Ending speculation on food

As food prices rise and become more and more volatile it becomes less and less likely that we will achieve the goal of halving the number of people in the world who go hungry by 2015. Afronline.org, in collaboration with Unicredit Foundation, Fondazione Cariplo and AgiAfro, organises an international conference in Milan (Italy) on Food security in Africa and financial speculation. The event will take place on November 30, 2011.

Every day 25 thousand people die of hunger or from hunger-related causes; an extreme consequence of the daily struggle carried out by the 925 million people suffering from malnutrition. The Global Hunger Index for 2011 shows that although the world has made some progress in reducing hunger, the percentage of vulnerable people is still far too high. The countries with “alarming” situations are to be found in Africa: Chad, Burundi, Democratic Republic of Congo and Eritrea. In these countries as well as in Haiti, 50% percent of the population is undernourished.

While this ongoing crisis repeats itself (see the food crisis affecting millions of people in the Horn of Africa) food prices across the world are subject to extreme variations. Between 2007 and 2008 the prices of cereals and other food products not only doubled but in some cases more than doubled, only to plummet just a few months later. In June 2010 the prices of wheat and corn started rising again and in the first semester of 2011 doubled once more, reaching historical highs.

Why do prices increase this much? Has production decreased to such an extent that foodstuffs have become precious and rare? In actual fact the 2008 crisis was not triggered by the lack of food. World production had, in fact, increased that year. In Africa the harvests of many countries that normally import food were higher than average and had larger reserves. During the start of 2011 production remained constant. According the Food and Agriculture Organization of the United Nations (FAO) and the Organisation for Economic Co-operation and Development (OECD), the price of cereals is likely to stabilize at around 20 percent more than their price today over the course of the next decade.

In order to explain why prices peaked answers must be sought elsewhere, especially within financial markets. International lobbies exist which are capable of influencing the prices on the Chicago Stock Exchange, which is where the contracts which set the price of cereals around the world are negotiated. Some of the financial operations that take place amount to gambling with natural resources that go from food to oil and which can result in sizeable profits. Those who end up paying for this game, however, are the three billion people who live on less than 2 dollars a day and who cannot afford to buy the food they need to survive. Moreover, the appalling fact remains that 925 million people are undernourished in a world that could feed 11 billion people.

The increase and volatility of prices are caused by three main factors: the increased use of agricultural land to produce biofuels; extreme weather events and climate change; the increased trading of raw commodities with forward contracts, that is to say speculating with “futures”, financial instruments which decide today what the price of a given food product, such as rice or wheat, will be tomorrow.

According to the International Food Policy Research Institute (IFPRI), which measures the Global Hunger Index, volatile food prices must be prevented by re-addressing bio fuel policy, regulating financial activity in food markets, adapting to climate change and mitigating its effects. Furthermore it is vitally important that food reserves be built up and that information about food markets be shared and their transparency ensured.

In order to alleviate the effects of the rising cost of food, moreover, it is important to invest in small scale sustainable agriculture, improve the opportunities of poor people, both in rural and urban areas to support themselves and enhance the provision of basic services such as education, health and hygiene.

During the last summit held in Cannes on 3 and 4 November 2011, the G20 announced three guidelines that will direct intervention: investing in infrastructure in developing countries; protecting against the instability of agricultural prices; ensuring food security by fighting against pronounced price volatility through an Action Plan which will strengthen the transparency of agricultural markets by creating an information system capable of collecting and analysing the statistics relating to production, consumption and reserves of agricultural raw materials.

With the Dodd-Frank law, the USA has become the first country to request that financial markets be regulated in order to protect essential goods such as food from speculation.  The European Commissioner for Internal Market and Services, Michel Barnier, has become the spokesperson for an initiative aimed at improving the transparency and reliability of raw materials derivatives in the industrial, agricultural and energy sectors. The proposal could become a law in 2012 and will be included in the framework of the MiFID, the European Directive which  pertains to the use of financial instruments on European financial markets.

In the same vein, the European Commissioner for Agriculture and Rural Development, Dacian Ciolos, is committed, through his proposed reform of the Common Agricultural Policy (CAP) presented in October 2011, to “make the derivatives market more transparent and safer for raw agricultural materials”. Arlene McCarthy, Vice President of the European Parliament’s Economic and Monetary Affairs Committee, has proposed a resolution to the Parliament to ask to stop the financial speculation on agricultural products. Finally, on 15 September 2010, the European Commission approved a European Regulation on “over-the-counter (OTC) derivatives, central counterparties and trade repositories”.

At the same time, civil society and NGOs have launched influential campaigns against the financial speculation on food such as The World Development Movement in the United Kingdom, for example, or Sulla Fame non si Specula (Don’t speculate on food), a campaign launched in Italy by Action Aid, Vita, PIME, Unimondo and Acli with the support of other important third sector players such as Banca Etica, Altromercato, Slow Food,  Coldi­retti, Acra and Intervita. The battle against food insecurity is a crucial challenge that the African Union Commissioner for Rural Economy and Agriculture, H.E. Rhoda Peace Tumusiime summarises with the following words: “Recent experiences of food riots in some of our countries showed us that food crises can pose a high political risk. Therefore, investing in agricultural development and emphasizing food security can ensure political stability”.