Food Speculation

One of the papers coming to the General Assembly this year from Church and Society Council is “Give us our Daily Bread”. The awful pictures that appear on TV about famines highlight how many people are hungry. More and more seem to be affected. What we discovered is that often the hungry are living where there is food but they cannot afford to buy it. Between 2006 and 2008 the Food and Agriculture Organisation recorded an increase in cost of 71% in essential foodstuffs. Rice and grain increased 126% but fell back again. In this country and similar developed countries households spend 10% of income on food. In developing countries this rises to 60 – 80%. For these people the spikes in prices leave them unable to purchase basic foods.

Why did the price spike in 2006? It can be explained by bad harvests, agricultural neglect, and production of bio fuels. That does not explain the entire rise in price. The other factor is speculation on futures of commodities. A farmer who wants to have a guaranteed price for the harvest makes a contract with a miller for the price before the grain is planted. This used to be done directly but now an intermediary (hedger) negotiates with both the farmer and the miller. The hedger was seen to stabilise prices. However more financiers joined the hedger particularly when the property market collapsed and the speculators moved to look at agriculture commodities. The speculators treated food as a financial commodity and created instability. The futures market was out of control.

The EU is discussing controlling the speculation on basic food items however there is reluctance to limit the Hedge Funds and Index Funds.

Legislation and regulation needs to control markets so that speculators do not make a profit at the expense of those living in extreme poverty.