Financial speculators driving up food prices

“What for a poor man is a crust, for a rich man is a securitized asset class.” – Futures trader Ann Berg, quoted in the Guardian, A debate on what is causing more of the world's population to drop into poverty is needed urgently in order to understand its cause and cure.

The real cause lies in the ability of banks to create financial products that increase speculation on a scale unprecedented in human history. Putting a bit of regulation into the New York and London-based exchanges will not alleviate anything significantly.

If the revolutions that have followed the shock of food price rises are to have any lasting change then the banking and finance sectors will need to be reduced in scale and operation. For they are the unseen hand of the market speculating on our lives.

In a July 2010 article called “How Goldman Sachs Gambled on Starving the World’s Poor – And Won,” journalist Johann Hari observed:
"Beginning in late 2006, world food prices began rising. A year later, wheat price had gone up 80%, maize by 90% and rice by 320%. 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". http://johannhari.com/2010/07/02/how-goldman-sachs-gambling-on-starving-the-worlds-poor-and-won

Some further evidence to the cause can be found here - http://webofdebt.wordpress.com/2011/02/03/the-egyptian-tinderbox-how-banks-and-investors-are-starving-the-third-world/  we have reproduced some of the key points below.

Underlying the sudden uprisings in Egypt, Tunisia and Libya is a growing global crisis sparked by soaring food prices and unemployment. The Associated Press reports that roughly 40% of Egyptians struggle along at the World Bank-set poverty level of under $2 per day. Analysts estimate that food price inflation in Egypt is currently at an unsustainable 17% yearly.

In poorer countries, as much as 60% to 80% of people’s incomes go for food, compared to just 10 to 20% in industrial countries. An increase of a dollar or so in the cost of a gallon of milk or a loaf of bread for Americans can mean starvation for people in Egypt and other poor countries.

Prices have been driven up by too much money chasing too few goods, but the money is chasing only certain selected goods. Food and fuel prices are up, but housing prices are down. “Hot money”, often from pension funds, investment seeking higher returns – has fled from the collapsed housing market into commodities.

At one time food was considered a poor speculative investment, because it was too perishable to be stored until market conditions were right for resale. But that changed with the development of ETFs (exchange-traded funds) and other financial innovations created by bankers.

In a revealing July 2010 report in Harper’s Magazine titled “The Food Bubble: How Wall Street Starved Millions and Got Away with It,” Frederick Kaufman wrote: "The history of food took an ominous turn in 1991, at a time when no one was paying much attention.

That was the year Goldman Sachs decided our daily bread might make an excellent investment. Robber barons and financiers of every stripe had long dreamed of controlling all of something everybody needed or desired, then holding back the supply as demand drove up prices".

Hedge fund manager Michael Masters estimated that on the regulated exchanges in the U.S. 64% of all wheat contracts were held by speculators with no interest whatever in real wheat. They owned it solely in anticipation of price inflation and resale.

George Soros said it was “just like secretly hoarding food during a hunger crisis in order to make profits from increasing prices.”

Jean Ziegler, the UN Special Rapporteur on the Right to Food, has called this “a silent mass murder”, entirely due to “man-made actions.”

Now we know the driving force behind food price increases, it’s not nature, it’s the banks and financial speculators.

CM