Last updated: May 2013
Banks betting on hunger
The World Development Movement (WDM) is one of many NGOs calling for tighter regulations on financial speculation in food markets. Financial speculation has been blamed for destabilising global food prices, which has increased the number of people classified as chronically malnourished to an estimated 750 million people. In 2000 the Commodity Futures Modernisation Act in the USA led to complete deregulation of commodity futures markets. Banks such as Goldman Sachs and Barclays have since been accused of making millions of pounds out of hunger and starvation.
Protest out Conservative Party Conference, 2012, photo credit: Global Justice Now
According to WDM: “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”. And it’s not just developing countries which are feeling the effects, WDM explained. “Here in the UK, the average household’s annual food bill rose by £152 in 2011. And in developing countries, price rises are pushing food out of the reach of millions of people”.
The evidence that food speculation is related to increased food prices has been widely reported, but the response of governments has been slow. In 2011, Nicolas Sarkozy started the G20 summit by calling for new rules to curb the “influence of speculative investors”, stating it was a “moral question”. Yet he faced a barrage of resistance from agricultural exporting countries such as Canada and Brazil, whose delegates refused to accept that financial speculation was a problem. Not-for-profit FoodWatch claimed that these countries were enjoying higher than normal export earnings and therefore considered any measures to be a “violation of their economic interests”, regardless of whether it was violating millions of people’s human right to food.
Nevertheless, the United States did recognise that speculation in financial markets was causing damage and, in 2011, started to address the problem by introducing a cap on how much of the commodity market could be controlled by any type of market player. This was not without a legal challenge from Wall Street, spearheaded by the International Swaps and Derivatives Association, of which Goldman Sachs – the global leader in financial speculation – is a key member.
The European Union also considered taking tougher action on speculation. In November 2012 a vote was taken in the European Parliament which indicated MEPs were in favour of limits to speculation. But the new regulations “failed to remove loopholes... to prevent banks driving up food prices through financial speculation”,(1) rendering the new rules ineffective.
The UK government has so far opposed effective controls.
While governments may be failing to regulate financial speculation, some banks have taken it upon themselves to address the issue, and have stopped offering investments in foods. AlertNet reported in May 2012 that Germany’s DekaBank was pulling out of investing in basic food stuffs, such as wheat, soya, maize and meat, and would revamp its commodity fund. This came after FoodWatch asked banks in October 2011 to withdraw from speculation in agricultural commodities after a review by experts.
In March 2012 Deutsche Bank – Germany’s biggest bank – said in its annual Corporate Social Responsibility report that it would not launch any new investment products in staple agricultural products in 2012, as it continued to investigate whether such products had a negative impact on food price stability.
In a surprise move by Barclays in February 2013, the bank announced that it was pulling out of food speculation, stating that the practice was “not compatible with its purpose”. Barclays chief Antony Jenkins announced the move as part of the bank’s strategic review. He said the end of trading in agricultural commodities for speculative purposes was an example of Barclays “putting its words into action”. But Jenkins made no commitment to change the bank’s speculation on other commodities, such as oil, which has a knock-on impact on food prices.
Barclays pulling out indicates that consumer actions against banks involved in food speculation can lead to change, but also it proves that the government is failing to listen to civil society demands to regulate financial speculation in agricultural commodities.
WDM is calling on the other banks to commit to ending their involvement in commodity markets, and is urging George Osborne to back tough rules to curb speculation at a European level.
Email George Osborne at the Treasury, asking him to support strong and effective regulation to stop banks from betting on hunger.
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