Last updated: February 2012
Banking on Hunger
In January 2012, Barclays won a Public Eye ‘shame award’ for its role in driving global food prices beyond the reach of the world’s poorest people. The bank was nominated by the World Development Movement, which is campaigning to stop investment banks and hedge funds betting on food. Barclays is the biggest UK player in food speculation, and is estimated to make up to £340 million a year from speculating on food.
Financial speculation in food ‘futures’ markets is one of the major drivers of rising prices. The prices of staple foods like wheat, soy and maize have spiralled over the last few years, with steep spikes particularly in 2008 and again in the first half of 2011. UK consumers have felt the pinch, with the average household’s annual food bill rising by £188 in the space of a year. But for the poorest people in developing countries, who typically spend 50 to 90 per cent of their income on food, sudden price hikes are disastrous.
So how is speculation pushing up prices?
Futures contracts were invented to help farmers deal with the uncertainty of growing crops, by allowing them to sell their produce at a future date at a guaranteed price. But these contracts can also be bought and sold by banks and other financial players who have no involvement in the actual food being traded. Since regulations on futures markets were weakened in the late 1990s and early 2000s, banks have created new, complicated investment products to enable financial companies to make money from speculating on food prices.
So investment banks are buying and selling food futures contracts without ever buying or selling any actual food. These financial speculators don’t focus on the supply of or demand for food, but tend to move their money around based on how their other investments are performing – and they often bet on rising prices. This pushes up the price of food, resulting in prices that can be completely unrelated to the fundamentals of supply and demand.
Fortunately, moves are being made to stabilise prices by regulating the markets to prevent excessive speculation on food and other commodities. The US government has already moved to limit speculative activity, and similar measures are being discussed in the EU. But the UK government, with its ear to the City of London, is trying to block effective regulation in Europe.
As the proposed rules pass through the winding passages of the EU process, George Osborne’s position looks set to be a determining factor in whether or not European regulation will be strong enough to rein in the speculators. The World Development Movement’s satirical online comedy series, ‘The Real George Osborne’, highlights the Chancellor’s role and is helping to put pressure on him to back strict controls on speculation.
In 2012, a political window is open to make sure that banks like Barclays can no longer bet on hunger. We must make sure that George Osborne and his European counterparts put the basic and universal human need for food before the profits of a tiny minority.
Consolata Kiswili, a farmer in Kenya, remembers how painful the food price crisis of 2008 was for her family. ‘I had to sell everything just to be able to feed myself and my four children,’ she told World Development Movement researchers. ‘My last remaining cow was wasted from drought and lack of food, I had to sell it for a mere 300 shillings (£2.50). At that time I was pregnant, and was worrying so much. I thought I was going to die.’
Nearly a billion people go hungry worldwide, and in the last six months of 2010 alone, 44 million people were pushed into extreme poverty by rising prices.
You can help stop food speculation
Take action - email George Osborne
By Miriam Ross of the World Development Movement