Jun 29 2012
The Evils of Food Speculation
In recent years we have witnessed the devastating impact that food insecurity can have on the poorest people in the world. Last year a severe humanitarian crisis developed in the Horn of Africa as the result of famine. It is estimated that around 27% of children in the developing world are malnourished, putting their development at risk and in danger of contracting disease.
Food insecurity always hits the poorest hardest. Although there are many causes of food insecurity such as the need for better investment in the agricultural sector in developing countries, the issue of “land-grab” and trade distorting subsidies, perhaps the most shocking to those of us in the West, is that of financial speculation on basic food commodities.
At a time where the price of basic food staples such as wheat, maize and soy are increasing beyond the purchasing power of those in the poorest countries, it is a scandal that banks in the West are contributing to this perilous situation. Deregulation of financial markets, a feature of the neo-liberal ideology which Margaret Thatcher championed, has caused banks to practically gamble on the prices of all manner of goods including the bare essentials we need to survive such as food.
In recent years speculators have accentuated the food crises by causing dramatic spikes and crashes in the price of food staples. An example of this speculation is ‘futures contracts’ which original purpose was to guarantee the farmer a set price for their crops to provide stability in a sometimes volatile industry (erratic nature of crops). Over the last twenty years, however, these ‘future contracts’ have been hijacked by speculators who have no interest in the food as actual physical goods but instead as investments which they can buy low and sell for a higher profit.
It is immoral to fuel food insecurity by speculating on prices for profit at a time when so much of the world’s population is struggling to feed themselves.
The European Parliament is currently reviewing financial legislation and the Socialist & Democrats (S&D) Group is at the forefront of trying to push through new regulations to prevent speculation on basic food commodities. Currently a revision of the Markets in Financial Instruments Directive (MiFID) is currently proceeding before the Economic and Monetary Affairs committee of the European Parliament and my colleague Arlene McCarthy, who is Vice-President of the Committee, is looking to ensure that commodity markets work in the interest of consumers and producers and not financial traders. The report calls on provisions for derivatives to be standardised and traded on exchange and limits to be set on the number of contracts a financial institution can take out on a commodity. Once the report has been voted on and adopted in committee it will appear before the entire Parliament for approval.
I was also Rapporteur of a report that recently went through Parliaments, African, Caribbean and Pacific Joint Parliamentary Assembly (ACP-JPA), which dealt with the issue of food security and price volatility. My Report identified financial speculation on food prices as one of the key contributors to price volatility on global food prices and called for much stronger regulation of financial institutions. The resolution called on the G20 to come forward with international action to combat dangerous speculation and avoid excessive price volatility.
It is of the utmost importance that governments across the globe take strong and brave action to regulate financial institutions which for too long have been allowed to do as they please with no boundaries.
I will continue to do all I can in my capacity as Member of the European Parliament to push for increased financial regulation.