Food speculation

Christine Haigh, food speculation campaigner

It’s no secret that successive UK governments have long favoured a “light touch” approach to regulating the financial sector. And it’s pretty obvious the mess that this has left us in. But until the research published this weekend by the Bureau of Investigative Journalism, most people didn’t quite realise the influence of the sector over the UK’s main governing party.

Figures published by the Bureau show how the proportion of income the Conservative party receive from the City of London has grown over the past year, and now makes up more than half of the total donations it receives. And within the financial sector, more donations come from hedge funds – big players in food speculation – than any other type of contributor.

These donations dwarf the contributions made by other industries – so it’s not surprising that, despite support for action to tackle food speculation from virtually every other sector of society, from the Pope to Starbucks, the UK government is...

 Jessica Radford, campaigns and policy intern

The influx of financial participation in the commodity markets has played a key role in causing price rises and volatility. Prices are increasingly affected by the financial markets, rather than the needs of the consumers and farmers.

As you know we are campaigning to stop banks from betting on food and consequently forcing people into poverty and hunger. The food campaign is calling for regulation, which includes restrictions to be put on speculators preventing excessive betting on food prices and futures contracts to be traded on an open exchange with the banks required to provide more information on their activities.

The Ecologist recently went to Mexico, where they spoke to people about the price of maize tripling in a short time. This is the video they produced.

Pontus Westerberg, web officer

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...

Dan Iles, WDM's south-west mobiliser, interviews Christina Schiavoni of the US Food Sovereignty Alliance.

On day four of the European forum on food sovereignty, I met Christina from the US. I was very interested to find out about what sort of actions are happening over in the US as well the aftermath of the Wall Street Reform Act passed recently to limit financial speculation on food. In this interview she talks about the urban and rural movements for food sovereignty across the US, including dairy producers, supermarket workers and anti-food speculation protests.

What does food sovereignty mean to you?

To me it means the right of people to define their own agricultural policies, rather than those policies being defined by the World Trade Organisation, the World Bank and the IMF, or multinational corporations.

Can you give me some examples of local initiatives that are involved with enacting food sovereignty in the US?

These are local manifestations of food sovereignty, because I really think that...

Amy Horton, Campaigns and policy assistant

Horn of Africa food crisis

I’m sure you have all been reading in the newspapers and seeing the images on the television of desperate people flooding into the huge Dadaab refugee camp in Kenya to receive food and medical treatment for malnutrition.  Aid agencies this week are saying some 10 million people could be soon affected by malnutrition as the worst drought for 60 years hits Ethiopia, Somalia and Northern Kenya.
 

Drought and Famine

The pioneering economist Amartya Sen showed in 1981 that the relationship between drought and famine is not as simple as crops failing and people not being able to eat as a result. Looking at previous famines in the Horn of Africa, Sen found that the overall volume of food being produced within the region had barely been diminished, and it is of course widely known that the world as a whole produces more food than it needs.

Therefore Sen’s key argument was that the cause of famine and hunger is actually people’s ability to purchase food in today’s society, where market transactions have spread to every corner of the world. Drought, he argues, means cattle...

Dan Iles

Day 2 of the forum and I have had the opportunity to interview an Italian delegate, Andreas Ferrante, the chair of the Italian association for organic farming. In this lively interview (I wish his Italian accent, enthusiasm and smile could come through the words) he talks about how Italy was affected by the 2008 food crisis and the positive advances that Italy has made in its journey towards food sovereignty.

What does food sovereignty mean to you? 

For me, the first word I have in mind is the word ‘rights’. We have to go back to have our rights; choosing our food, choosing our landscape and choosing our policy. And this is what has to change, it is a cultural change. And in this forum; what is clear is that we need to change the cultural framework. And the cultural framework means that we have to go back to the rights before we go on exploring other issues. And this means giving people back the right to make the decisions and the right to be in the room when politicians are making the decision. So this is what food sovereignty means to me. 

...

Dan Iles, food activist and WDM’s south-west mobiliser interviews Indian activist S. Kannaiyan at the Nyeleni forum to build a food sovereignty movement in Europe.

At Nyeleni 2011 there is such a diversity of delegates from across Europe and indeed the world. In the first of a series of interviews, I am trying to give the international perspective on food sovereignty.

I spoke to one of a few non-European delegates that were able to make it over to the conference, S. Kannaiyan from Tamil Nadu, south India. There are also delegates from Mali, Canada, Nigeria, the US, Mozambique and Azerbaijan. I wanted to give you an idea of why this delegate is so passionate about food sovereignty, what the challenges are in his country and what is being done locally to combat these challenges.

What does food sovereignty mean to you?

Food sovereignty means to me the self respect which comes from self reliance in food production and distribution. Local food production and distribution rather than food produced in one...

Economists Jayati Ghosh, Robert Pollin and James Heintz review the links between futures markets and food prices.

The paper explores whether greater liquidity contributes to more stable prices, and whether futures markets can affect food prices.

It finds that the recent increase in liquidity, particularly marked since 2007, is correlated with higher and more volatile prices.

The authors also argue that futures markets affect food prices by influencing expectations of price movements, in turn encouraging producers to withhold supply and buyers to purchase as soon as possible in order to avoid future price rises.

They further argue that trading and prices are not based simply on supply and demand. They are also strongly influenced by factors such as investor psychology, herding behaviour, unequal access to market information, and the acitivities of large-scale traders.

The researchers find that:

• There is no evidence that the recent increase in liquidity has stabilised commodity prices
• Increased liquidity is in fact associated with price inflation and greater volatility
• The arguments and evidence reviewed do not support the claim that spot prices are set independently of futures prices

They argue for the...

Amy Horton

An Italian connection? The Pope may be a big hitter over there, and the small-scale food producers’ movement La Via Campesina has Italian members. But Starbucks is yet to get a toehold. I’m reliably informed (by Yahoo Answers, c. 2006) that Italians call Starbucks’ coffee “dirty water”.

Is it that they’re all on Twitter? The Pope recently celebrated his 140-character debut, Starbucks offers “freshly brewed tweets”… but La Via Campesina has a fragmented presence, reflecting its grassroots make-up.

So, they’re global empires? Well, La Via Campesina represents 200 million members – perhaps not quite in the same league as the billion-strong Catholic Church or Starbucks, which last week reported a $3 billion turnover.

The answer is…

All of them are calling for action to curb financial speculation on food, which is driving up food prices and pushing more people into hunger and poverty.

Last month the man in the Vatican asked, "How can we ignore the fact that food has become an object of speculation … in a financial market that, lacking in clear rules and moral principles, seems anchored on the sole objective of profit?”

In May, Starbucks’ CEO complained that, "Without any real supply or demand issues we are witness...

Amy Horton, food speculation campaign

Eight months ago, the world’s most powerful countries tasked the world’s most powerful institutions with investigating what to do about volatile food prices. The World Bank, IMF and others have just delivered their report to the G20.

The report is clear that there is a general consensus that speculation has amplified food price spikes, with devastating effects. But its recommendations amount to little more than a call for more research. The 925 million people who are undernourished can’t afford to wait.

The report recognises that “Food price increases can have major repercussions on the whole economy”. For example, 43 developing countries cut their taxes on imports in an attempt to lower food costs during the 2007-8 food crisis, meaning less money for essential public services. Short term price spikes can have long term impacts, such as stunting children’s growth or scaring off investors in destabilised economies.

Looking at the role of speculation, the report says:

While analysts argue about whether financial speculation has been a major factor, most agree that increased participation by...

by Heidi Chow, food campaigner

MEPs defy financial lobbyists after campaigners across Europe take action

At the end of last week, we joined forces with other European campaigners to try and get as many people as possible to ask their MEPs to vote to start tackling food speculation. Thank you to everyone who took the action, in the end the vote went well!

MEPs voted against amendments that would have weakened the proposals - even in the face of fierce lobbying by the financial sector. And amendments to strengthen this regulation were passed. So overall it’s a first step in the right direction.

This legislation has the potential to improve transparency for ‘over the counter’ derivatives, which up until now have taken place in secret and without regulation or oversight.

It will now go to the council of ministers (made up of the finance ministers of each of the member states) before going back to the parliament for a final vote later this year.

So even though this is step in the right direction, there is still much to fight for. This autumn, we are expecting the publication of the ‘Markets in Financial Instruments Directive’ (MIFID) which...

Barclays Capital's role in food speculation is driving up global food prices and leaving millions facing hunger and malnutrition. Barclays is the UK’s biggest player in food speculation and helps other financial players bet on hunger too.

In the run up to Barclays AGM, WDM groups around the country protested at Barclays branches to expose their involvement in betting on hunger.

Top UK player in food speculation  

• Barclays is the UK banking sector’s market leader in food speculation and is the only UK bank that has any real presence in commodities trading. RBS has sold off its commodities division and HSBC is involved primarily in metal markets rather than food. 
• Barclays' dominance in the commodities market is widely recognised within the financial industry itself: winning the...

An action plan supposed to address food insecurity launched today by the G20 agriculture ministers has been criticised by campaigners, who say it fails to fully address the root causes of volatile food prices, including financial speculation, which is driving up prices.

Anti-poverty group the World Development Movement said that opposition from countries including the UK had led to the watering down of proposals that could have seen countries commit to setting limits on speculators’ share of the market.

Deborah Doane, director of the World Development Movement said:

Without tackling excessive speculation, the G20’s efforts to rein in volatile food prices will be wasted. The agriculture ministers have ducked controversy, so it falls to G20 finance ministers to address speculation and the hunger and poverty it causes."

The anti-poverty group has called on the UK government to back EU and international efforts to regulate commodity markets. 

Ms. Doane continued:

The UK government’s stance in defence of excessive speculation is untenable. It must put its weight behind European plans for regulation, putting the needs of hungry people before the profits of banks like Goldman Sachs and Barclays Capital.”...

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 less expensive foods such as fruit and vegetables are eaten...

This report, written by Brett Scott on behalf of WDM, is an overview of Barclays' involvement in commodity derivatives markets, with particular reference to its involvement in agricultural commodity derivatives (food speculation). 

Derivatives come in three main types: Futures/forwards, options and swaps. In practice, a lot of the dealing on investment bank trading floors will be in ‘over-the-counter’ (OTC) derivatives, which includes forwards, swaps and bespoke options. Futures are slightly different, in that they are traded on regulated exchanges. All these derivative types can be based on different ‘underlying assets’ - e.g. derivatives based on shares, bonds and currencies, economic indicators, and a lot of other things. By far the largest global derivative market is the interest rate derivatives market, followed by currency derivatives, credit derivatives, commodity derivatives, and equity derivatives.

Barclays Capital commodities division is a commodity derivatives business, facilitating derivative markets in energy commodities (e.g. oil, oil distillates, natural gas, coal), industrial metals, precious metals, carbon emissions, and agricultural commodities. There are roughly 350 employees....

Amy Horton, food speculation campaign

Since we launched our campaign against food speculation nearly a year ago – then virtually an unknown issue – momentum has been steadily building towards regulation. We’ve had wide-ranging support, including from the British mainstream media, leading academics, former hedge fund managers, the UN special rapporteur on the right of food and the head of the Food and Agriculture Organisation. In January over 3,000 people made submissions to a European Commission...

Steve Rolfe, Glasgow WDM group member

It's not often you get the chance to dress up as a blue eagle or a profit-crazed banker (or a bit of both!) in the middle of Glasgow. But it's fun when you do.

On a surprisingly warm spring day, a bunch of us from the Glasgow WDM group set up a market stall outside Barclays on the busy pedestrian precinct on Argyle Street. Now I know Glaswegians are hardly renowned for their spendthrift ways, but even so we weren't surprised that no-one seemed to want to buy a bag of pasta for £140. Our bankers tried their best to sell the over-priced goods - and you'd have thought bankers could sell anything after recent years, but obviously the public are a bit wary of anyone in a sharp suit these days. Even our barrow-boy market trader couldn't shift the £120 loaf of bread. People did want to know what we were up to, though - after all it's not often that they see anyone dressed up as a blue eagle or a profit-crazed banker!

And shoppers didn't like what they heard. We're all having to pay a bit more for our food these days, so no-one was too impressed when they found out that part of the reason for high food prices is the reckless speculation of bankers, gambling on global food prices. And people we talked to were even more...

by Catherine Negus, Campaigns Assistant

Last month thousands of people helped us to counter bankers’ attempts to weaken European proposals for regulation of food speculation by responding to the consultation on derivatives reform. Now we need your help again.

In the US, legislation which included rules to tackle excessive speculation on food - the Dodd Frank Financial Reform Act - was passed last year. Now Wall Street is fighting hard to make implementation of the Act difficult and to enable bankers to continue making huge profits from gambling on hunger.

In the US the Commodities Futures Trading Commission (CFTC) is deciding how to implement the legislation and lobbyists from Wall Street have held numerous meetings with the regulator, pressuring it to water down the rules.

As global food prices rise to record levels it is essential that the CFTC hears from people in the US and around the world that they must put the basic needs of the world’s most vulnerable people before bankers’ profits.

Action against excessive speculation must be taken on a global scale. If regulators in the US don’t...

Catherine Negus, Campaigns Assistant

Today marks the launch of Fairtrade Fortnight 2011, a celebration of the most widely-recognised ethical label. Fairtrade sales broke the £1 billion mark last year, showing that even during a recession, many consumers still consider the impact of their buying decisions.

However, there’s a very long way to go before all trade is fair, and it’s unlikely that schemes like Fairtrade can bring this about by themselves. Part of their strength is that by using market solutions and focusing on changing public attitudes, they do not alienate anyone. But this approach is also a weakness. The need for Fairtrade schemes is a clear sign that the current global economic system only makes the rich richer.

Commercial giants

The monopolies of huge companies like Cargill, ConAgra and Unilever and of the supermarkets keep selling prices low at the expense of producers. This keeps farmers in the global south working for survival, with little chance of building up their own economies. Often small farmers, who can be very efficient at producing food and protecting the environment, cannot survive.

Fairtrade supports the income of its producers in the global south, and, says Deborah Doane, WDM’s director...

Over 100 European and international organisations are calling on the G20 Finance Ministers, who are meeting this weekend, to rein in speculation on food prices by banks, hedge funds and pension funds.

The Finance Ministers will be discussing responses to the record food prices which are at ‘dangerous’ levels according to the World Bank with 44 million more people pushed into poverty since last June. French President Nicolas Sarkozy, currently the head of the G20, is pushing for tighter regulation of commodity markets in order to reduce food price spikes and volatility.

But there are concerns that some governments, including the UK, could try to block reforms in the EU and G20 due to fierce opposition from the banking industry. Strong statements have been made by key EU decision makers, including Commissioner Michel Barnier and the French Government, on curbing speculation, but it remains to be seen whether European financial reforms will deliver.

In a statement signed by the Fairtrade Foundation, Friends of the Earth Europe, New Economics Foundation, Corporate Europe Observatory and over a hundred more groups from around the world, political leaders are warned...

Over 100 European and international organisations are calling for financial speculation on food prices by hedge funds and investment banks to be reined in.

The World Development Movement's response to the High Level Panel of Experts for Food Security and Nutrition consultation on food price volatility.

Press release, 04.02.2011

At a joint press conference, Director-General Jacques Diouf of the UN Food and Agriculture Organisation and the French Agriculture Minister, Bruno Le Maire called financial speculation on food both economically dangerous and morally unacceptable. They called for an international response at the G20 to the record food prices and volatility including regulation of financial speculation on commodity markets. The World Development Movement welcomes this and supports action to tackle dramatic food price rises and volatility by reducing speculation on food by banks, hedge funds and pension funds.

Julian Oram, head of policy at the World Development Movement said:

“We welcome the FAO and French government’s clear and urgent call for action to curb financial speculation on food. Banks and hedge funds are playing a key role in causing the current record food prices. When speculative flows of hot money pour into commodity markets, it dramatically pushes up the price of basic foods. There are of course long-term upward pressures on food prices, for example due to the impacts of climate change and the use of land for biofuels. But this doesn’t explain the sudden and very dramatic prices rises that we are seeing now and in 2008 during the food...