EU decision makers recently met to agree new rules on food speculation, but the Financial Times reports that regulation designed to curb speculation in commodities is at risk of being watered down, triggering concern in some quarters that food-price volatility will remain at dangerously high levels.
Pan-European position limits on commodities speculation under the EU’s revised Markets in Financial Instruments Directive (Mifid II) are not being implemented.
The European Council, under British and French pressure, proposes that individual member states should set their own position limits – potentially allowing food-price volatility to continue unchecked. The World Development Movement and many other voices counter this, stating that speculation in basic foodstuffs is a scandal when there are a billion starving people in the world.
WDM website: “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. 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”. They summarise the situation:
Reuters reports that in Switzerland the Young Socialist Party has collected enough signatures to merit a referendum curbing food speculation; the proposal is formulated to affect companies with a subsidiary in Switzerland, even if their headquarters are elsewhere. “We’re concerned that prices are moving based on factors that have nothing to do with the real market,” said David Roth, its head.
Commerzbank and DekaBank have already cut investment in agriculture after pressure from Swiss NGOs and Rothschild, which has a wealth management business in Switzerland, said it was pulling out of livestock and soft commodities.
Crisis point in India
During the last ten years world-wide deregulation has enabled food speculators to dominate, causing drastic spikes and crashes in prices. Onion retail prices have soared in the past three months in India, from Rs 15 to as high as 100 rupees per kliogram, making this staple food an unaffordable luxury for India’s poor.
15m tonnes of onions a year are eaten in India, as a base for traditional dishes such as biryani and bhaji and by the poor with chapatis, naan and other breads.
Delhi analyst Devinder Sharma points out that the country is the second-largest onion grower in the world, after China, and normally exports them, adding:
“We all know it wasn’t because of any shortfall in production, but because of manipulation and hoarding. This year the production was higher than the total consumption by approximately 27 lakh tonnes. And as Business Standard (Hindi) has estimated, the traders have profiteered by at least Rs 8,000-crore in the past four months”. His conclusion, shared by many:
“The challenge is to discipline the trade”.