Food speculation: “like secretly hoarding during a hunger crisis in order to make profits”

In 2013 this site highlighted concern about food speculation. The WDM were active on this at the time and Young Socialists in Switzerland gathered enough votes for an initiative, entitled “No speculation in food commodities”; this justified a referendum seeking an end to all trading in financial instruments linked to agricultural products by commodities traders with a presence in Switzerland and breaches leading to criminal prosecution.

alliance sud logoAlliance Sud, a Swiss group, reports that in September 2012 the Landesbank Berlin gave up investments in agriculture-based speculation. Four other German banks also pulled out of food-based speculation, following a campaign on the part of critical consumers. A study by Alliance Sud stated that global speculation in food commodities rose from $13 billion to $430 billion from 2003 to 2013.

EU decision makers passed new rules designed to curb speculation in ‘commodities’; these would limit the number of contracts on commodities such as wheat, corn, soybean and sugar that banks and finance companies can hold – and force traders to open their activities to greater public scrutiny.

weed headerMany of those not directly involved in the international commodities market, with talk of hedging, futures and spot prices, find it hard to understand just what goes on. A clear exposition is given by Peter Wahl who works on issues of world trade and international finance with the (World Economy, Ecology & Development, WEED) a German policy institute based in Bonn.

peter wahlSetting the scene he refers to the under-investment and structural adjustment programmes in developing countries which have imposed a priority of export orientation instead of national food security, as well as the liberalisation pressure due to the WTO and bilateral trade agreements. Corporate-led ‘developed’ countries, notably Britain, also place priority on exporting instead of national food security and look favourably on liberalising trade agreements – currently the TTIP.

Wahl writes: “The original motive was safeguarding, virtually an insurance (hedging). The logic was as follows: a farmer negotiates with a speculator in January that the speculator will buy the harvest at a fixed price in August. The arrangement is fixed by a contract. Such contracts are called derivatives (from the Latin word: derived). And since the contract concerns a future business arrangement, this derivative is called a future. Insiders call this kind of speculation commercial trading. The most important stock exchanges for commercial trading are in Chicago, New York, Kansas and London.

“For the farmer, the advantage of futures lies in the security provided by the fixed price. He has transferred the risk to the speculator. However, security is not available for free. On the one hand, the farmer must pay a fee for the derivative. On the other hand, the derivatives trader will also try to sell a corresponding future to the miller who buys the harvest in August to mill flour. This also creates planning reliability for the miller. . . The prices of futures lie slightly above those of direct trade (described as the cash or spot market)”.* To explain problems arising, like many, he quotes George Soros, the arch-speculator, though the root source has not been found:

“Speculators create the bubble which lies above everything. They increase prices with their expectations, with their bets on the future, and their activities distort prices, especially in the commodities sector. And that is just like secretly hoarding food during a hunger crisis in order to make profits from increasing prices.” (WDM, 2010). Recommended steps:

  • Restrict speculation to its security function (hedging) for buyers and sellers, to prevent the formation of speculative bubbles.
  • Permit only direct contracts with food producers and wholesalers carrying price and delivery-time guarantees.
  • Civil society: exert political pressure and present proposals on a development-friendly restructuring of the financial system.

If food-price volatility remains at high levels it will lead to a recurrence of riots in many countries – and add further millions to the number of those who go hungry.

commodities trader

Wahl encourages civil society: “Political will is decisive for this to be achieved. The chances are not too illusory. The present crash has shaken the financial markets so that the casino-capitalism which has emerged since the end of the Bretton Woods system has been discredited to an unprecedented extent. Far-reaching political regulations, especially emanating from the US, are not out of reach any more”.

*For a fuller explanation go to the article here: http://www.weed-online.org/themen/english.html

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