Between 2006 and 2008, the world witnessed an unprecedented rise in global food prices. According to the FAO’s food price index, the average cost of the world’s most vital foodstuffs rose by 71% and the price of rice and grain – the staple foods of most of the inhabitants of the global south – rose by 126%. The price of Hard Red Wheat, which had up until 2006 fluctuated between $3 and $6 per sixty-pound bushel, rose to $25 per bushel in 2008 – nearly ten times its historic price. As a result, 250 million previously food-secure people were pushed into food insecurity, and 115 million people fell into extreme poverty. At the end of 2008, the prices started to fall, but have recently once again begun to rise.
What could have been the cause of this sudden dramatic increase? An obvious reason would have been a food shortage, and some people cited widespread crop failure. However, according to Frederick Kaufman, a contributing editor of Harper’s Magazine, speaking on Democracy Now, 2008 was “the greatest wheat-producing year in world history.” If 2008 could boast of one of the best harvests in recent times, surely prices should have gone down? What could have caused them to rise? Other reasons were given. These included: a rise in demand; the increased use of crops as bio-fuels; poor agricultural practices; and so on.
However, these factors are by many considered to be insufficient to explain the extreme price peaks seen in early 2008. In the years following the food crisis there has been increasing consensus that another factor was involved, an additional, less palatable cause: the increasing presence of financial speculators in commodity markets. According to a paper published by Prof. Jayati Ghosh, Professor of Economics at Jawaharlal Nehru University: “It is now quite widely acknowledged that financial speculation was the major factor behind the sharp price rise of many primary commodities, including agricultural items.”
Agricultural products are subject to what is called forward buying – a process by which both producers and buyers can protect themselves from the detrimental effects of price fluctuations. Farmers can make an agreement to sell their crop at a certain time and at a certain price, which assures them planning reliability. These agreements are known as futures or forwards, and are facilitated by intermediaries who are well-versed in the intricacies of the market and are generally considered to be a stabilising influence. These agreements or ‘derivatives’ can then themselves be traded and used for speculating purposes.
Since the Wall Street crash in the 1930s, speculation on food derivatives had been tightly regulated. However, in the 1990s these regulations were relaxed, and financial companies with no physical interest in food or agriculture gained access to the market, and proceeded to pour in enormous amounts of money. According to Olivier De Schutter, the United Nations Special Rapporteur on the Right to Food, the proportion of people trading derivatives who were financial speculators increased from 20% in 2000 to 80% in 2011. The increased number of speculators is believed to have distorted the market, increasing volatility and leading to the formation of speculative bubbles, which in turn caused dramatic and unpredictable price rises.
In a world where average households in developing countries spend 60 – 80% of their income on food, any dramatic increase in the price of food inevitably pushes millions of people into a state of food insecurity, if not starvation. And if this increase is not, as we are told, a result of natural forces, or of economic forces too nebulous and complex for us to understand but a direct result of opportunism and greed, then something has to change. But the good news is that something seems to be changing; groups who campaign against food speculation, such as the World Development Movement, are increasingly being heard, and the issue is slowly but surely moving into the mainstream.
As Jean Ziegler, the former U.N. Special Rapporteur on the Right to Food, said: “We have a herd of market traders, speculators and financial bandits who have turned wild and constructed a world of inequality and horror. We have to put a stop to this.”