The Staggers

The New Statesman’s rolling politics blog

The threat of rising food prices

This is as much a part of what’s wrong with our financial sector as the Greek and Irish debt crises.

By Deborah Doane Published 11 January 2011 12:54

While inertia continues to define the coalition government's approach to banking regulation, the bankers are happily enjoying yet another free-for-all spending splurge – and fears are emerging of a new bubble. This time, it's a commodity bubble, similar to the one that led to food riots around the world in 2007 and 2008.

In case you hadn't noticed, food prices are at an all-time high: the latest figures show food price inflation at 5.5 per cent, outpacing the overall inflation figure of 3.3 per cent. You'll be paying as much as 25 per cent more for your regular cuppa as tea prices rise; and we already saw the cost of our Christmas turkey go up by more than £3 before Christmas, due to the doubling in feed costs in 2010.

The Food and Agriculture Organisation's Food Price Index, released last week, shows that a range of basic food prices are actually higher than they were when food riots broke out in places like Mozambique, Egypt and Haiti just two years ago. In the first week of December, the benchmarked US wheat price reached $327 per tonne, which is a staggering 70 per cent higher than that for July 2010, just six months earlier.

Some market analysts would have us believe that it's a simple case of time-honoured supply and demand. But aren't these the same analysts who also said that mortgage derivatives were a good bet for investors? Market fetishists often fail to ignore the evidence as it suits them.

Although the long-term trends do point to a gradual rise in prices, due to a range of reasons from climate change and biofuel production to increasing consumption, basic supply and demand alone doesn't account for the high price volatility and huge changes being seen in recent months.

Price spikes of upwards of 70 per cent are being led by hedge funds, investment bankers and pension funds that have poured over $200bn into food markets since the financial crisis, betting on prices going ever higher. With few options to place your bets these days, and especially with the ready-made cash available through quantitative easing, food isn't a bad place to start – for the bankers, anyway.

A few extra pence for a loaf of bread doesn't seem like a lot to most of us, but the story is rather different if you're in a developing country, relying on imported staple foods just to get by.

Meanwhile, the replay of food riots began last week, with three people killed and 300 injured in disturbances that broke out in Algeria. For some of the poorest people in the world, as prices rise, education falls by the wayside; basic assets such as farm animals get sold, and a short-term crisis can lead to long-term chronic malnourishment for a generation.

Food isn't an asset like any other – it's fundamental to human life. Commodity markets exist to enable people to buy and sell food, but are now the best place for speculators to make a quick buck through murky "over-the-counter" trades and a self-fulfilling prophecy of ever-rising prices.

The story of food prices is as much a part of the picture of what's wrong with our financial sector as the Greek and Irish debt crises, or the obscene level of bankers' bonuses. The reality is that the same speculators who caused the global economic meltdown through their illustrious trade in sub-prime mortgages are now betting on our food system, too.

The issue has prompted the French president, Nicolas Sarkozy, to plan to raise the matter with Barack Obama later this week in Washington, as part of France's duties as leader of the G20.

So when the coalition government decides to ignore the evidence and turn a blind eye to regulating the banking sector, the result is inflation and ongoing volatility in financial markets, failing people far beyond our borders.

These markets need to be brought back under control, limiting excessive speculation, ensuring that markets are fully transparent, and not holding the rest of us to ransom through unnecessary and unscrupulous price rises.

Deborah Doane is director of the World Development Movement.

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23 comments

Tue, 2011-01-11 15:37 — Stuart (not verified)

Speculators can only really make money if they are betting on fundamentals. Speculators are betting that the price of food will be higher than it is today in, say, 12 months time, but they will only make money if they are right about the supply and demand in 12 months time. The advantage of speculators is that they predict the future price of food. As they are predicting it will be higher people will produce more food to utilise this higher price and other people will consume less. Speculation actually acts as a market stabiliser. If speculators did not act then in 12 months time there could be a severe shortage of food as the demand would have been too high for the preceding 12 months and the supply would be too low because the price would have been too low. Speculators also allow farmers to work in a less risky environment because they get a guarenteed price for their produce in 12 months time, allowing them to properly plan for a stable future.

Sat, 2011-02-05 12:18 — David Vinter (not verified)

Thanks Lou, when I wrote my letter, I had no idea that within weeks the first great food riots would be taking off in Egypt, where there are now 80 million humans, quadrupled since 1945!
Half of them are now under 20, Egypt is the biggest wheat importer in the world, and it imports 80% of its food.No government change will alter these figures!

Thu, 2011-02-03 12:30 — Lou (not verified)

I agree with David Vinter.

By the mid century we are likely to see major food shortages and water shortages and wars will be fought over these essentials. Already we have seen larger conflicts that started out as issues over food, water and land. We are facing peak oil, peak soil, peak minerals and severe water problems in our children's lifetimes and possibly our own. Time the Govt woke up and smelled the coffee.

The Coming Famine by Julian Cribb is an excellent appraisal of our current situation and the future ahead of us. IMO it's a book everyone should read.

Thu, 2011-01-13 05:28 — Tom (not verified)

This is speculation to make $$$$. How else can you explain Oil and Food prices rising this rapidly? It's a casino with Wall Street, Investment Banks, Hedge Funds, Pension funds as the players playing with all the cheap FED money that is given to them. This will all end badly and everyone will say "No one could have seen this coming".

Actually many could and chose to listen to the rich bankers who complained it would be a bad idea to regulate.

If the FED starts mopping up excess liquidity and the CFTC starts regulating like they are supposed to, it might not be so bad.

Even farmers are getting creamed on Diesel, seed, and fertilizer costs. It is all speculation and everyone will go broke except for the bankers who play this reckless ponzi scheme.

Sun, 2011-02-06 13:04 — andyg (not verified)

'What is the relationship between our wealth and our ability to live as we would like?' (Sen)

Fri, 2011-01-28 04:37 — anna (not verified)

think back 6 months before food cost spiraled around the world. wall street was bragging how commodities is the new hot spot for investing last summer. look what happen since to food prices around the world for what they saw is how the big investors and big banks jump in two years ago to hide all there cash flow and how steady of investment this was gaining then presto the speculators jump in last summer and here we are today starving a third of the world. i say total band on food spec or food investing for every one that dies because of there middlemen theft just as a war crime there so be food crime and prision time for this heartless bastards yes there is supply and demand but not supply then i buy it she buys it he buys it they buy it we buy it then we sell it to you after we took our cuts or paid offs or bribes just like a mafia corrupt cartel. but to play this game when gods people our children of this world will starve to death. we need to stand up now and food needs to be 100 percent regulated off limits totally from these ruthless bastards.

Tue, 2011-01-11 20:57 — David Vinter (not verified)

As usual an article about food prices, full of half truths. Sorry but I know, as a retired agricultural economist, reared on a farm, my brother still farming.
NOT ANYTHING about the fact that the world population increase is faster than world agricultural food increase. Every week there are an EXTRA one and a half million human mouths to feed, until the world grasps this fact, and takes action, there is little long term hope for mankind!
In the UK we have been devaluing our currency since 1945, hence any imported food [currently 45 %] is more expensive.
The truth is that huge areas of the worlds poor are fed by the USA aspecially in the middle east. China is feeding its billions by big imports from Brazil, India is getting into a serious situation as its irrigation wells dry up.
Take it from me the next major war will be fought over food, and overpopulation.

Wed, 2011-01-12 19:43 — matthew fox (not verified)

Looks like 2008 again, increases in food and petrol.

All the happy news brigade seem to be missing these important events.

Tue, 2011-01-11 21:24 — Reginald-Fah-fah

'That means more peope will turn to junk food and kebabs and obesity levels will rise.'

I agree! More people will be eating more cheap chicken from the local chicken shop!

Wed, 2011-01-12 20:27 — Fruininut

If conflict between two ideologies can not be settled then ordinary people starve to death... ! and that's exactly where we are headed.

Wed, 2011-01-12 20:44 — stevem1

A couple of years ago thousands of people all over the world died due to high food prices. As someone who spends a lot of time in Turkey I have some experience on what happens when bread prices are high..This is about to be repeated. Astonishingly,the people responsible are being defended here by heartless moron called Stuart. Where does this android reside.

Tue, 2011-01-11 22:55 — Dominic Lynch O...

My lovely wife makes me cheese and tomatoes sandwiches, and now we will have to leave the tomatoes out.

Does anyone know whether I should keep driving to the supermarket for the cheapest loafs of beard, or by an more expensive loaf of beard?

My mates say I spend more on fuel than I save on the loafs of beard!

Mon, 2011-02-07 20:14 — andyg (not verified)

@swatantra.
As food prices rise, the relative costs are passed on to the small outlets and subsequently the consumer which ultimately forces them to close down. The merchants hold on to their stock to force grain prices up further which further forces hardship. In India for example there was a plentiful supply of grain on the market, enough to feed the population twice over, but the rumour of shortage led to the great Indian famine.

Mon, 2011-02-07 20:16 — andyg (not verified)

@David Vinter.
According to Sen, world food production has doubled since the 1980's in relation to population growth.

Wed, 2011-01-19 11:21 — Tim Worstall (not verified)

Blimey.

Look, the whole thing about speculation in food being the solution to shortages (as Stuart points out) rather than the problem itself is spelt out in Adam Smith's Wealth of Nations (Book 4 chapter 5).

Don't you think that 235 years is long enough for people to grasp the point? Yes, even campaigners from the WDM?

Wed, 2011-01-12 10:41 — mitchy

Hey, whats the problem NS, why am I being censored again?!

Sun, 2011-01-23 15:21 — Norman Mackenzie

h t t p://s h o p p i n g 0 1.o r g

Wed, 2011-01-12 11:30 — swatantra

Dear Dom ... Get youself a breadmaker. All processed sliced bread these days tastes foul and acidy, because of the preservatives and because it sweats in plastic wrapping. In the old days bread came in paper wrap and tasted helluva lot better.

Sun, 2011-01-23 15:26 — Norman Mackenzie

http://madejerseys.org/products/?Size-60-Jerseys-s968_p1.html

Tue, 2011-01-11 14:02 — swatantra

That means more peope will turn to junk food and kebabs and obesity levels will rise. Although some meat and fresh veg mix or broth is much cheaper to throw together than a trip down to the local kebab shop.

Wed, 2011-01-12 13:00 — Dominic Lynch O...

A beardmaker is a grand idea!!!

I might buy one (like 'Call me Dave') and make loafs of beard in my summerhouse or white lock up.

My home is museum and the mess of making grand health bread, will drive my wife crazy. In her new kitchen... I dread to think.

Mon, 2011-01-24 20:03 — Richard (not verified)

Betting on food rising and making a quick buck is the route of all evil. Having said that 99% of pensions funds have British American Tobacco in their tracker funds, sad but true.