Banks threaten food prices

Big banks are making big profits by speculating on food prices, says the World Development Movement (WDM) in a report after cocoa prices soared to their highest level in 33 years. In a report called The Great Hunger Lottery, the campaigning organization describes the ins and outs of a “secretive” business which is causing prices of food grown in developing countries – like coffee, cocoa, wheat, maize and soya – to sharply rise and fall, earning them millions and leaving producers and consumers out of pocket. 

Goldman Sachs allegedly earned $1 billion (800 million euros) profits from speculating on food last year. Other banks that the WDM has pointed its finger at are the Bank of America, Citibank, Deutsche Bank, HSBC, Morgan Stanley and JP Morgan.

“Nobody benefits from this kind of reckless gambling except a few City wheeler-dealers,” said WDM director Deborah Doane. “British consumers suffer because it pushes up inflation, British companies suffer because of unpredictable oil and raw material prices, and the world’s poorest people suffer because basic foods become unaffordable.”

When ?cocoa prices increased by 150% in 18 months, reaching their highest levels for 33 years, poor harvests had just been the initial trigger. Hedge funds and investment banks speculated on prices to keep them inflated causing chocolate makers to either raise prices or use less cocoa. Last month, the price of coffee jumped by 20 per cent in three days, after a trader called the bluff of hedge funds that had been raking in millions from selling coffee contracts and betting on the price to fall. This left hedge funds scrambling to buy actual coffee beans, and the price shot up from the extra demand.

In the report, the WDM warns that unless urgent steps are taken by the government to clamp down on the banks, prices could get out of control. The organization is calling on the UK government to follow in the footsteps of a USA reform passed last week aimed at preventing speculation on food prices. The WDM’s main fear is that the strong banking lobby in London will oppose regulation meaning that prices will rise both in Britain and in developing countries.

Take Action! The WDM is encouraging people to complain about Goldman Sachs and other banks making profits from gambling on food to the Financial Services Authority, which regulates bank behaviour. Over 800 people have already pledged that they will call the FSA this week to register their complaint and to call for action to stop speculation on food.