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.'”