Hunger games at the casino - the return of food speculation
09 February 2016
'Take the highest stakes, riskiest economic behaviour ever devised, and marry it to the most fundamental basic need of humankind.' My friend, Tim Jones, author of The Great Hunger Lottery sums up all that's wrong with the idea of betting on food prices in financial markets.
And in January 2014, we managed to convince enough decision makers in the EU to come to the same conclusion. After a four year campaign, together with our European allies, we won new EU rules to tackle excessive food speculation. Crucially, the EU rules included the introduction of position limits - these restrict the amount that companies can bet on food prices, in order to curb harmful speculation. It was historic move in the EU as no similar rules had ever been attempted anywhere in Europe.
Futures contracts have been used for hundreds of years, helping farmers deal with the uncertainty of growing crops (such as unforeseen weather conditions). Their original purpose was to help farmers to sell crops at a future date at a guaranteed price. However, these contracts can also be bought and sold by speculators who have no interest in the actual food being traded. Instead, by buying and selling the contracts they could profit from the prices changing over time – essentially betting on the price of food.
These markets for futures contracts worked well until the late 1990s, when aggressive lobbying by bankers led to regulations being rolled back. New and complicated financial products were created by banks to profit from betting on food.
But during the 2008-2009 global food crisis, prices for staple foods like wheat and corn rocketed to record levels and excessive levels of speculation on food had played a key role in driving up food prices – leading to increased poverty and hunger globally.
Following the global food crisis and the financial crisis, the EU made commitments through the G20, to regulate the financial markets to address massive price volatility in essential commodities like food and to introduce a robust position limits system.
Over the last two years, the European Commission has been working on implementing the legislation. But the Commission is currently considering proposals which would massively weaken the effectiveness of position limits. This would undermine what hundreds of thousands of people have campaigned for. If Jonathan Hill – the Commissioner for financial services - does not change his mind, his proposals will allow excessive levels of food speculation, leaving millions across the world vulnerable to volatile and unstable food prices again.
We have to fight for this again. Jonathan Hill is going to make a final decision on this at the end of this month and we want to remind him that we have not gone away. We are going to send an open letter to him remind him of the importance of a strong position limits system. But we need as many people as possible to sign on to it so that we can show that we have not gone away and that we still want to stop corporations from betting on hunger.
The open letter was delivered on 21 February so we cannot accept new signatures. But you can help us to tweet it here.