Food campaign news
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.
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.