be, your food security is very vulnerable. The lives of millions of people come to depend on the activities of a handful of financial speculators.”  

Did the price of all foods rise in 2007 and 2008?

No, there were differences in how food prices changed between commodities. There were changes in supply and demand which would have caused price changes without speculation. However speculation amplified the impacts of these price changes. For example, Brazil has rapidly increased production and exports of sugar, with a higher quantity available in the world market, there has been little scope for speculation to amplify a price change. 

Consequently, there is evidence that there was no increase in financial speculation in sugar futures in 2007 and 2008. Some important staple foods such as sorghum, millet and cassava are not traded on futures markets – because they aren’t produced or consumed in the main trading centres.  Prices for such crops rose in 2007/08, though by nowhere near as much as for wheat and, maize and rice.

This is evidence of the role of financial speculation in driving up prices of crops such as wheat and maize. Specifically in reference to the potato, research for the FAO says: “being absent in the major commodity exchanges, there is no risk of potato bearing the ill-effects of speculative activity, which cannot be said of cereal commodities”. 

However, if the price of imported food such as wheat and maize has risen, this is likely to have a knock-on impact on locally produced crops such as sorghum as demand for them increases to replace more expensive foods. 

Very little rice is traded on international commodity exchanges or in futures contracts. Yet the price of rice increased far more than that of wheat in 2007 and 2008. Does this mean that speculation was not the problem?

The international market for rice is very small; about 6-7 per cent of global production. As the rice price rose, key rice exporters such as India, Vietnam and Thailand introduced export bans to protect rice availability for their own people, making the international market even smaller. The rising price also probably prompted households to buy and store more rice, in anticipation of rising prices, which caused prices to rise further.

Some commentators point to rice to show that financial speculation was not a problem. It is undoubtedly the case that the reason the rice price went so high was due to the factors listed above. However, there is strong evidence that the extreme increase in the price of wheat triggered the increase in the price of rice.

In some countries, most importantly India, rice and wheat are substitutes for each other. India is a large net importer of wheat. The average cost of India’s net wheat imports rose from $220 a tonne in 2006 to $255 a tonne in 2007 and $370 a tonne in 2008. As well as causing the local wheat price to rise, this also led to India importing far less wheat in 2008. 

Net imports fell from 5 million tonnes in 2007 to just over 700,000 tonnes in 2008. This rise in the price of wheat and fall in wheat imports had knock-on impacts on rice price and demand.

The global price of wheat increased particularly in late 2007, whilst the rice price increase began in early 2008. Statistical tests show that at times the price of rice is ‘caused’ by the price of wheat. There was a crucial period at the start of 2008 when statistical tests by a researcher for the FAO have shown that the rise in the price of rice was ‘caused’ by the rise in the price of wheat. 

Prices of rice, wheat and maize 2001-2009, IMF Similarly, a research paper for the World Bank says that there was little change in production or stocks of rice, and the initial increase in world rice price was caused by the increases in wheat prices in 2007. An FAO food outlook  report says: “The shock to demand for rice was largely generated by demand to make up shortfalls in wheat available to consumers.”

Financial speculation can be said to have had an impact on the rice price by amplifying the increase in the price of wheat, which in turn triggered the dramatic increase in the price of rice.

What has happened to food prices since the food crisis of 2008? Are food prices stable now or are they still volatile?

The prices of key staples wheat, maize and rice fell sharply after the spike in 2007 and 2008, but generally remained above pre-2006 levels. Food prices have risen again since mid-2010, setting new records for three consecutive months from December and remaining high. Moreover, the volatility of food prices – how much they move around – seems to still be higher than before 2006.

These recent increases have not yet produced a global food crisis thanks to good 2010 harvests in many African countries that kept prices stable. Rice has also avoided drastic price increases. However high prices are one factor in the food crisis experienced in the Horn of Africa in 2011.

Chocolate producers have identified speculation as a key reason why cocoa prices reached an all time high in April 2010. As long as speculators are not regulated they will be able to cause big increases and changes in price, with disastrous consequences for people across the world.

Wasn’t it the high oil price which caused high food prices in 2007 and 2008?

Oil definitely has an impact on food price by affecting the cost of transport fuel and fossil-fuel based fertiliser. But the oil price rise was due in part to speculation as well. The price of a barrel of oil increased from $60 in 2006 to almost $150 in mid-2008, before falling rapidly to $40 in a matter of weeks. Whilst there are underlying reasons for a rising oil price, these extreme swings can only be explained by speculation.

An April 2010 survey of banks, traders and oil companies found that 70 per cent say speculation is currently increasing the price of oil, on average by $10 to $30 a barrel. 

Isn’t it a good thing that oil price is high to deter people from using it?  

If high oil prices are sustained several things are likely:

• Investing in alternative and more energy efficient technologies becomes more attractive. 

• But investing in increasing oil extraction, particularly from the dirtiest fuels such as tar sands, also becomes more attractive. A high oil price by itself will do nothing to tackle climate change. Government intervention is needed to ultimately keep oil in the ground.

• Most developing countries are net oil importers, so higher oil prices add to their import bill. After food, energy is one of the largest expenditures for poorer people. 

• Whilst net oil exporters benefit from high oil prices, they are affected by the high volatility of the oil price. Whether they are net importers or exporters of food and oil, big price changes can play havoc with growth rates, tax revenues, debt and inflation. All of which makes it more difficult to manage the economy in a sustainable way.

For real demand and supply reasons oil prices are likely to continue rising over the medium-term. This is a reason for all countries to invest in cleaner alternatives. But large swings in oil price, and artificially high prices, are likely to create more problems than they solve.

Surely there are much more important factors driving the movement of food prices – isn’t speculation relatively unimportant? 

There are many factors driving the movement of food prices. Increased use of biofuels diverts food from humans to being fuel for cars. Changes in crop yields from year to year affect food supply, and such changes are likely to get more extreme as climate change increases. Increases in oil and fertiliser prices also make farming more expensive, and so increase the price of food.

No one campaign or policy can tackle all the complexities which cause hunger in our world. Governments need to support smallholder farmers who produce most of the world’s food and should invest in food reserves to help promote stable prices. But excessive speculation is a perversion, amplifying price movements and making them worse.

It can be regulated simply and painlessly. Doing so would also have other benefits.

What regulation is needed to curb speculation on food?

Two key measures are needed to ensure that financial speculation cannot distort food prices and cause hunger:

• ‘Position limits’ to cap the share of the market held by financial speculators (as opposed to actual food traders  using futures markets to insure themselves against the risk of price changes).

• Clearing of almost all derivatives on regulated exchanges, instead of secretive, private ‘over-thecounter’ deals (which currently account for 84 per cent of derivatives trading). This would increase transparency, allowing everyone to see what is being traded at what price. It would also ensure that most derivative trading is subject to proper oversight and regulation, which does not currently happen for over-the-counter trading.

The European commission is drawing up proposals to regulate speculation, mainly through the ‘Markets in Financial Instruments Directive’ (MiFID). These will be considered by the European Parliament and member country finance ministers. The UK government could be a major stumbling block to effective regulation.

What’s the problem with the UK government’s plans?

The UK government accepts the need for more transparency but does not want to introduce position limits. Instead ministers are in favour of ‘position management’, which they say gives regulators the flexibility to intervene in the market when necessary. In practice however, they have tended to be so hands-off that position management has amounted to complete deregulation.

Clear position limits are needed to limit the influence of financial speculators and effectively stabilise the futures market. 

What are the other benefits of regulating commodity speculation?

Because the price of commodity futures has been increasingly driven by financial speculation, it has become more difficult for real buyers and sellers of food to use futures to manage their risk. For example, a subcommittee of the US senate has found that in 2007 and 2008 some US farmers were unable to afford future contracts to manage the risks involved in farming. 

Large amounts of money tied up in futures contracts is also a waste of resources. Instead of being used on speculation, resources could be used on genuine assets and investment to increase production. This opportunity cost is particularly pertinent following the credit crunch, as small and medium sized businesses have struggled to secure sufficient capital. 

Limiting speculation on commodities could divert resources to being invested in genuinely productive activities. 

What are the benefits of futures contracts?

Futures contracts are useful to farmers and processors of food to manage the risk of price changes. Some ‘speculation’ is needed for farmers and processors to do this. Speculators are effectively needed to provide insurance. However, there is no reason for the excessive amount of speculation we have seen in recent years. 

Limiting the amount of speculation would prevent excessive speculation, whilst still enabling farmers and processors to use futures as a form of insurance for which they were originally intended. 

What is happening elsewhere on food and speculation?

Since the food and oil price spikes in 2007 and 2008, the US government has expressed concern over the impact of financial speculation. Gary Gensler, appointed by President Obama as Chairman of the US regulator the Commodity Futures Trading Commission (CFTC), says: “I believe that increased speculation in energy and agricultural products has hurt farmers and consumers.”

In 2010 the US passed legislation to re-regulate financial markets. However, implementation of measures to curb commodity speculation is being slowed by political and financial opposition to reforms. There is a strong campaign of over 400 groups in the US campaigning for regulation of commodity speculation, including civil society organisations, farmers and businesses.

Action in Europe would also help the campaign in the US. Food speculation has also been on the G20 agenda in 2011. A strong mandate from G20 leaders to tackle commodity speculation could ensure that food speculation is curbed around the globe.  

How banks cause hunger

Without any real supply or demand issues we are witness to the fact that most agricultural food commodities are at record highs at once, and coffee is at a 34-year high. Through financial speculation … the commodities market is in a very unfortunate position."
- Howard Shultz, chief executive of Starbucks

Financial speculation has overwhelmed agricultural derivative markets. It has inflated prices, increased price volatility and created bubbles completely unrelated to supply and demand.

For a simple, visual explanation of food speculation, check out the animation or the infographic – or for more detail, read on!

In a well-functioning market, prices should be affected only by changes in supply and demand. But data from the US Department of Agriculture on global supply and demand for wheat and maize shows that here have been no significant changes that could have caused the large price rises that we have seen in recent years. 

While other factors such as export bans, increased demand for biofuels, climate change and increased food consumption in China and India have contributed to long-term price rises, they cannot explain the short-term price fluctuations that we have seen in recent years. 

Instead, speculation lies at the heart of the problem. But how does it work? To understand it we first need to understand futures contracts and their role in food markets.

Futures contracts

Futures allow farmers to agree a guaranteed price with a buyer for their next harvest well in advance, giving them greater certainty of income when planting crops. In a sense, a futures contract is a form of insurance against price changes. In financial terms, it enables a farmer to hedge their risk.

Futures contracts can then be traded on futures markets, with other farmers, food buyers or speculators. Speculators aim to make money by buying and holding on to the contracts, seeking to profit from changing prices. Having a degree of speculation helps these markets function , making sure that farmers have someone to pass their risk on to.

Until the 1990s futures markets were regulated through position limits (a limit on the amount of the market that can be held by big traders). But following lobbying by banks such as Goldman Sachs these markets were deregulated. As a result, financial speculators flooded the market with over $100 billion. This money wasn’t being traded based on the supply or demand for food, but was largely bet on rising prices, forcing prices to rise higher and faster.

But how do futures contracts affect the physical price (spot price) of commodities? It does so in three main ways:

1) Influencing the expectations of buyers and sellers

Because there aren’t many major central markets for food commodities, it is often difficult for food producers and buyers to know what the physical price of food should be. Instead, the prices of the numerous trades in the futures markets are often used as a benchmark for negotiating real prices for food. If futures prices are high, this changes the expectations of buyers and sellers in the physical markets and physical prices go up. If food producers see that prices will be higher in the future, they will often wait to sell their food, thus reducing supply and increasing prices now. In addition, if food buyers see that prices will be higher in the future they will be more willing to pay more now, also increasing prices.

2) Using futures prices now

Futures prices are often used as the basis for pricing physical market contracts. For example, grain prices on the major Chicago exchanges tend to be incorporated directly into grain contracts the world over. 

By incorporating the futures price directly into physical commodity contracts the prices from the financial markets are translated straight into the prices of food. 

3) Taking advantage of differences between future and spot prices

Traders who are willing (and able) to take physical delivery of a commodity can profit from differences between futures and physical prices. If futures prices are higher than physical prices, traders wanting to buy physical commodities who hold futures contracts near the delivery date will sell them and try to buy (cheaper) physical contracts. This then increases demand for physical commodities now, pushing up physical prices. Traders call this process arbitrage. 

Read frequently asked questions about food speculation.

 

450 economists tell the G20: regulate speculation on food prices

11 October 2011

Dear G20 Finance Ministers,

We write to you ahead of the October meeting of the G20 Finance Ministers to urge you to commit with your counterparts to take effective action to curb excessive speculation on food commodities. Excessive financial speculation is contributing to increasing volatility and record high food prices, exacerbating global hunger and poverty.

While there are many pressures on food prices, fundamental changes in supply and demand cannot fully account for the dramatic price fluctuations that have occurred in recent years.

In June, a report for the G20 by international organisations including the IMF and the OECD noted that “too much speculation can cause frequent and erratic price changes” in futures markets. Evidence suggests that financial speculators are less likely to make trading decisions based on information regarding supply and demand and are more prone to herding behaviours than commercial traders. Excessive speculation undermines the price discovery function of futures markets, driving real prices away from levels determined by supply and demand.

The High Level Panel of Experts on food security for the Committee on World Food Security at the FAO reported in July that “tighter regulation of speculation is necessary.” The panel suggested that “Increasing transparency, by requiring exchange trading and clearing of most agricultural commodity contracts, and setting lower limits for noncommercial actors could be the first set of measures taken by the countries that house major commodity exchanges.”

Increasing market transparency is vital, but will not go far enough to tackle excessive financial speculation. We therefore urge you to support the establishment of position limits to cap the proportion of agricultural commodity derivatives markets that can be  held by financial speculators. Limits could be set at a level that would maintain sufficient liquidity in the markets while preventing an excessive concentration of purely financial actors. The US has already passed legislation including provisions to introduce such limits and the G20 should act to prevent regulatory arbitrage between exchanges.

Position limits would be more effective in tackling excessive speculation than position management powers, which rely on the use of judgement by exchanges and provide little assurance that powers will be exercised effectively. Clear limits would provide regulatory certainty, promoting stable and sustainable derivatives markets to the benefit of food producers, consumers and broader economic stability.

With around 1 billion people enduring chronic hunger worldwide, action is urgently needed to curb excessive speculation and its effects on global food prices.

Yours sincerely,

cc: Michel Barnier, European commissioner for internal market and services

Signed

 

Mr Abdulhafiz Ahmed Abdisubhan, Finance and Economic Development Bureau, ETHIOPIA

Charles Abugre, Regional Director (Africa), The United Nations Millennium Campaign, Nairobi, KENYA

Prof Nicola Acocella, Department of Methods and Models for Economics, Territory and Finance, Faculty of Economics, University of Rome, ITALY

Dr Funda Rana Adacay, Associate Professor in Economics, Anadolu Univeristy, Eskisehir, TURKEY

Dr Ipek Illkkaracan Ajas, Associate Professor of Economics, Istanbul Technical University, TURKEY

Dr Alpaslan Akcoraoglu, Associate Professor of Economics, Gazi University, TURKEY

Prof A. Haroon Akram-Lodhi, Chair of the Department of International Development Studies, Trent University Peterborough, CANADA

Mr Tanweer Ali, Lecturer in Finance, Empire State College, State University of New York, USA

Marzouq Alnusf, Department of Economics, University of Massachusetts at Amherst, USA

Wilfried Altzinger, Department of Economics, Vienna University of Economics, AUSTRIA

Dr Francisco Alvarez Cuadrado, Associate Professor, Department of Economics, McGill University, CANADA

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Dr Nina Banks, Associate Professor of Economics, Bucknell University, USA

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Dr Rasigan Maharajh, Chief Director, Institute for Economic Research on Innovation, Tshwane University of Technology, SOUTH AFRICA

Dr Fadhil A. Mahdi, Senior Economist, Formerly Chief of the Economics Analysis Division, United Nations Economic and Social Commission for Western Asia

Dr Kamil Mahdi, Economist, Visiting Senior Fellow, Middle East Centre, London School of Economics, UK

Dr Chinglen Maisnam, Assistant Professor of Economics, Manipur University, INDIA

Casmir Makoye, Director of SME Competitiveness Facility, Dar Es Salaam, TANZANIA

Dr Stanley Malinowitz, Associate Professor of Economics, Universidad Nacional de Colombia, COLOMBIA

Steve Mandel, Research Associate, Department of International Development, Birmingham University, UK

Jens Martens, Director, Global Policy Forum Europe, GERMANY

Dr Nuno Miguel Ornelas Martins, Assistant Professor, Faculty of Economics and Management, Portuguese Catholic University, PORTUGAL

Dr Pietro Masina, Associate Professor of Applied Economics,University of Naples, ITALY

Dr Thomas Masterson, Research Scholar, Levy Economics Institute of Bard College, USA

Prof Julie Mattaei, Professor of Economics, Wellesley College, USA

Dr Reza Mazhari, Assistant Professor in Economics, Gonbad Kavoss, IRAN

Dr Kathleen McAfee, Associate Professor in International Relations and Political Economy, San Francisco State University, USA

Dr Elaine McCrate, Associate Professor, Economics and Women's Studies, University of Vermont, CANADA

Prof Terrence McDonough, Department of Economics, National University of Ireland, Galway, IRELAND

Dr Margaret McKenzie, Lecturer in Economics, Deakin University, AUSTRALIA

Dr Robert McMaster, Business School, University of Glasgow, Glasgow, UK

Dr Andrew Mearman, Associate Head of Accounting, Economics and Finance Department, University of the West of England, UK

James Medway, Senior Economist, New Economics Foundation, UK

Prof Michael Meeropol, Visiting Professor of Economics, City University of New York, USA

Dr Tesfa Mehari, International Partnerships Coordinator, Department of International Business & Economics, University of Greenwich, UK

Dr Martin Melkonian, Adj. Associate Professor of Economics, Hofstra University, USA

Prof Mary Mellor, Emeritus Professor of Social Science, Northumbria University, UK

Dr Emel Memis, Assistant Professor of Economics, Ankara University, TURKEY

Dr Helen Mercer, Senior Lecturer Business Economics, Business School, University of Greenwich, UK

Prof Peter B. Meyer, Professor Emeritus of Urban Policy and Economics and President and Chief Economist of the E.P Systems Group, Inc

Prof John Miller, Professor of Economics, Wheaton College, Norton, USA

Prof Marco Missaglia, Professor of International Economics and General Equilibrium Modelling, University of Pavia, ITALY

Dr Rudra Narayan Mishra, Assistant Professor of Economics, Gujarat Institute of Development Research, Ahmedabad, INDIA

Prof Nobuki Mochida, Professor of Economics, University of Tokyo, JAPAN

Prof Oudebji Mohamed, Professor of International Economic Law of Development, Marrakech, MOROCCO

Prof Mritiunjoy Mohanty, Professor, Economics Group, Indian Institute of Management Calcutta, Kolkata, INDIA

Prof Simon Mohun, Emeritus Professor of Political Economy, Queen Mary, University of London, UK

Prof Mario Morroni, Professor of Economics, Department of Economics, University of Pisa, ITALY

Dr John Morrow, Research Economist, CEP at London School of Economics, UK

Dr Tracy Mott, Associate Professor and Department Chair of Economics, University of Denver, USA

Prof Sam Moyo, African Institute for Agrarian Studies (AIAS), ZIMBABWE

Prof Ananya Mukherjee-Reed, Professor and Chair, Department of Political Science, York University, Toronto, CANADA

Richard Murphy, Director, Tax Research UK

Sreeram Mushty, Freelance Economist & Chartered Accountant, MS Sastri Chambers, Vijayawada, INDIA

Shri Sanat Kumar Naik, Economist, State Bank of India, INDIA

Nitya Nanda, Fellow, Centre for Global Agreements, Legislation and Trade (GALT), Resources, Regulation and Global Security Division, The Energy and Resources Institute (TERI), New Delhi, INDIA

Dr Corinne Nativel, Senior Lecturer in Social Sciences, University of Franche-Comté, FRANCE

Prof Vincent Navarro, Professor of Public Policy, The Johns Hopkins University, USA

Dr Ioana Negru, Senior Lecturer in Economics, Anglia Ruskin University, UK

Dr Michaela Neumayr, Economist, Vienna University of Economics and Business, AUSTRIA

Paul Newlin, Lecturer, Environmental Policy, Amherst College & University of Massachusetts, USA

Dr Howard Nicholas, Senior Lecturer in Economics, Eurasmus University of Rotterdam, NETHERLANDS

Prof Eric Nilsson, Professor of Economics, California State University, USA

Prof Augusto Ninni, Professor of Industrial Organization at the University of Parma, ITALY

Prof Machiko Nissanke, Professor of Economics, SOAS, University of London, UK

Dr Hassan E. Oaikhenan, Department of Economics & Statistics University of Benin, NIGERIA

Prof Mehmet Odekon, Professor of Economics, Skidmore College, USA

Prof Rod O'Donnell, Professor of Economics, University of Technology, Sydney, AUSTRALIA

 Samuel O. Oloruntoba, Doctoral Candidate and Lecturer, Department of Political Science, University of Lagos, NIGERIA

Dr Wendy Olsen, Senior Lecturer in Socio-Economic Research, University of Manchester, UK

Prof Mojubaolu Olufunke Okome, Professor of Political Science, Brooklyn College, CUNY, New York, USA

Prof G. Omkarnath, Department of Economics, University of Hyderabad, INDIA

Dr Ozlem Onaran, Senior Lecturer in Economics, University of Westminster, UK

Prof Ahmet Oncu, Professor of Economics, Sabanci University, TURKEY

Noemi Levy Orlik, Economic Lecturer, School of Economics, UNAM, MEXICO

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Dr Carlos Oya, Senior Lecturer in Political Economy of Development, School of African and Oriental Studies, University of London, UK

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Prof Mustafa Ozer, Professor of Economics, Anadolu University, TURKEY

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Dr Aaron Pacitti, Assistant Professor of Economics, Siena College, USA

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Dr Parthapratim Pal, Associate Professor of Economics, Indian Institute of Management Calcutta, INDIA

Radhakrushna Panda, Senior Research Officer, Centre for Microfinance Research, Bankers Institute of Rural Development, INDIA

Prof Dimitri Papadimitriou, President and Professor of Economics, Levy Economics Institute, New York, USA

Prof Man Seop Park, Professor of Economics, Korea University, SOUTH KOREA

Dr Raj Patel, Author and Research Fellow, School of Development Studies, University of KwaZulu-Natal, Durban, SOUTH AFRICA

Prof Ruth Pearson, Professor of International Development, University of Leeds, UK

Jamie Peck, Research Chair in Urban and Regional Political Economy, University of British Columbia, CANADA

Prof Fernando Pellerano, Professor of Economics, Universidad Autónoma de Santo Domingo, DOMINICAN REPUBLIC

Dr Michael Perelman, Professor of Economics, California State University, USA

Prof Virginie Pérotin, Professor of Economics, Leeds University Business School, UK

Dr Karl Petrick, Assistant Professor, Department of Economics, Western New England University USA

Ann Pettifor, Director of Policy Research in Macroeconomics, UK

Dr Lynda J. Pickbourn, Assistant Professor of Economics, Keene State College, USA

Prof J F Pixley, Honary Professorial Research Fellow, Global Policy Institute, London Metropolitan University, UK

Prof Robert Pollin, Department of Economics and Political Economy Research Institute (PERI), University of Massachusetts-Amherst, USA

Prof Alexander Cotte Poveda, Professor of Economics, University of La Salle, USA

Prof Bernard van Praag, University of Amsterdam, AMSTERDAM

Ms Sajin Prachason, Sustainable Agriculture Foundation, THAILAND

Prof Eleuterio F. S. Prado, Professor of Political Economy, University of Sao Paulo, BRAZIL

Prof Robert E. Prasch, Professor of Economics,Middlebury College, USA

Dr Renee Prendergast, Reader, Queen's University Management School, Belfast, NORTHERN IRELAND

David Primack, Executive Director, International Lawyers and Economists Against Poverty (ILEAP), CANADA

Prof Adam Przeworski, Carroll and Milton Petrie Professor, Department of Politics, New York University, USA

Prof Alicia Puyana Mutis, Latin American Faculty of Social Sciences, Flasco, MEXICO

Mr Hugo Radice, Life Fellow, School of Politics and International Studies, University of Leeds, UK

Dr Kunibert Raffer, Associate Professor, Department of Economics, University of Vienna, AUSTRIA

Dr Anton Rainer, Federal Ministry of Finance, Vienna, AUSTRIA

Prof Indira Rajaraman, Honorary Visiting Professor, Indian Statistical Institute, INDIA

Prof V. K. Ramachandran, Professor, Indian Statistical Institute, Kolkata, INDIA

Prof K.V. Ramaswamy, Professor, Indira Gandhi Institute of Development Research, INDIA

Prof Paolo Ramazzotti, Professor of Economic Policy, University of Macerata, ITALY

Prof D. Narasimha Reddy, Professor of Economics, University of Hyderabad, INDIA

Howard Reed, Director, Landman Economics, UK

Prof Michael Reich, Professor of Economics and Director of Institute for Research on Labour and Employment, University of California at Berkeley, USA

Dr Paolo de Renzio, Senior Research Fellow, International Budget Partnership, Research Associate, Global Economic Governance Programme, University of Oxford, UK

Prof Colin Richardson, Adjunct Professor of Economics Centre for International Security Studies, University of Sydney, AUSTRALIA

Prof Christopher Ritson, Professor Emeritus, Trustee Director of the Food Ethics Council and Professor of Agricultural Marketing, Newscastle University Agricultural Building, UK

Prof Michael T. Rock, Samuel and Etta Wexler Professor of Economic History, Bryn Mawr College, USA

Dr Leopoldo Rodriguez, Associate Professor in International Development Studies, Portland State University, USA

Prof Alessandro Roncaglia, Professor of Economics, Sapienza University of Rome, ITALY

Prof Sergio Rossi, Professor of Economics, University of Fribourg, SWITZERLAND

Prof Roy J. Rotheim, Professor of Economics, Skidmore College, New York, US

Dr B. P. Syam Roy, IAS (Retd), West Bengal, INDIA

Prof Guillermo Rozenwurcel, Director of IDEAS Centre, San Martin National University, ARGENTINA

Dr Kobil Ruziev, Lecturer in Economics, Programme Director MSc Banking and Financial Regulation, School of Management and Business Aberystywth University, UK

Muhammad Sabir, Principal Economist, Social Policy and Development Centre, PAKISTAN

Dr Peter Sai-Wing Ho, Associate Professor of Economics, University of Denver, USA

Prof Wiemer Salverda, Director of AIAS, and special Chair Labour Market and Inequality, University of Amsterdam, NETHERLANDS

Dr Wiemer Salverda, General Director of AIAS, and special Chair Labour Market and Inequality, University of Amsterdam, NETHERLANDS

Dr Diego Sanchez-Ancochea, University Lecturer in the Political Economy of Latin America, University of Oxford, UK

Dr Sankersan Sarkar, Assistant Professor of Finance, NIIT University, Rajasthan, INDIA

Prof Rubens R. Sawaya, Professor of Economics, Sao Paul Catholic Pontificia University, BRAZIL

Prof Malcolm Sawyer, Professor of Economics, University of Leeds, UK

Dr Harwood D. Schaffer, Research Assistant Professor, Agricultural Policy Analysis Center, Department of Agricultural and Resource Economics, University of Tennessee Institute of Agriculture, USA

Prof Hans Schenk, Chaired Professor of Economics, Department of Economics, Utrecht University, NETHERLANDS

Dr Ted P. Schmidt, Associate Professor of Economics and Finance SUNY, USA

 Karin Schoenpflug, Economist, Institute for Advanced Studies, University of Vienna, AUSTRIA

Dr Evert Schoorl, Economist and Director of graduate studies, Groningen University, NETHERLANDS

Dr Juliet Schor, Phd Economics, Boston College, USA

Dr Molly Scott Cato, Reader in Green Economics, Cardiff School of Management, UK

Prof Mario Seccareccia, Department of Economics, University of Ottawa, Ontario, CANADA

Prof Stephanie Seguino, Department of Economics, University of Vermont, USA

Professor Sunanda Sen, Visiting Professor, Jamia Millia Islamia University, New Delhi, INDIA

Dr Esther-Mirjam Sent, Professor of Economics at Radboud University, Nijmegen, the Netherlands and Member of the Senate of the Netherlands, NETHERLANDS

Prof Ardeshir Sepehri, Professor of Economics, University of Manitoba, CANADA

Dr John Serieux, Associate Professor of Economics, University of Manitoba, CANADA

Prof Mark Setterfield, Professor of Economics and Chair Department of Economics, Trinity Colelge, Hartford, USA

Prof Anwar Shaikh, Professor of Economics, New School of Social Research, New York, USA

Reader Benjamin Shepherd, Food Security in Asia Program, Centre for International Security Studies, University of Sydney, AUSTRALIA

Prof Tokutaro, Shibata, Professor of Economics, University of Tokyo, JAPAN

Sabira Ahamed Shine, Research Associate, ICSSR Research Project, School of Management Studies, Cocin University of Science and Technology, INDIA

Dr Chen Shuoying, Assistant Professor, Chinese Academy of Social Sciences, CHINA

Dr Kalim Siddiqui, Senior Lecturer in International Economics, Business School, University of Huddersfield, UK

Prof Francesco Silva, Professor of Economics, Milano-Bicocca University, ITALY

Prof Maria Luiza Falcão Silva, Professor of Economics, University of Brasilia, BRAZIL

Dr John Simister, Department of Economics, SOAS, University of London, UK

Dr John Simister, Senior teaching fellow, Economics department, School of Oriental and African Studies, University of London, UK

Dr Pritam Singh, Reader in Economics, Oxford Brookes University, UK

Prof Anna Soci, Professor of Economics at the University of Bologna, ITALY

Prof Funmi Soetan, Professor of Economics and Director at Center for Gender and Social Policy Studies, Obafemi Awolowo University, NIGERIA

Dr Stefano Solari, Associate Professor of Political Economy, Padova University, ITALY

Dr  Somannavar, Department of Economics, KLE Society's Lingaraj College, Karnataka, INDIA

Prof Cem Somel, Professor of Economics, Abant Izzet Baysal University, TURKEY

Dr Godwin Sree Kulakkal, Assistant Professor, Department of Economics, Government College for Women, Kerala, INDIA

Prof Ravi S. Srivastava, Professor of Economics, Centre for the Study of Regional Development, Jawaharlal Nehru University, New Delhi, INDIA

Dr Eduardo Stachman, Assistant Professor, Department of Economics, Sao Paul State University, BRAZIL

Prof Howard Stein, Professor of Development Economics, Afroamerican and African Studies, University of Michigan, USA

Prof Engelbert Stockhammer, Professor of Economics, Kingston University, UK

Dr Servaas Storm, Department of Economics of Innovation, Delft University of Technology, Delft, NETHERLANDS

Dr Eduardo Strachman, Assistant Professor of Economics, Sao Paulo State University, BRAZIL

 Larry D. Su, Senior Lecturer, School of Business, University of Greenwich, UK

Dr David Sunderland, Reader and Principal Lecturer, University of Greenwich, UK

Prof Madhura Swaminathan, Indian Statistical Institute, INDIA

Dr Valeria Szekeres, Associate Professor of Economics, Obuda University, Budapest, HUNGARY

Dr Szabolcs Szikszai, Senior Lecturer in Finance and Economics, University of Pannonia, HUNGARY

Prof Giulio Tagliavini, Professor of Business Finance, Parma University, ITALY

Prof Haruhito Takeda, Economic Historian, Faculty of Economics, Tokyo University, Japan

Dr John M. Talbot, Senior Lecturer in Sociology, Department of Sociology, Psychology and Social Work University of the West Indies, JAMAICA

Dr Jeff Tan, Assistant Professor of Development Studies, Aga Khan University, UK

 

Prof Ke Tang, Hanqing Advanced Institute of Economics and Finance and School of Finance,  Renmin University of China, CHINA

Dr Pavlina R. Tcherneva, Assistant Professor of Economics, Franklin and Marshall College, USA

Dr Khemarat T. Teerasuwannajak, Department of Economics, Chulalongkorn University, THAILAND

 

Bilge Terzioglu, Department of Economics, Isik University, Istanbul, TURKEY

Dr Jose Rafael Tesoro, Lecturer in Economics, University of Buenos Aires, ARGENTINA

Mr Albin Thaarcis, Assistant Professor of Economics, St Xavier’s College, INDIA

Dr Frank Thompson, Lecturer in Economics, Residential College, University of Michigan, USA

Prof Mario Tiberi, Professor of Political Economy, Sapienza, University of Rome, ITALY

Dr Gunther Tichy, Austrian Institute of Economic Research, AUSTRIA

Prof Chris Tilly, Professor of Urban planning and sociology and Director, Institute for Research on Labor and Employment UCLA, Los Angeles, USA

Dr Zdravka Todorova, Assistant Professor, Department of Economics, Raj Soin College of Business, Wright State University, Ohio, USA

Prof Mario Tonveronachi, Professor of Financial Systems, University of Siena, ITALY

Prof Jan Toporowski, Professor of Economics and Finance, School of Oriental and African Studies, University of London, UK

Prof Mariano Torras, Professor of Economics, Adelphi University, USA

Dr Andres Torres, Distinguished Lecturer, Department of Latin American and Puerto Rican Studies, Lehman College/CUNY, New York, USA

Dr Oscar Ugarteche, Institute of Economic Investigations, UNAM, Ciudad University, MEXICO,

Dr Mehmet Ugur, Reader in Political Economy, International Business and Economics, University of Greenwich Business School, UK

Prof Vittorio Valli, Professor of Economic Policy, Turin University, ITALY

Prof Rolph van der Hoeven, Professor of Employment and Development Economics, International Institute of Social Studies (ISS), Erasmus University, NETHERLANDS

Prof Irene van Staveren, Professor of Pluralist Development Economics, ISS, Erasmus University Rotterdam, NETHERLANDS

Dr Elisa Van Waeyenberge, Lecturer in Economics, School of Oriental and African Studies, University of London, UK

Roberto Veneziani, Senior Lecturer, School of Economics and Finance, Queen Mary University of London, UK

Dr Matías Vernengo, Associate Professor of Economics, University of Utah, USA

Dr Rudi von Arnim, Assistant Professor of Economics, University of Utah, USA

Andrew Watt, Senior Researcher in Economics, European Trade Union Institute

Prof John Weeks, Professor Emeritus of Economics, School of Oriental and African Studies, UK

Dr Scott A. Weir, Wake Technical Community College, Raleigh, NC, USA

Mark Weisbrot, Co-Director of Center for Economic and Policy Research, Washington, USA

Prof Thomas E. Weisskopf, Professor Emeritus of Economics, University of Michigan, USA

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Prof Rorden Wilkinson, Professor of International Political Economy, School of Social Sciences and Research Director, Brooks World Poverty Institute, University of Manchester, UK

Timothy A. Wise, Director, Research and Policy Program, Global Development and Environment Institute, Tufts University, Medford, USA

Dr Martin Wolfson, Associate Professor of Economics, University of Notre Dame, USA

Prof Enrico Wolleb, Director ISMERI EUROPA, Roma, ITALY

Dr Andrew Wood, Reader in Finance, Essex Business School, University of Essex, UK

Prof Chenggang Xu, Quoin Professor in Economic Development, University of Hong Kong, HONG KONG

Prof Mo Yamin, Professor of International Business, Manchester Business School, UK

Dr Yavuz Yasar, Associate Professor, Department of Economics, University of Denver, USA

Prof Erhan Yildirim, Department of Economics, Cukurova University, Adana, TURKEY

Prof Brigitte Young, Institute for Political Science, University of Muenster, GERMANY

Dr Elizabeth Young, Lecturer in Food and Agriculture, University of Staffordshire, UK

Dr June Zaccone, Associate Professor of Economics (Emerita), Hofstra University Hempstead, New York, USA

Prof Angelika Zahrnt, Professor of Economics, Bund fur Umwelt und Naturschutz, GERMANY

Nimrod Zalk, Deputy Director-General, Industrial Development Division, Department of Trade and Industry, SOUTH AFRICA

Dr Luisa Zanchi, Lecturer in Economics, University of Leeds, UK

Barclays: profiting from hunger

 

Barclays is the UK’s biggest player in food speculation. Despite closing parts of its agricultural commodity trading business, Barclays continues to play a role driving up food prices and leaving millions facing hunger and malnutrition.

On 12 February 2013, after three years of public campaigning by WDM that called on the bank to stop betting on hunger, Barclays announced it would no longer trade in agricultural commodities “for speculative purposes”, saying that the practice was “not compatible with our purpose”. This was a campaign success worth celebrating.

However, despite ending its controversial speculative deals with hedge funds, Barclays continues to offer opportunities for others to speculate on food. It remains the biggest UK high street player in food speculation and will retain a role as a broker for pension funds and large traders such as Cargill and Glencore to bet on the price of food.

We estimate that Barclays made up to £278 million in food speculation in 2012. 

Top UK player in food speculation

• Although Barclays has ceased some agricultural commodity trading, it still has an established reputation in the UK commodity market. Barclays is known in the financial industry for developing products which facilitate other financial players like pension funds to bet on food prices. In this way it plays a key role in opening the door for others to flood these markets with speculative money, driving up prices.
• Barclays is still a leading player in speculation on other commodities, including oil which can drive up oil prices. Since oil is a key input in agricultural production, higher oil prices means higher costs of production and therefore higher food prices.

Banks can’t be trusted

Barclays has admitted that they have reduced their involvement in food speculation because it was believed to be a potential cause of food price inflation. 

Other investment banks across Europe are making similar admissions. This strengthens the hand of those calling for regulation. 

However, such commitments from banks can be short lived. In 2012, Major Germany food speculator Deutsche Bank said it would not release new financial products enabling food speculation. However, in January 2013 it announced that it would be returning to the market, claiming that there was little evidence to support the idea that speculation affected food prices. This was despite its own research admitting a link between speculation and price volatility.

This example illustrates the need for firm regulation in Europe. With so many people vulnerable to world food price spikes, it is clear that individual banks cannot be trusted to stop speculating on their own. 

Take action to regulate food speculation

Infographic - How banks cause hunger

Food speculation - banks betting on food prices in financial markets - is a massive issue facing the world today. In the last few years, we have seen two major food price spikes, pushing millions of people into poverty. These food spikes were caused by speculation and could have been prevented through effective regulation. 

At the World Development Movement we are campaigning to stop banks betting on food and causing hunger. To explain the issue we have produced this infographic. Hope you like it. Please let us know what you think in the comments. 

For more information about how financial speculation impacts on food prices, see our Broken markets report. 

[Click on the image to enlarge it]

 

Update 5 October 2011: We have corrected the aid figures and their size relative to banks’ profits from food speculation; they now reflect the latest information.

Local activists taking action on food speculation

Bexhill and Hastings WDM play a game of 'Human Blackjack' with George Osborne showing how the government's allowing bankers to keep betting on food.

Brighton & Hove WDM explaining the complexities of food speculation to passers-by in Brighton, using a giant snakes and ladders' board

Sheffield WDM created an ingenious 'plate-spinning' game at a recent event to involve people in our food campaign

 

What is food sovereignty?

Participants arrive at the camp built specially for the Food Sovereignty Forum in 2007, in Selingue, Mali (Photo: Donkeycart)

 

Food sovereignty is about the right of peoples to define their own food systems. 

Advocates of food sovereignty puts the people who produce, distribute and consume food at the centre of decisions on food systems and policies, rather than the demands of markets and corporations that they believe have come to dominate the global food system. This movement is advocated by a number of farmers, peasants, pastoralists, fisherfolk, indigenous peoples, women, rural youth and environmental organizations.

The 6 pillars of food sovereignty:

1. Focuses on food for people: The right to food which is healthy and culturally appropriate is the basic legal demand underpinning food sovereignty. Guaranteeing it requires policies which support diversified food production in each region and country. Food is not simply another commodity to be traded or speculated on for profit.
2. Values food providers: Many smallholder farmers suffer violence, marginalisation and racism from corporate landowners and governments. People are often pushed off their land by mining concerns or agribusiness. Agricultural workers can face severe exploitation and even bonded labour. Although women produce most of the food in the global south, their role and knowledge are often ignored, and their rights to resources and as workers are violated. Food sovereignty asserts food providers’ right to live and work in dignity.
3. Localises food systems: Food must be seen primarily as sustenance for the community and only secondarily as something to be traded. Under food sovereignty, local and regional provision takes precedence over supplying distant markets, and export-orientated agriculture is rejected. The ‘free trade’ policies which prevent developing countries from protecting their own agriculture, for example through subsidies and tariffs, are also inimical to food sovereignty.
4. Puts control locally: Food sovereignty places control over territory, land, grazing, water, seeds, livestock and fish populations on local food providers and respects their rights. They can use and share them in socially and environmentally sustainable ways which conserve diversity. Privatisation of such resources, for example through intellectual property rights regimes or commercial contracts, is explicitly rejected.
5. Builds knowledge and skills: Technologies, such as genetic engineering, that undermine food providers’ ability to develop and pass on knowledge and skills needed for localised food systems are rejected. Instead, food sovereignty  calls for appropriate research systems to support the development of agricultural knowledge and skills.
6. Works with nature: Food sovereignty requires production and distribution systems that protect natural resources and reduce greenhouse gas emissions, avoiding energy-intensive industrial methods that damage the environment and the health of those that inhabit it. 

The global movement

Movements of people across the world are fighting for food sovereignty. La Via Campesina is the largest social movement in the world bringing together more than 200 million small and medium-scale farmers, landless people, women farmers, indigenous peoples, migrants and agricultural workers from 70 countries.

There are many local and even some national success stories. In 2012 WDM campaigners, Heidi and Miriam went to Venezuela - one of a handful of countries to make food sovereignty part of national policy. Below is a photo of an urban garden growing salad in the centre of Caracus.

What's wrong with the current food system?

Neoliberal policies implemented under structural adjustment programmes overseen by the World Bank and IMF have involved many governments in the global south cutting back support for farmers (such as research and extension services) and dismantling mechanisms designed to help stabilise food prices, such as grain reserves. This has resulted in greater poverty and hunger.

Alongside this, big business has been able to extend it's control of our food system. Only a small handful of large corporations dominate the production, processing, distribution, marketing and retailing of food. This concentration of power enables these businesses to wipe out competition or dictate tough terms to their suppliers.

To find out more please check out our introductory briefing or our short tricky questions document which explains more about the problems of the food system and food sovereignty.

European movement

The Austrian delegation welcomes people to the Nyeleni Europe forum

In 2011 more than 400 people from 34 European countries from the Atlantic to the Urals and Caucasus, from the Arctic to the Mediterranean, as well as international representatives from diverse social movements and civil society organisations, met in Krems, Austria to plan the development of a European movement for food sovereignty.

The objectives were to strengthen local actors, build a sense of common purpose and understanding, as well as a joint agenda for action, celebrate the struggle for food sovereignty already underway in Europe and inspire and motivate people and organistions to work together.

Since 2011 there have been numerous Europe wide gatherings and actions, such as the Good Food March. This is where citizens, young people and farmers came together to call for a greener and fairer agricultural policy in Europe, as well as more democratic reform of Europe’s Common Agricultural Policy.

UK movement

Food sovereignty now! Producers and activists at the UK gathering in July (photo: War on Want)

Building on what has already been achieved in local communities across the country and taking inspiration from the European forum, July  2012 saw people came together to galvanise the food sovereignty movement in the UK. Over 100 farmers, community gardeners, co-op workers, campaigners and activists from all corners of the country took part in a weekend of discussions, action planning and skillsharing.

Take action 

Now the UK movement has gathered together it is looking to do more and more in the way of campaigning, research and events. To find out more, visit the UK food sovereignty website here

Donate to WDM to help us strengthen the food sovereignty movement here

Eat, Grow, Resist

In every town across the UK there are community projects you can get involved with to further the relience of the local food system. Search for local community gardens, food cooperatives, community supported agriculture, anti supermarket campaigns and community meals.

Food sovereignty protest: photo gallery

On Saturday 8 June protests were held in support of food sovereignty, rather than David Cameron and the G8's preferred approach. Known as the “New Alliance for Food Security and Nutrition”, it will see aid money support big business, and developing countries forced to implement policies which will exacerbate rather than reduce hunger. Here are some photos from the protests. 

Find out more about the background to the protests in our blog.

 

Gambling on life in East Africa

We are lobbying the UK government to demand tighter regulation of commodity speculation, which our report The Great Hunger Lottery reveals creates market volatility and sharp rises in the price of basic food commodities.

Maize, the staple food in Kenya, is gambled on in global commodity markets. In 2008, maize was subject to a 100% cost increase, which meant that many of the poorest people in Kenya went hungry, lost their livelihoods and suffered health problems.

In July 2010 some of our staff went to Kenya to speak to people about the effects of the food price rises. Here are some of their stories.

MiFID timeline

If...

A new campaign If… on hunger and food security has launched, run by a group of development organisations. WDM has decided not to join this campaign.

WDM campaigns to tackle the root causes of poverty and injustice. Our current campaign on food goes to the heart of one of the problems with our food system: the power of the financial sector and the role of commodity speculation in causing food price spikes. We are also actively engaging with and contributing to a long term vision and solution – food sovereignty – guided by our allies in the global south.

As a small organisation, we do not have any additional campaign capacity to contribute to a food campaign with a different focus. The If... campaign is concerned with food security - ensuring people have enough to eat. However it will not be challenging the power and impact of the financial system on food prices, nor is it grounded in the principles of food sovereignty. WDM believes that these principles, which are about power, control and rights, must underpin future changes to our food systems.

We welcome many of the campaign demands in the If... campaign - for example those around tax havens, biofuels and landgrabbing. We encourage WDM members and supporters to take action on these and other structural problems with the food system.

You can read more detail about this in this blog written by our Director Deborah Doane published on the Guardian website.