Food speculation

Food speculation

Banks are earning huge profits from betting on food prices in unregulated financial markets. This creates instability and pushes up global food prices, leaving millions going hungry and facing deeper poverty. In January 2014, after four years of our campaign, the EU agreed to introduce new rules to prevent hedge funds and investment banks from driving up food prices.

What is the problem of food speculation?

Banks, hedge funds and pension funds are betting on food prices in financial markets, causing drastic price swings in staple foods such as wheat, maize and soy.

These markets were originally developed for the benefit of those involved in the production of food, yet over the last 10 years they have changed almost beyond recognition. Deregulation has enabled speculators to dominate, causing drastic spikes and crashes in prices.

Effects of rising food prices

Massive food price increases are catastrophic for people in poverty in the global south, who spend most of their income on food. This results in:

  • Increased hunger as food becomes unaffordable.
  • Malnutrition as smaller quantities of expensive foods such as fruit and vegetables are eaten in order to afford staple foods
  • Increased burden on women to earn more money by taking up risky employment such as sex work or domestic work.
  • Households using up savings, going into debt or selling assets to pay for food.
  • Families unable to afford healthcare and education as more of their income is needed to buy basic food.

In the last six months of 2010 alone, more than 44 million people were driven into extreme poverty as a result of rising food prices. At the same time, banks and financial investors are making a killing. We estimate that Barclays makes up to £340 million a year from betting, or speculating, on food prices. In the last five years, the amount of financial speculation on food has nearly doubled, from $65 billion to $126 billion.

Our report, The Great Hunger Lottery explains food speculation and its impacts on the world’s poorest people while a later report, Broken Markets provides a more technical explanation of how financial speculation drives up food prices.

How did we end up like this?

‘Futures contracts’ have been used for hundreds of years, helping farmers deal with the uncertainty of growing crops (such as unforeseen weather conditions). A futures contract means a farmer can sell his or her 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 – 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 created more ways to make money from betting on food.

Since 1996, the share of the markets for basic foods like wheat held by speculators – who have no connection to food – has increased from 12 per cent to 61 per cent.

What are we doing about food speculation?

From 2010-2014, we mobilised public pressure calling on the UK government to back proposals to regulate betting on food prices in financial markets.

Since July 2010, we have campaigned to raise the issue and in January 2014 the EU agreed to introduce regulation to help stop banks and hedge funds driving up food prices and worsening the global hunger crisis. Together with supporters, local groups and our allies in Europe, we have made this into an issue that cannot be ignored.

Now we’ve seen historic progress.

In line with our demands, new controls will curb financial betting on food contracts and increase the transparency of deals. They are a first step to reclaiming our world from the grip of finance.

We’ve been continually outraged by the UK government putting banks’ profits above people’s right to food by opposing tough controls throughout the negotiations. But despite some weaknesses the agreement represents huge progress, meaning that for the first time the EU has rules to tackle food speculation.

What we fought for

During the campaign, WDM called for two key measures to be included in Europe’s proposals for financial reform:

  • Transparency – all futures contracts to be cleared through regulated exchanges. Most contracts are currently done in private, which means it is impossible to know how much of what is being traded. Contracts need to be brought out into the open, in the same way that shares are traded on the stock exchange.
  • Strict limits to be set on the amount that bankers can bet on food prices. Caps should be set on the amount of the market that can be held by the biggest players, and on the amount of the market that can be held by financial speculators as a whole.

What’s happening in the United States?

Following work by the Stop gambling on hunger campaign in the US, regulation of food speculation was included in the Dodd-Frank Act in 2010 which was brought in following the financial crisis. This shows what a successful campaign can achieve.

However, Wall Street is now lobbying hard to hinder the implementation of the new regulations and the US campaign has another fight on its hands. Strong regulation in Europe would help our US allies overcome this final hurdle.

Who else is supporting the food speculation campaign?

WDM is not alone in identifying excessive speculation as a key factor in driving up global food prices. Lots of world leaders, civil social organisations, financial and business experts, academics and media commentators all support regulation of commodity futures markets.

Campaign allies

Wider civil society


World leaders

  • European commissioner for the internal market, Michel Barnier, January 2010: “Speculation in basic foodstuffs is a scandal when there are a billion starving people in the world. We must ensure markets contribute to sustainable growth. I am fighting for a fairer world and I want Europe to take the lead on that.”
  • United Nations special rapporteur on the right to food, Olivier de Schutter, September 2010: “The global food price crisis that occurred between 2007 and 2008, and which affects many developing countries to this day, had a number of causes. The initial causes related to market fundamentals, including the supply and demand for food commodities, transportation and storage costs, and an increase in the price of agricultural inputs. However, a significant portion of the increases in price and volatility of essential food commodities can only be explained by the emergence of a speculative bubble.”
  • French president, Nicolas Sarkozy, January 2011: “If we do nothing, we risk having food riots in the poorest countries and also an unfavourable impact on global growth. We want regulation of the financial markets for commodities.”
  • Then director-general of the UN Food and Agriculture Organisation (FAO), Jacques Diouf, January 2011: “[There is] a pressing need for new measures of transparency and regulation to deal with speculation on agricultural commodity futures markets.”

Civil society groups in the global south

  • La Via Campesina, international movement of small scale food producers, October 2011: “Financial speculation is and has been widely recognised as the major cause of the food crisis of 2007-2008 and should therefore be efficiently stopped at the international or regional level if we really want to prevent this from happening again.”
  • 80 NGOs including Labour, Health and Human Rights Development Centre, Nigeria, Centre For Social Concern, Malawi, and Grupo de Solidaridad-Arenal, Nicaragua, March 2010: “Undue influence on food and energy commodity prices by speculators continues today as seen in unusually high oil prices… With global food production heavily dependent on oil … volatile energy commodity prices means volatile food prices.”

Financial experts

  • Manager of Masters Capital Management hedge fund, Michael Masters, May 2008: “Are institutional investors contributing to food and energy price inflation? … My unequivocal answer is “YES.” … What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: … pension funds, sovereign wealth funds, university endowments and other institutional investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.”
  • Chief economist of Goldman Sachs, Jim O’Neill, April 2009: “I see so much focus on food, and it seems to be so trendy in the investment world. … The markets seem to me to have a bubble-like quality.”
  • Chairman of the US regulator, Commodity Futures Trading Commission, Gary Gensler, June 2009: “Over the past few years, price spikes and unprecedented volatility in the commodity markets have hurt farmers, consumers and businesses.”


  • Professor of economics at Jawaharlal Nehru University, New Delhi, Jayati Ghosh, May 2010: “Globally the world trade prices of food have been rising since about April 2009, and all the indications are that they’re rising for the same reasons that they rose way back in 2007-2008, which is to say that it’s not driven so much by global supply and demand factors, but it’s driven by financial involvement in the commodity futures markets.”
  • 18 economists including Ilene Grabel and Martin Wolfson in a letter to US Congress, June 2010: “Deregulation that began in 2000 … encouraged hyper-speculative activities by market players who had no interest in the underlying physical commodities being traded. This produced severe price swings for both oil and food in 2008-09 and destabilized business and household budgets in the US and throughout the world.”

Business leaders

  • Founder of Virgin Group, Sir Richard Branson, October 2010: “There is strong evidence that speculation exacerbated the last oil and food bubble. Speculation will fuel the next one too, unless meaningful speculative position limits are established.”
  • Chief executive of Unilever, Paul Polman, January 2011: “One of the main things in food inflation is that it has attracted the speculators for short-term profit at the expense of people living a dignified life. It is difficult to understand that if you really want to work for the long-term interests of society.”
  • Chief executive of Starbucks, Howard Schultz, May 2011: “Without any real supply or demand issues we are witness to the fact that most agricultural food commodities are at record highs at once, and coffee is at a 34-year high. Through financial speculation … the commodities market is in a very unfortunate position.”