The World Summit on Food Security ended today in Rome, with words about cutting hunger, but no real progress on one of hunger's key causes: speculation.
On the summit's opening day, the Pope spoke condemning "greed, which causes speculation to rear its head even in the marketing of cereals, as if food were to be treated just like any other commodity." On its second day, U.N. Special Rapporteur Olivier De Schutter warned that another food price crisis, like last year's, is just a matter of time if the world's richest nations don't get a handle on food speculation and agrofuels. But today, delegates went home having adopted a declaration that calls for study of "possible links between speculation and agricultural price volatility."
A lot of study of this is already out there, showing that these links are more than "possible." Food and Water Watch's recent report Casino of Hunger points out that, between 2006 and 2008, the value of futures contracts in corn, wheat, and soybeans skyrocketed from $33 billion to $94 billion. In 2008, the year of the food price crisis, one category of speculator, index funds, controlled almost half the U.S. wheat harvest and 30 percent of the soybean harvest. With this kind of money pouring in, commodities futures stopped giving market signals about the actual demand for food (which would help farmers plan how much seed and fertilizer to buy) and instead started reflecting the navel-gazing whims of global speculative capital, which stampedes hither and yon as fund managers try to ride the market's self-created bubbles.
What can we do to stop this? One way is to reverse regulatory changes of recent years. In the years before the 2008 food bubble, regulators had effectively stopped enforcing "position limits" (limits on the number of futures contracts that a speculative trader can take) on large speculators; opened the door to less-regulated "over-the-counter" speculation; and did nothing to tamp down on the growth of "index funds" (which buy and hold food futures for large institutional investors).
The financial reform bill Senator Dodd has recently introduced (which, in addition to food futures, covers other "derivatives" such as mortgage-backed securities), would strengthen position limits and put some restrictions on over-the-counter speculation -- although there are some loopholes which, if they stay in the final bill, could render it ineffective. Another important part of the solution is to change the current double standard by which index funds that profit from food futures pay a lower tax rate (the long-term capital gains rate) than people who actually are in the food business. And, of course, a modest financial transactions tax would help rein in Wall Street's out-of-hand stampede behavior, in the general economy as in the food market. As the reform legislation is in flux, now is a key time for discussion of all these policy tools.
Speculation is by no means the only cause of hunger, of course: other problems include poverty, lack of government investment in agriculture, rising agrofuel production, and high U.S. meat consumption and rising Chinese meat demand. But speculation, which is responsive to fairly cheap changes in regulation, is some of the lowest-hanging fruit for people who care about helping our hungry brothers and sisters worldwide. Morally speaking, "let them eat our bubbles" is not an option.
Elizabeth Palmberg is an assistant editor of Sojourners.