Bank and Hedge Fund speculation causes Food prices to soar

Excerpts from The Third World Network


The recent steep rise in wheat prices has raised fears of another global food crisis. As Tim Jones explains, it is the banks and hedge funds speculating on the price of food that are primarily responsible for this spike in prices.

IN just one month in July 2010, the price of wheat increased by 60%. The huge increase in the price has already led to people across the world paying more for the staple food. The sudden change in the price of wheat has had knock-on effects on other crops. The global maize price increased by 40% between the start of July and the end of August.

At the end of August, demonstrations against rising food and fuel prices were held in Maputo, capital of Mozambique. 'I can hardly feed myself. I will join the protest because I'm outraged by this high cost of living,' said Nelfa Temoteo, who lives in Maputo's crowded Malhazine suburb. Protesters particularly complained of a sharp increase in the price of bread made from wheat. Mozambique tends to import between 200,000 and 400,000 tonnes of wheat a year.

Drought and the consequent fall in Russia's wheat crop were quickly blamed for the spike in prices. Yet the United Nations Food and Agriculture Organisation (FAO) pointed out that despite events in Russia there was still plenty of wheat in the world.1 The US in particular was producing a bumper wheat harvest. Hussein Allidina, head of commodity research at the bank Morgan Stanley, said: 'Fundamentals do not seem to support the rally, with inventories, especially in the US, abundant and poised to increase with the arrival of a good spring wheat crop.'2

The real reason for the large and rapid increase in wheat price lay in banks trading in exchanges in Chicago, US. Away from the wildfires of Russia, hot money flooded into the wheat markets in July 2010, betting on an increase in prices. Dan Basse of AgResource Co. in Chicago said historically low US interest rates were helping to fuel massive speculation in wheat contracts as financial institutions 'look for investable markets' amid concerns that Western economies might suffer a double-dip recession in the coming months.

The ugly face of banks and hedge funds speculating on the price of food had raised its head once again. Sadly, this is what we are facing in today's so-called or so-termed "globalized" world of ours. Indeed, money has risen as the root cause of all evil - even the most precious basic necessity of life - Food.