Recent reports from The Independent show that financial giant Goldman Sachs raked in US$ 400 million in profits off of a financial practice called “food speculation” in 2012. The heat wave of 2012 shrunk grain, cereal, and other staple supplies to their lowest levels since 1974, resulting in a significant price jump for these products. Food speculation is driven by the rising and falling of the price of food item commodities; for example, if the price of corn goes up, the value of the corn commodity fund increases, bringing profits to those who have invested in it, but often driving up prices in developing countries. Investment banks and financial institutions such as Goldman Sachs regularly use this practice to build hedge funds, for example.
In August of this past year, Chris Mahoney, the head of agriculture at the British commodities trader Glencore came under attack by the media for his comment that the same 2012 drought that so abundantly benefited Goldman Sachs would be “good for Glencore.”
According to The Food Crises: A Quantitative Model of Food Prices Including Speculators and Ethanol Conversion by the New England Complex Systems Institute, food price increases are driven by the actual practice of food speculation much more so than by supply and demand changed. Large amounts of participants (traders) in the food commodities market create the kind of price bubbles that make it impossible for citizens in low-income countries to access the sustenance that they need to survive, and also contribute to extreme volatility in food prices. Not only does food price speculation present moral problems, but it actually causes the kind of food crises that highlight its barbarity.
Fluctuations in the price of food are a hugely significant factor in bringing about food crises in developing countries. According to the U.N. Food and Agriculture Organization‘s Director-General José Graziano da Silva, low-income households can spend as much as 75 percent of their income on food. As a result, any price fluctuation has a major effect on their purchasing power.
Graziano da Silva cited this statistic as part of his call for national leaders to take steps towards the regulation of food speculation. As a step toward addressing its detrimental effects on the developing world, the FAO, in collaboration with the Organisation for Economic Co-operation and Development, has undertaken an initiative called the Agricultural Market Information System. One of its primary purposes is to analyze the interactions between agricultural and financial markets to better inform government policy decisions.
