Tuesday, January 5, 2010

High Steaks Gamblin'


A country's meat consumption increases with its GDP per capita, but what happens to a country when foreign bankers make cold, hard wagers on its future food prices? The Food and Water Watch, a consumer NGO headquartered in Washington DC, published this report in November, 2009, which provides a startling look at the connection between Wall Street's investments (read: speculation) in the future prices of commodities--including food--and the sharp rise in global hunger attributable to higher food prices.

The FAWW explains why a commodities future market exists at all:
On the most basic level, the commodity futures market is a way for farmers to avoid having to sell their crops at harvest times, when the supply is high and the price is low. Instead, farmers can market their crops before they are harvested through a futures contract to lock in a price they hope will be better, or at least more predictable, than what they would get at harvest time. On the flip side, the buyers of agricultural products can ensure they have a steady supply of crops like corn or wheat at a certain price. The commodity futures market allows both the seller (farmer) and buyer (food manufacturer) to reduce their risk from volatile prices and uncertain supplies — allowing both to hedge their bets.
But, as the report explains and similar to the abuse we have come to expect from Wall Street, the regulations that were supposed to keep commodities speculation in check were largely undone or sidestepped over the past twenty years. With housing investments and other typical safe harbors run dry from misuse, the commodities markets soaked up cash by the boatloads. Every two-bit investment house scanned the horizon for a place to profit, and an inordinate amount of money landed in the commodities markets, where a billion dollar investment in the future price of, say, wheat, has a potentially life-changing affect in how much bread the 3 billion people who live on less than $2.50 a day can afford. So far from this being a place where Farmer Joe pre-sells his crop of corn to Food Processor Jack, now Investor Bernie can buy the crop with no intention of ever actually collecting X amount of corn. The outcome is that investors profit, but producers and consumers all along the food chain suffer. Why? Because Investor Bernie was never interested in eating--or doing anything at all--with the crop of corn he purchased. Instead, he's introduced an artificial demand for foods, which naturally raises their prices, which cuts out a huge segment of the market that could barely scrape by pre-price-hike.

Commodity Futures Trading Commission Chairman Gary Gensler told the U.S. Senate in February, 2009, “I believe that increased speculation in energy and agricultural products has hurt farmers and consumers.”

It's like professional baseball players playing high school ball for a while just to bolster their own stats. In this case, the stats are profits (for smaller investors too, all of whom have handed their money over to big investment houses in expectation of a nice return) and if the high school teams give up too many home runs, or if the pitchers have too high an ERA, then some of the players die. It's an unfair game, and the rules seem extreme and sometimes arbitrary, but so it goes for human life; and those investors who enter this benign market to pillage the inexperienced are nimrods--their infantile pursuit of self-interest will prove to be nothing more than a hedonist's Guide to Dying.

But maybe the problem is deeper, maybe it lies in the tangled web of life, money, politics and appearances. Whatever the root, the hunger problem is a real problem in my eyes, and the best I can do is try to fix it. That doesn't mean betting on the price of corn next week.

"Only when the last tree is cut, only when the last river is polluted, only when the last fish is caught, will they realise that you can't eat money." - Native American proverb

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