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September 7, 2012 / politicsbitesize

Gambling on the cost of food

Photo by Martin LaBar on Flickr

Photo by Martin LaBar on Flickr

The headline this week in The Independent once again concerned the shame-faced Barclays Bank. It has been revealed that the financial institution, which recently brought disgrace upon itself by fixing the Libor interest rate, has made around £500m in two years betting on the global food crisis.

It is alleged that Barclays have been speculating on the agriculture commodities market since the deregulation of the banking system in 2000 paved the way forallowed the creation of derivatives trading. A derivative is a financial contract whose value is linked to the expected future price of a particular underlying asset. Originally the contracts were used by farmers to protect themselves from future collapses in the price of their crops. A contract for a fixed price would be drawn up between a farmer and his/her supplier for crops that haven’t yet been grown. However, the value of this contract would eventually be determined by the underlying cost of the commodity the farmer is selling. On the whole, today these derivative contracts are being traded by big banks for big profits.

A report, Food Price Watch, by the World Bank and the Poverty Reduction and Equity Group highlighted the extent to which food speculation and poor harvests in the US and Russia has pushed up the average worldwide cost of staple foods. The research elucidates the concern that even one bank’s involvement in the commodities market could lead to food prices rising beyond the reach of the poorest populations.

According to the Office of National Statistics, food prices in the UK alone have been rising on average by 37.9% over the last seven years and globally by around 10% per month. Alarmingly, the price of staple foods such as corn, coffee, wheat and cocoa are expected to increase again this year; corn has already risen by 45% since the start of June 2012.

Oxfam’s private sector adviser, Rob Nash, said: ‘The food market is becoming a playground for investors rather than a market place for farmers. The trend of big investors betting on food prices is transforming food into a financial asset while exacerbating the risk of price spikes that hit the poor hardest.’

The World Development Movement (WDM) published a study, The Great Hunger Lottery, in which it provides evidence that establishes the link between speculation on food commodity derivatives and rising food prices around the world. In 2007 and 2008 there was a huge spike in the cost of food and energy, which was reflected by a rise in the International Monetary Fund’s food price index of more than 80%.

The impact of this rise was felt across the globe, but the effect on the Global South was the most severe. According to the report by the WDM, ‘households in developed countries tend to spend between 10 and 15 per cent of their income on food. While poor households in developing countries tend to spend between 50 and 90 per cent.’ What this increase meant for these poor households in the South was a decrease in the amount of food they could afford to eat. This in turn led to around 105 million families becoming chronically malnourished by the end of 2008.

At the heart of this report is the message that, ‘allowing gambling on hunger in financial markets is dangerous, immoral and indefensible. And it needs to be stopped before any more people suffer to satisfy the greed of the banks.’ The World Development Movement calls for people to write to the Chancellor, George Osborne, asking for tighter regulation on the commodity derivative markets: therealgeorgeosborne.com/

Please help put a stop to this greed and end the hunger of millions.

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2 Comments

Leave a Comment
  1. thedailycheesenews / Sep 8 2012 11:28 am

    Reblogged this on The Daily Cheese. and commented:
    Food, water, air we are taxed on it all. we have been enslaved.From cradle to grave we serve the system propping up a corrupt few, who live a life we could not imagine.

  2. Voiceless in America / Sep 8 2012 6:02 pm

    Reblogged this on Voiceless in America.

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