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The Global Food System Casino
Food is our nourishment. It is the source of life. Growing food, processing, transforming and distributing it involves 70 per cent of humanity. Eating food involves all of us. Yet, it is not the culture or human rights that are shaping today’s dominant food economy. Rather speculation and profits are designing food production and distribution. Putting food on the global financial casino is a design for hunger.
After the US subprime crisis and the Wall Street crash, investors rushed to commodity markets, especially oil and agricultural commodities. While real production did not increase between 2005-2007, commodity speculation in food increased 160 per cent. Speculation pushed up prices and high prices pushed an additional 100 million to hunger. Barclays, Goldman Sachs, JP Morgan are all playing on the global food casino.
A 2008 advertisement of Deutsche Bank stated, “Do you enjoy rising prices? Everybody talks about commodities — with the Agriculture Euro Fund you can benefit from the increase in the value of the seven most important agricultural commodities.”
When speculation drives up prices, the rich investors get richer and the poor starve. The financial deregulation that destabilised the world’s financial system is now destabilising the world food system. The price rise is not just a result of supply and demand. It is predominantly a result of speculation.
Between 2003 to 2008, commodity index speculation increased by 1,900 per cent from an estimated $13 billion to $260 billion. Thirty per cent of these index funds are invested in food commodities. As the Agribusiness Accountability Initiative states, “We live in a brave new world of 24-hour electronic trading, triggered by algorithms of composite price indices, fits of investor ‘lack of confidence’ and of unregulated ‘dark pools’ of more than $7 trillion in over the counter commodities derivatives trades.”
The world commodity trading has no relationship to food, to its diversity, to its growers or eaters, to the seasons, to sowing or harvesting. Food diversity is reduced to eight commodities and bundled into “composite price index”.
Seasons are replaced by 24-hour trading. Food production driven by sunshine and photosynthesis is displaced by “dark pools of investment”. The tragedy is that this unreal world is creating hunger for real people in the real world.
In The Food Bubble: How Wall Street Starved Millions and Got Away with it — a cover story for Harper’s — Fredirick Kaufman says, “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.”
And the entry of investors like Goldman Sachs, AIG Commodity Index, Bear Sterns, Oppenheiner and Pimco, Barclays allowed agribusiness to increase its profits. In the first quarter of 2008, Cargill attributed its 86 per cent jump in profits to commodity trading. ConAgra sold its trading arm to a hedge fund for $2.8 billion.
Gambling on the price of wheat for profits took food away from 250 million people. Speculation had separated the price of food from the value of food. As Austin Da-mani, a wheat broker, told Fred Kaufman, “We’re trading wheat, but its wheat we’re never going to see. It’s a cerebral experience”.
Food is an ecological experience, a sensory experience, a biological experience. With speculation it has been removed from its own reality. Grain markets have been transformed, with futures trading by the grain giants in Chicago, Kansas City and Minneapolis combined with speculation by investors.
And as Mr Kaufman says, “Imaginary wheat bought anywhere affects real wheat bought everywhere.” So if we do not decommodify food more and more people will be denied food; as more and more money is poured into the global casino, the artificial processes of speculation are driving up prices of food and taking it beyond the reach of millions.
The rules of the World Trade Organisation, the structural adjustment programmes of the World Bank and the IMF and bilateral free trade agreements have forced the integration of local and national food economies into the global market. And now the global financial system is speculating on food commodities, influencing prices and the right to food of the poorest person in the remotest corner of the world.
The spike in the world food prices started to reappear in 2011. According to the Food and Agriculture Organisation of the UN, in January 2011, the food price index was up 3.4 per cent from December 2010. Cereal price index was three per cent above December, and at the highest level since July 2008, though still 11 per cent below its peak in April 2008.
In India, the prices of onion jumped from Rs. 11/kg in June 2010 to Rs. 75/kg in January 2011. While production of onion had gone up from 4.8 million tonnes in 2001-2002 to 12 million tonnes in 2009-2010, prices also went up, showing that in a speculation-driven market there is no correlation between production and prices. The price difference between wholesale and retail was 135 per cent.
Food that has been put on a global casino is serving speculative investors and agribusiness well, but it is not serving people. We need to get food off the global casino and back on people’s plates. Food democracy and food sovereignty can only be achieved by putting an end to financial speculation.
Josette Sheeran, the executive director of the World Food Programme, related the Egyptian revolution of 2010 to the rise of food prices. “In many protests, demonstrators have brandished loaves of bread or displayed banners expressing anger about the rising cost of food stables such as lentils. When it comes to food, the margins between stability and chaos are perilously thin. Volatility on the markets can translate quickly to volatility on the streets and we all should remain vigilant.”
The growing concern about speculating on food has forced some banks to stop investing in food commodities. Germany’s Commerzbank and Austria’s Volksbanken have both removed agricultural products from their index fund products. Deutsche Bank had earlier done the same. It is time that every government and every financial institution put people’s right to food above the hunger for profits.