If a pound coin had been set aside every time a government ceded to bankers’ views about how best to run an economy, and the bankers were subsequently proven wrong, we could probably reduce the deficit by half.
Better yet, of course, would have been not to listen to them at all. As in the sub-prime mortgage crisis and the Greek debt crisis, this is certainly the case with the deregulation of commodity markets in the 1990s.
Excessive and ultimately successful lobbying from the finance sector for deregulation has led to millions more people going hungry than would have if we had only turned the ‘feral elite’ bankers down.
The signs were already there, but it became horribly obvious that all was not right was in 2007/2008, when food prices rose by more than 80 per cent.
‘I had to sell everything just to be able to feed myself and my four children,’ recalled Kenyan farmer Consolata Kiswili, talking to World Development Movement researchers about how the 2008 food price crisis affected her family. ‘My last remaining cow was wasted from drought and lack of food, I had to sell it for a mere 300 shillings (£2.50). At that time I was pregnant, and was worrying so much. I thought I was going to die.’
Food futures markets were a sensible thing when first created. They were originally meant to help farmers deal with the risks inherent in growing crops for sale, passing the risk on to commercial traders more able to absorb it.
A level of speculation also helped all involved in the market determine the ‘true market value’ of a commodity. But since deregulation, speculators have literally flooded the markets. Speculators now dominate these markets, holding, for example, 60 per cent of the Chicago wheat futures market, compared with just 12 per cent 15 years ago.
The banks argue that this type of investment is either benign or that it sends the right price signals to the market. The problem is that it’s neither benign, nor connected to the fundamentals of supply and demand. In fact, not a single penny of this speculative investment by banks and hedge funds translates into actual investment in improving agriculture.
From stable to volatile food markets
Instead, where markets were once relatively stable, they are now characterised by extreme volatility. Global food prices fell sharply following the 2008 peak, only to rise steeply again, reaching record levels earlier this year. The consequences have meant that in the last six months of 2010 alone, rising prices pushed 44 million people into extreme poverty.
In the UK, where average annual family food bills had risen by £260 by June this year, spiralling prices are forcing people to tighten their belts. But in developing countries, where many people spend 60, 70 or even 90% of their income on food alone, rising prices spell disaster.
The only beneficiaries of food speculation are the banks involved, generating huge profits for a tiny elite. Goldman Sachs earned over £600 million from food speculation in 2009, and Barclays is estimated to make as much as £340 million a year. It’s no wonder the financial sector is lobbying hard to maintain the status quo.
This financial takeover of our food markets, and the horrific impact on the world’s poorest people, has led to calls for regulation from diverse quarters, including the United Nations, the global peasants’ organisation La Via Campesina, Pope Benedict, and Starbucks chief Howard Schultz who points out that extraordinarily high coffee prices are also hurting his business.
The United States is ahead of the game, having already introduced legislation allowing for controls to limit speculation on food. Wall Street is lobbying hard to prevent the rules having real teeth, and a lot hinges on whether the European Union brings in effective regulation.
European proposals are expected to be announced imminently and the European commissioner for the internal market, Michel Barnier, is determined to tackle the problem. ‘Speculation in basic foodstuffs is a scandal when there are a billion starving people in the world,’ he told the European Parliament.
Shamefully (though perhaps unsurprisingly given its track record), with its ear to the City of London, the UK government is set to block the proposals.
That food is as basic human need and a fundamental right need hardly be said. We should learn lessons from the last few years and ensure that clear, hard rules are re-established to limit excessive speculation by the ‘feral elite’. To do otherwise would risk forcing millions of people into entirely preventable poverty and hunger.
Deborah Doane is director of the World Development Movement, whose report on food speculation, ‘Broken Markets’ was launched today
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