In 2007 and 2008, there were once against spikes in global famine, there were hunger
revolts in over 30 countries, a further 115 million people fell into extreme poverty,
caused by a drastic rise in food prices.
Between 2006 and 2008, the Food and Agriculture Organization's Food Price Index registered
a price increase of 71% for the most essential food stuffs.
This increase was as high as 126% for rice and grain.
Afterwards the prices fell, only to rise once again.
By the beginning of 2011, they had attained heights already seen in 2008.
The hardest hit by these price hikes are people in developing and emerging countries.
While average households in industrialized countries spend about 10-20% on food, spending
reaches 60-80% in households of less developed lands.
Those result price adjustments have a devastating effect in these regions.
In line with these statistics, a price increase of 71% in basic food stuffs would lead to
approximately 10% in additional expenses in industrialized households.
In contrast, a developing household would be saddled with nearly 50% in additional
expenses.
The following reasons are frequently cited for the food price hikes in 2007 and 2008.
Price in demand, the decline of the dollar, agricultural neglect, restriction on exports
in key producer countries, production of biofuels, high oil and fertilizer prices, and bad harvests.
The current price rise could initially be explained by harvest losses over the past
few months in Russia, Australia, and other producer countries.
But the extreme price peaks cannot be explained by the factors listed above alone.
Many observers cite a further factor, ever stronger speculation on commodities markets.
Food stuffs are not only bought and sold directly, but are also subject to forward buying, a
process in which future harvests are traded.
A farmer who is not sure how much his harvest will be worth can protect himself on the futures
market from price fluctuations.
In the simplest form, the farmer can contractually stipulate a certain price with a miller as
well as the future delivery date.
These agreements to purchase or sell a commodity for delivery in the future are called futures
on stock exchanges and are otherwise referred to as forwards.
To make it easier for the farmer and miller to trade on the futures market, intermediaries
act as hedgers.
They contact the farmer, for example, and offer to take over his losses if the price
of grain drops below a certain margin.
However, if it rises significantly, they can pocket the profits.
The hedger also charges the farmer a fee for his effort and risk.
He offers the same deal to the miller.
This means that the price of grain rises slightly overall, but both farmer and miller are assured
planning reliability.
This type of speculator is often well versed for the food commodity market and is generally
considered to be a stabilizing force on the market.
Further speculators associate with the hedgers, who depending upon the willingness to assume
risk, distribute or multiply the risks and opportunities of the original contracts with
further futures, forwards, and other mechanisms of the financial market.
For a long time, there were relatively few speculators on food commodities markets.
However, the situation has changed completely.
On the one hand, laws have become increasingly lax over the past 10 years.
In the USA, for example, banks and funds have increasingly been allowed to trade on the
futures markets.
On the other hand, this occurred because the property markets collapsed in the wake of
the world economic crisis.
Speculators were looking for a new market, and many of them were driven to agriculture.
This influx of new speculators on the market includes hedge funds and index funds.
Index funds concentrate on replicating the physical market by purchasing enormous quantities
of futures.
However, it is generally accepted that they drive prices upward because they mainly buy
futures, which gamble on rising prices.
The widely discussed hedge funds proceed differently.
They speculate through various means on the financial market and employ diverse strategies,
which allow them to reap profits even when the market falls.
This new kind of future speculation is now playing an increasing role in Europe, particularly
on the London and Paris stock exchanges.
However, it is certainly most developed in the USA.
Here the proportion of producers, consumers and dealers involved in future contracts
decreased from 39% in the year 2000 to 15% by the beginning of 2008.
The ratio of U.S. wheat's futures to physical U.S. wheat production has changed outright.
In 2002, the number of futures was 11 times larger, by 2004, 16 times, and in 2007, 30
times.
The influx of speculators means that even more contracts are signed that have nothing
to do with the conditions of the real economy.
Some speculators are starting to manipulate the markets in order to generate profit.
The majority merely gamble on the actions of other speculators or exploit short-term tendencies.
As a result, minor price shifts become major trends.
Speculation provokes price spikes, which mainly profit the speculators themselves.
The speculator influx has an opposite effect to the price-stabilizing effect of fewer speculators.
Through rising speculation with future contracts, food commodities become less of a utility
value and more of a financial investment.
This is known as financialization.
The prices increasingly become affected by the fluctuations of the financial market and
are no longer affected by the needs of the people, farmers and business establishments.
During negative experiences with the liberalization of markets, the U.S. has already begun to
regulate its markets more strongly.
It was decided to force off-market trading back onto the stock exchanges, to introduce
restrictions on speculators, and to oblige them to provide more information about their
activities.
This topic is now also being discussed in the EU.
The European stock exchanges are currently under-regulated, ever-stronger financial speculation
threatens to create further bubbles.
For this reason, we need stricter laws, stronger trading regulations for speculators through
price and position limits, and greater transparency.
