Food Prices Going Up, Up, Up: Why is That?

A front page story in today’s Boston Globe on surging food prices made it all so mysterious: Rising fuel costs, low yield of crops, increased demand are the cause of the price increases.  However, these are not the principal reasons for the increases here and abroad, nor do they explain why it is happening now.  What kind of reporting is dat?

Paul Krugman, writing in The New York Times, has added to the debate by describing the role that speculation plays in the rising prices of food commodities.

William Pfaff, writing in TNYT also, summed it up: “The conventional explanations for the flare in prices are population growth, diversion of corn and soybeans to biofuel production, rising Asian and Middle Eastern demand for high-value foods, higher transport costs and crop failures.  Oddly little has been said about the role of speculation in the rise in commodity prices generally and specifically in food.  On the Chicago CME Group market, which deals in some 25 agricultural commodities–it is a merger of the Chicago Mercantile Exchange and Chicago Board of Trade–the volume of contrasts has increased by 20% since the start of the year and now has reached the level of a million contracts per year.  This will soon exceed the rate of growth reached in all of 2007.  The hedge funds are now active in commodities and are playing the futures contracts, where upwards of 30 million tons of soybeans for future delivery are contracted for every day.  They are also buying the companies that stock.”

The Guardian reports the same data and applies them the the developing  world where consequences are dire:  www.guardian.co.uk/global-development/2011/jan/23/food-speculation-banks-hunger-poverty:

“Olivier de Schutter, UN rapporteur on the right to food, is in no doubt that speculators are behind the surging prices. ‘Prices of wheat, maize and rice have increased very significantly but this is not linked to low stock levels or harvests, but rather to traders reacting to information and speculating on the markets,’ he says.

‘People die from hunger while the banks make a killing from betting on food,’ says Deborah Doane, director of the World Development Movement in London.

The UN Food and Agriculture Organisation remains diplomatically non-committal, saying, in June, that: ‘Apart from actual changes in supply and demand of some commodities, the upward swing might also have been amplified by speculation in organised future markets.’

The UN is backed by Ann Berg, one of the world’s most experienced futures traders. She argues that differentiating between commodities futures markets and commodity-related investments in agriculture is impossible.

‘There is no way of knowing exactly [what is happening]. We had the housing bubble and the credit default. The commodities market is another lucrative playing field [where] traders take a fee. It’s a sensitive issue. [Some] countries buy direct from the markets. As a friend of mine says: ‘What for a poor man is a crust, for a rich man is a securitised asset class.’”

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6 thoughts on “Food Prices Going Up, Up, Up: Why is That?

  1. I agree with you that the food shortage is not caused by the reasons that we are told-think of the overall situation in the world today. How many times have I given food or money (donated myself or thru the numerous school drives-I have 3 children and they EACH bring food in so they are all participating in their grade level) for the Tsunami-this, the Earthquake-that, the Hurricane-whats-it’s-name-all victims the the USA reaches out to and gives out huge amounts of FOOD. We are giving away which is fine, BUT then there are the poor harvests and Bio-fuel industries taking a cut. Did you know Monsanto has now given it’s GMO seeds the go ahead to be distributed to people for food crops and farmers may get these seeds also. But they were made for biofuel and not nutrition. The quality of the soil is going straight downhill and no one is even thinking of all the mono cropping going on. Yes, there are MANY reasons for the food shortage and I have not even begun to list them all. I say grow your OWN kitchen garden! Put your family first in your donations.

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  3. I completely agree with Merry, and I was not aware Monsanto was distributing their biofuel seeds as food crop, that’s upsetting…
    I hope that farming becomes popular again as a career, and with all the books and documentaries raising awareness about our food sources, i think there’s a good chance it will!

  4. Ellen Brown from her website “Web of Debt” agrees in this article…
    http://webofdebt.wordpress.com/2011/02/03/the-egyptian-tinderbox-how-banks-and-investors-are-starving-the-third-world/

    Heavy on economics, it might be best to scroll down to where it says, “New Meaning to the Old Adage “Don’t Play with Your Food” where you will find quotes like…

    “Beginning in late 2006, world food prices began rising. A year later, wheat price had gone up 80 percent, maize by 90 percent and rice by 320 percent. Food riots broke out in more than 30 countries, and 200 million people faced malnutrition and starvation. Suddenly, in the spring of 2008, food prices fell to previous levels, as if by magic. Jean Ziegler, the UN Special Rapporteur on the Right to Food, has called this “a silent mass murder”, entirely due to “man-made actions.”

  5. Prosecute Monsanto ! For crimes against humanity. Any amount of research will scare the living piss out of anyone who cares about the future of mankind.

  6. This was a very good article. It stands to reason that with so many assets classes looking like crap that traders would turn to anything to make a return. With automated systems, they move in and out of contracts now to make a penny at a time and this will make food prices as volatile as oil prices. A federal reg. that options traders hold their contracts a certain length of time after purchasing them would solve this problem.

    BTW, please fellow commenters, shut up about Monsanto. We’re all well acquainted with your lame conspiracy theories but it has nothing to do with THIS article. And oh yes, home gardens and organic crops can’t feed the world. THAT is a sure recipe for hyperinflation & world starvation. Thank you and good night sweetheart.

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