Investment Banks Caused, and Are Profiting From, Rising Food Prices
Image: Tambako The Jaguar via flickr
Foreign Policy has a must-read story about the role that Goldman Sachs has played in driving up food prices globally. The story starts back in 1991, when Goldman planted the seeds of a trend that other institutions would follow, to the detriment of anyone who relies on eating food. Or at least, anyone who eats who doesn't also have endless supplies of money.
The World Development Movement (a British organization) recently launched a campaign targeting Barclay's for its role in also profiting from higher food prices, as one of the three biggest players in the commodities markets (alongside Goldman and Morgan Stanley).
The Ecologist explains the World Development Movement's analysis of Barclays' involvement in food speculation:
Barclays could be generating as much as £340 million a year through gambling on the price of key commodity crops like coffee, sugar and wheat, the Ecologist has learnt.
By creating funds to allow investors to speculate on the price of food, in the same way they would invest in the shares of a company, Barclays and others are able to bet on the price of food. However, food commodity trading is leading to higher and more volatile prices, say campaigners, which affect poor families in the less industrialised world the hardest as they can't afford basic foods and also make it more difficult for farmers to plan and invest.
Dozens of speculative non-physical hedgers followed Goldman's lead and joined the commodities index game, including Barclays, Deutsche Bank, Pimco, JP Morgan Chase, AIG, Bear Stearns, and Lehman Brothers, to name but a few purveyors of commodity index funds. The scene had been set for food inflation that would eventually catch unawares some of the largest milling, processing, and retailing corporations in the United States, and send shockwaves throughout the world.
The money tells the story. Since the bursting of the tech bubble in 2000, there has been a 50-fold increase in dollars invested in commodity index funds. To put the phenomenon in real terms: In 2003, the commodities futures market still totaled a sleepy $13 billion. But when the global financial crisis sent investors running scared in early 2008, and as dollars, pounds, and euros evaded investor confidence, commodities -- including food -- seemed like the last, best place for hedge, pension, and sovereign wealth funds to park their cash. "You had people who had no clue what commodities were all about suddenly buying commodities," an analyst from the United States Department of Agriculture told me. In the first 55 days of 2008, speculators poured $55 billion into commodity markets, and by July, $318 billion was roiling the markets. Food inflation has remained steady since.
The story is really worth reading in full.
While rising food costs affect us all, they really have the greatest impact, by no small margin, on people around the world who are already struggling with hunger. People who can least afford to pay higher prices for anything.
And as Lester Brown explains in another Foreign Policy story (the whole current issue is about food):
In the United States, when world wheat prices rise by 75 percent, as they have over the last year, it means the difference between a $2 loaf of bread and a loaf costing maybe $2.10. If, however, you live in New Delhi, those skyrocketing costs really matter: A doubling in the world price of wheat actually means that the wheat you carry home from the market to hand-grind into flour for chapatis costs twice as much.
Check out the World Development Movement to learn more about its campaign against Barclay's, and if you know about a similar campaign targeting Goldman Sachs or the other institutions, please leave it in the comments below. Or start one.