Hunger Is Our Problem, Too

Speculation in commodities - a beginning that makes my eyes glaze over. But it has been driving up prices in things like rice, and may well be more of a cause for growing hunger in the world than even the huge incidence of drought that wreaked havoc with last year's wheat crops.

....William Pfaff wrote in the April 16 International Herald Tribune:

[M]ore fundamental is the effect of speculation in food as a commodity – like oil and precious metals. It has become a haven for financial investors fleeing from paper assets tainted by subprime mortgages and other toxic credit products. The influx of buyers drives prices and makes food unaffordable for the world's poor. "Fund money flowing into agriculture has boosted prices," Standard Chartered Bank food commodities analyst Abah Ofon told the media. "It's fashionable. This is the year of agricultural commodities."5

The "hot money" that has fled the collapsed real estate bubble is now moving into the commodities bubble, and that includes food. "Hot money" is an influx of speculative capital in search of high rates of return, quickly moving from one market to another. It moves, however, not because the products are better (the traditional justification for price-setting according to "free market forces") but because the speculative "spread" is better. Money is invested not in making real goods and services but simply in making more money. Food prices are being driven by speculators, and today that includes ordinary investors like you and me, who can now gamble in agricultural futures through ETFs that have opened up a lucrative market formerly available only to big investment players.

Conventional economic theory says that prices are driven up when "demand" exceeds "supply." But in this case "demand" does not mean the number of hands reaching out for food. It means the amount of money competing for existing supplies. The global food crisis has resulted from an increase, not in the number of mouths to be fed, but simply in the price. It is the money supply that has gone up, and it is investment money in search of quick profits that is largely driving food prices up. Much of this seems to be happening in the futures market, where fund managers seek to maximize their profits by using futures contracts.

What a spectacle this conjures up, the rich getting richer not by bidding up houses now that that has bombed out, not in silver like the Hunts back in the 60's - but taking the food off your table.

Of course, the effect of daily skyrocketing shipping costs does not enter into this speculation, the price of oil has been making everything, not just food, rise unreasonably.

As Feral Liberal commented here yesterday:

Speculators in the futures market are a large part of the real reason prices are so high, but they're just exercising their right as predatory capitalists. The only real answer is to drastically reduce our oil consumption, if we could ever get a government willing to commit to such a heretical concept...

If we are not going to watch the world starve all around us, it looks like the world may need more regulation of the boundless greed of the few.

Maybe I should have planted a bigger garden.