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.

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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The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

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