Why the G20 must wake up to food speculation
Photo by Larry Blucher / CNN Report
Occupy Wall Street! Occupy the London Stock Exchange! Occupy Frankfurt! Over 650 cities and their financial centres, at last count, are to be ‘occupied’ on 15 October, 29 days after the Occupy Wall Street movement rose up and challenged the rule of finance over people and the environment.
Their message? That it’s not OK any more for 1 per cent of the US elite to own 40 per cent of the country’s wealth. That it’s not OK to bail out banks and bankers, and cut health care or education or to cause mass unemployment and kick people out of their homes. That it’s not OK for the rich to get out of paying taxes, while financial markets raise debt interest rates, pushing ordinary taxpayers further into debt.
But take extreme inequality inside the US out of the picture for a moment, it’s worth thinking about whether the developing world should seek to ‘Occupy the US’. Inequality levels inside the States are mirrored at the global level as well. North America and Europe have 66 per cent of global wealth, with only 15 per cent of the population. Africa accounts for just one per cent of global GDP, while being home to both 10 per cent of the world’s population, as a significantly higher proportion of the world’s natural resources.
The global day of action on 15 October happens to be the day before World Food Day. The UN established this day to raise awareness of the causes of poverty and hunger. If I were strategizing with the UN, I would be urging them to join the Occupy Wall Street movement: the finance sector, be it Wall Street or the London Stock Exchange, is at the very heart of global inequality, poverty and hunger.
In the last six months of 2010 alone, 44 million people were pushed into extreme poverty by rising food prices. And it is speculators from stock exchanges around the world who are at the heart of why food prices are going up.
Driven by greed, financial speculation on food prices is seen by investment banks and hedge funds as an opportunity to make a quick buck. In 2010, drought in Russia and a reduced wheat crop were blamed by the media and financiers alike for the spike in wheat prices. In fact, there was still plenty of wheat in the world, with the US, in particular, having produced a bumper harvest. It was speculative money, flooding into wheat commodities, betting on prices going up, that caused the spike.
Aggressive lobbying by the finance sector to deregulate prices in the 1990s set the stage for the vultures to do their work. Between 2002 and mid 2008, the number of food commodity contracts increased by more than 500 per cent. It wasn’t enough that banks, like Goldman Sachs, had hit the average US consumer hard through the sub-prime mortgage crisis and practically brought down the global economy. They continued on their spree, and made a killing betting on food, with Goldman Sachs alone deriving $1 billion of their profits in 2009 by pushing people into poverty.
The impacts, of course, are devastating. In the global north, we typically spend 10 to 15 per cent of our income on food, but in the south, poor households spend anywhere between 50 and 90 per cent. So when prices go up, people may have to take their children (usually starting with the girls) out of school, or sell off their basic assets, or forego so-called ‘luxuries’ like health care, as well as suffering long-term malnutrition.
The G20 finance ministers are meeting this week to deliberate, among other things, this very issue. They’ll be drawing from a report written in June, by international organisations including the IMF, concluding that ‘too much speculation can cause frequent and erratic price changes’ in futures markets. A high level panel of the Food and Agricultural Organisation called on regulators to increase transparency in agricultural commodity markets, and set limits for finance sector involvement, as a first set of important measures.
Amid all this techno-speak is the reality that is being articulated by the Occupy Wall Street movement: that the other 99 per cent, whether it is in the US or elsewhere, has woken up. Let’s hope the G20 wakes up too.
Deborah Doane is director of the World Development Movement.