Sunday, February 05, 2012

ending food speculation

At the beginning of the 20th century in Chicago, derivatives were invented. Their value is “derived” from the price of another “underlying” asset, such as stocks, bonds and other financial instruments. They were originally meant to allow farmers in the Midwest of the United States to sell their crops at a fixed price prior to harvest, hence the term “futures contract.” If the stock price fell at the time of harvest, the farmer was protected; if the price rose, investors made a profit. But in the 1990s these assets came to be used for speculative rather than prudential purposes.

Speculation in food has increased following the financial crisis: Turning their backs on the mess they had created, speculators -- particularly hedge funds -- moved into agricultural markets. To them, all the planet’s resources are fair game for speculation, including basic foods such as rice, maize and wheat, which together make up 75% of global food consumption. According to the FAO’s 2011 report, only 2% of futures contracts for raw materials end with the actual delivery of the product. The other 98% are traded by speculators before their expiry date. The phenomenon reached such proportions that the US Senate became concerned, and in July 2009 denounced “excessive speculation” in wheat, criticising the fact that some traders held as many as 53,000 wheat futures contracts at any one time. The Senate also complained that six index funds were currently authorised to hold 130,000 contracts on wheat at a time, 20 times more than the authorised limit for standard financial operators.

Heiner Flassbeck, chief economist at the UN conference on trade and development (UNCTAD), has come up with a solution to defeat the speculators, and protect agricultural raw materials from their repeated attacks: removing food from their grasp. He proposes that the UN give UNCTAD worldwide control over setting stock prices for agricultural raw materials. Only producers, traders and users of these materials would be able to intervene on the futures markets. Anyone who traded wheat, rice, or oil, would have to deliver the goods. It would also be advisable to impose a high minimum level of self-finance on traders. Anyone who did not make use of a traded good would be excluded from the stock exchange. If the “Flassbeck method” were implemented, it would remove speculation from the basics of survival, and hinder the financialisation of food markets.

However as the WSM has demonstrated over the past decades, it is not the regulation of capitalism that is the problem, but it is the capitalist system itself which is the problem. Food shortages and famine existed before the 90s. It is the global profit-drive market system whose golden maxim is "can't pay--can't have" - the poverty and the inability to be able to buy the commodities - which requires to be addressed. Food will only be produced if there is a market for it—i.e. people with the money to buy it. The needs of those without money do not count. The assumption that food will only be produced for markets pervades the debate about whether the world can be fed.

Unlike the UN and numerous international agreements, multi-lateral accords and protocols which are repeatedly undermined by national rivalries and vested interests, removing the purpose of accumulation (the raison d’être of capitalism) and transforming world society into one of free access and common ownership – the world belonging to all and to none – will be to eliminate the causes of hunger and bring to an end to the speculation in food.

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