Rising food
prices have been driving millions of people across the world into extreme
poverty over the last few years, even as banks and financial investors
have been making a killing.
Goldman Sachs,
the US investment bank -- (which journalist Matt Taibbi famously described as
"a great vampire squid wrapped around the face of humanity, relentlessly
jamming its blood funnel into anything that smells like money") -- made an
estimated $400 million from speculating on food in the year 2012.
The amount of financial
speculation on food nearly doubled, from $65 billion in 2006 to $126 billion in
2011.
(Speculation is
generally defined as the practice of engaging in financial transactions in an
attempt to profit from short or medium term fluctuations in the market value of
a commodity, such as wheat or rice. In its present global form, speculation has
acquired a scale so as to distort or even drive the market in a manner that a
few traders could make huge profits at the expense of millions of consumers and
producers.)
Any trader -- or
anyone who has an instinct for how markets operate in the real world -- would
tell you without batting an eyelid that huge speculative investments in
commodities do drive up prices.
Despite this
common knowledge -- as it happens in a world ruled by corporations -- there has
long been a "debate" over the factors causing unprecedented rise in
prices of food commodities across the world.
Given the
empirical evidence that has been accumulating over the years, even this apology
for a debate would long be over, had it not been for Goldman Sachs and other
Wall Street vampire squids.
The mounting
evidence and public pressure have, nevertheless, resulted in positive
developments; some big European banks have recently pulled back from
speculative trading in farm commodities.
Check below a
link to the website of WEED (World Economy, Ecology and Development), to find a
PDF containing a list of 100 summarized studies -- compiled by this European
research and advocacy organization – which establish the role of speculation in
driving up food prices.
The varied
sources of these studies include Harvard University
This list may
come in handy for Right to Food activists and as material adding weight to the
empirical evidence establishing the role of speculation in distorting food
markets.
Read below a
report published on 23 May, 2013 in British newspaper The Guardian to get a sense of how the American
vampire squid is blocking the measures that will protect the vulnerable
populations across the world from wild fluctuations in prices of food.
That follows another
report, published in British magazine New
Internationalist, on the ending of food of speculation by Barclays and
other European banks.
Pasted at the
very bottom of this post is a report, published in the Indian Express, which talks
about FAO's dire warning against "tremendous human impact" of
financial speculation.
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What Goldman
Sachs should admit: it drives up the cost of food
As Goldman shareholders meet
today, they should be hearing about the financial titan's exploitative business
practices
Deborah Doane
Today, 23 May, is the annual general
meeting (AGM) of financial speculator Goldman Sachs, the archetypal villain of
the global economic meltdown, bailed out by US taxpayers to the tune of $5.5bn.
Perhaps they'll hand out last year's Community Impact report, which shows how
they've tried to redeem themselves with charity, like serving up almost 30,000
meals and preparing about 250,000 others in community projects in the US and
around the world.
The irony, of course, is that
while they're serving up a few meals, their core business is virtually starving
people at the same time. In 2012, the US investment bank made an estimated $400m from speculating
on food.
The World Bank estimated in 2010
that 44 million people were pushed into poverty because of high food prices,
and that speculation is one of the main causes.
Since Goldman led the drive to
deregulate commodity markets in the 1990s, after constraints were imposed
following the 1930s
Wall Street
crash, they've been at the vanguard of creating and promoting complex commodity
instruments, from which they've raked in huge profits.
Wallace Turbeville, a former vice
president and the inventor of commodity index funds, has been outing the
company's methods. He says that in his time at Goldman, investment increased
from $3bn in 2003 to $260bn in 2008, and commodity prices rose dramatically
during the same period, increasing from 2006 to 2008 by an average of 71%.
In 1996, speculators held 12% of
the positions on the Chicago wheat market, with most of the market being made up of the
legitimate users of food – from farmers to producers. But the legitimate
hedging element of commodity markets has virtually disappeared in the
intervening years.
By 2011, pure speculators made up
a staggering 61% of the market. Of course, Goldman Sachs isn't the only player,
but it is certainly the largest.
For several years, it was hotly
debated whether speculation in food commodities drives up prices. But the
evidence now firmly says it does, and that there's little correlation between
rising prices and actual supply and demand.
There are now well over 100
studies which agree (pdf), from sources as varied and valuable as Harvard University
The knock-on effect of increased
speculation has meant price spikes are now more and more common. In November
2012, the World Bank declared a new era of food price volatility.
While regulators play catch-up on
both sides of the Atlantic , financial lobbyists are doing their utmost to block
progress. The Dodd Frank Act, passed in 2010, imposed limits on speculation;
but industry lobbyists are fighting at every pass.
In September last year, just
before new rules would have come into effect, a Washington DC court ruled in
favour of the International Swaps and Derivatives Association and the Financial
Markets Association, which brought forward a claim that the rules were drafted
faultily. An appeal is now pending, putting any effective regulation way out
into the long grass.
Meanwhile, across the Atlantic , as Brussels tries to bring forward similarly progressive regulation,
the tentacles of Goldman's influence are everywhere. In the UK , Goldman Sachs gave £8.8m ($13.4m) to political parties.
The UK is the primary opponent blocking Brussels-regulation
against commodity speculation.
Members of the European parliament
on the economics and monetary committee met with representatives of Goldman
Sachs, its lobby groups and PR companies nine times in the first six months of
2010 alone – the year regulation was drafted.
Meanwhile, Goldman Sachs is
represented on 16 industry groups that were invited to join a "special
working group" to look at financial reforms for the European Commission.
Charity may be alive and well, but
until the regulators stand up to its influence, Goldman Sachs and its financial
sector cohorts are still able to give with one hand while taking significantly
more with the other.
Barclays ends food speculation
By
New Internationalist Editorial, Feb 2013
Barclays, which
announced an end to its speculation on food on Tuesday 12 February, made up to
an estimated £278 million from the trade in 2012. The figure brings the bank’s
total revenue from food speculation from 2010 to 2012 to an estimated three
quarters of a billion pounds.
Campaigners have
welcomed the move to pull out of speculative deals with hedge funds but are
disappointed by Barclays’ decision to continue selling investment products that
allow other financial players, like pension funds, to speculate.
The £278 million
($431.4 million) figure was released by the World Development Movement, which
is calling for regulation to prevent banks betting on food prices and
contributing to the global hunger crisis.
Barclays has
been the leading British player in speculating on food. Goldman Sachs is widely
recognised as the world leader.
Barclays’
withdrawal follows announcements in 2012 by several German, Austrian and
Scandinavian banks that they would reduce or suspend trading in food commodity
markets. But German giant Deutsche Bank, one of the banks indicating a
withdrawal, has since returned to speculating on food.
Legislation to
curb speculation is on the table at the EU, but the British government has so
far opposed effective controls.
World
Development Movement campaigner Christine Haigh said: ‘Barclays’ announcement
is a welcome step. One of the world’s biggest banks has acknowledged that
gambling on food is not an acceptable way to make money, and other speculators
like Goldman Sachs should take heed. But Barclays remains in the market
peddling investment products which enable others to speculate on food prices,
and could return to larger scale speculation at any time. The only thing that
will prevent banks driving up prices is tough regulation, and this is what the UK
----------------------
Excessive speculation leading to volatile food prices: FAO
Indian Express, Jul 08, 2012
"Let's make
one thing clear, we are not talking about speculation related to price
discovery and the normal functioning of the futures markets. We are talking
about excessive speculation in derivative markets, which can increase price
swings and their speed," FAO Director General Jose Graziano Da Silva said
in a statement.
Speaking at a
high-level debate on role of financial speculation in food price volatility
last week, Da Silva said that the world needs to take a hard look at
speculation on the financial markets and its potential impact on food price
volatility.
"Excessive
food price volatility, especially at the speed at which they have been
occurring since 2007, has negative impacts on poor consumers and poor producers
alike all over the world," he added.
Keynote speaker
at the debate, President of the Dominican Republic Leonel Fernandez Reyna
stressed on the need for more information to get a clearer picture on market
transactions, in order to better understand the role of speculation in
agricultural commodities.
Fernandez said
that the food price swings were having a "tremendous human impact"
and cautioned against using food commodities purely as financial instruments.
"Financial
speculation is exacerbating market fluctuations and this exacerbation is
generating uncertainty - this uncontrolled, unregulated exacerbation is
provoking a dramatic impact on countries that are net food importers," he
added.
FAO has pointed
out that the period between 2008 and 2011 was characterised by a series of
extreme highs and lows in food pricing, which made it difficult for
economically vulnerable consumers and agricultural producers to cope.
"Food price
inflation has already been higher than overall inflation in almost every
country. This has a greater impact on the poorer population, who can spend up
to 75 per cent of their income in food," Da Silva said.
The view that
speculation contributed to recent price volatility has led to more awareness
among governments on the need for the introduction of greater regulation to
limit this activity. However, the question of how much and what form of
regulation is a matter of debate, he added.
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