The extract below is taken from an article by Luigi Russi, author of "Hungry Capital: The Financialization of Food". It is in no way a call for socialism, or even for an end to capitalism, but it is a clear explanation of how producers at the bottom of the food chain are exploited and are increasingly at the mercy of big financial houses.
A big piece of news for food politics
enthusiasts this summer was India’s veto over a proposed agreement — to
be concluded within the legal framework of the World Trade Organization —
on ‘trade facilitation measures’. The agreement was meant to regulate a
number of sensitive issues, mostly related to customs infrastructure
and procedures, which are liable to affect trade between WTO members. As
it often happens with international agreements, however, exceptions and
exemptions are as important as the rules being agreed. In Bali, which
is where the ‘trade facilitation’ negotiations were happening, the bone
of contention happened to be India’s request for a permanent exemption
from further trade liberalization of its public stockpiling and
distribution system for food staples.
Food and financial markets
In
the book, I make a point that I reiterated in my presentation at that
conference. Namely that, when public price-control mechanisms like the
FCI are taken out of the picture, this leaves many small farmers at the
mercy of price fluctuations. In practice, this means that they might
decide to err on the side of caution and try to sow more from one year
to the next, so as to preserve their overall income even in the case of
falling prices (by selling more). The sad irony of this strategy,
however, is that, as many farmers simultaneously do the same, they
create a glut that depresses prices even further, creating the very
conditions they are trying to shelter themselves against. Desperate to
secure sales for their crops, farmers will also accept whatever prices
will get them an income. In other words, they will be more eager to bend
to the dictates of more concentrated brokers and processors further
along the food supply chain.
Moreover,
in the absence of a public insurance system like the FCI, those who can
will purchase private insurance. And that private insurance, when it
comes to crops, is called a future. Futures are agreements for
the sale or purchase of standardized commodities (like many food
staples, and especially grains) at a fixed price for future delivery.
They are insurance contracts because they are meant to offer the
immediate security of a fixed price, despite market prices being
otherwise open to fluctuations until the delivery date. Futures are
traded on regulated financial exchanges and, as such, they are used by
only a minority of larger farmers who can obtain access to that sort of
infrastructure. What’s worse is that the bulk of trading on futures
markets since the year 2000 has surprisingly been conducted, as a
consequence of more relaxed regulation in the United States, by
financial houses like Goldman Sachs and UBS, after they have been
allowed to take large positions on these markets.
This is something these large financial houses do in order to insure
themselves — not against the risk of not being able to sell crops for a
decent price (as is the case for farmers) — but against the financial
risks entailed by their commercial offering to their customers. This
includes products that require them to synthesize virtual ownership of
commodities, transferring to their clients a cash flow that tracks the
price of the corresponding commodity futures. The interference of
financial players in a market, that of futures, which is also meant to
be an insurance for farmers, causes the price of futures to reflect the
spurious concerns of these investment houses, and ultimately makes such
markets only nominally suited to insure farmers against the risk of
price fluctuations.
In fact, in order to avoid having to take delivery
(because these types of transactions still require delivery, even if
delayed in time), investment banks have to keep pushing their positions
into the future. In doing so, they create recurring surges of ‘buy’
orders on more distant delivery dates, which means they make it seem as
though a huge demand for a given commodity is to be expected further
into the future.
As a consequence, the affected commodities can end up
attracting a higher price for future delivery than they do for immediate
sale. A situation like this, of escalating prices as the delivery date
is pushed further into the future, ultimately encourages present
hoarding (because, if you can store grain and sell it tomorrow for more,
you might just decide to do that).
It
is precisely a dynamic of this sort that has given rise to two
consecutive boom and bust cycles in the price of food staples, in
2007-’08 and, more recently, in the summer of 2012. These cycles stem
from the pattern of trading I just described, paradoxically occurring on
markets that are meant to insure against those very price
fluctuations. Mixing farmers and investment houses, in other words,
turns a simple insurance contract into an instrument of speculation,
transforming the livelihoods of farmers (as well as access to food
staples at affordable prices) into yet another bet for the financial
casino.
*****
In sum, one year after the publication of Hungry Capital,
things do not appear to have taken a turn for the better. Despite the
critical voices being raised by activists, academics, and even
institutions like the UN Special Rapporteur on the Right to Food, it
seems that the progressive conquest of rural development to the logic of
financial calculus is ever more pervasive. Put this way, it seems an
almost impossible battle to win. However, the spirit of a piece like
this is not so much to elicit a further retreat into indifference, under
the Thatcherian mantra that There is No Alternative to markets and
commodification.
The
commons and real democracy movements in Europe have shown, for example,
that there is a third way between the individualism of responsible
consumption and the tiresome and frustrating pleading to political
leaders for change that never comes about.
It is here that SOYMB points out once again that the only real democracy movement is that of socialism wherein the commons can really become the commons, unbeholden to any private interest or public/private partnership in the name of profit. Capitalism, as a system, can never be re-formed to benefit the majority. When that is clearly understood we can at last be on our way to a world in common.
JS
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