Why Does Food Cost So Much


One in seven people are hungry. 13.1 percent of the 7 billion people in the world or an estimated 925 million people need more food. Children seem to suffer most from this problem, but you may be shocked to learn the high cost of food has more to do with speculators in the commodities markets than with any shortage in actual food supply.

I saw this a headline tying this story to the Hunger Games and it made me stop. Hedge Funds, rather than farmers, dominate the food commodities market. Since  2000, financial investors have controlled this market beginning with the passage of the Commodities Futures Modernization Act that deregulated agricultural markets.  Think Goldman Sachs, for example, and its financial players who according to the World Development Movement report, Broken Markets, account for 61 per cent of investment on the wheat futures market.  Most of  these corporate financial players have no interest in ever owning the actual goods but buy and sell crops, such as wheat, at a predetermined price. This drives prices up artificially for you and me.  But for commodity investors, the trades are very lucrative.

Yes there have been calls to regulate the commodities markets in the US and Europe. But there is no globally recognized agreement that covers these trades. Economists have asked the G20  to implement and enforce a policy of position limits.  Investors would be limited to the number of agricultural contracts they could buy. But only the Us has adopted this position.  In the European Union  82% of the European commodity
market is traded privately.

This reminds me of the images of children with distended tummies last year in Niger and the Sudan where there has been a long standing drought,  political unrest, economic uncertainty and over population in a confined area.  

In an effort to help people understand this as a worldwide problem, Oxfam reported that ” ... between September 2010 and September 2011, the prices of basic foodstuffs [in Armenia] rose, as follows: sugar 46 per cent; eggs 49 per cent; cheese 38 per cent; pork 34 per cent; milk powder 30 per cent; and butter 26 per cent. The result was that all income groups in Armenia reduced food consumption: the poor by 14 per cent,
and even middle-income groups by 5 per cent. In the Sudan, there are fewer middle income groups to make this comparison but similarly the poor suffered.

Here is the curious thing: experts cannot seem to agree that speculation is the cause of price increases “ or that [speculation] simply aggravates other factors such as climate shocks, the rise in world demand for food and the growth of biofuels.” Even though they agree that financial investors on the other side of the world from these two countries are having a profound impact on their well being.  

For me the most astonishing fact is the very financial speculators who are suspected to cause food prices  to soar globally will also be the ones the G20 and the EU call upon to figure out how to address this problem.  It turns out the financial speculators have the most experience in the field of futures and derivatives.  Might they be persuaded to work for the good of the planet rather than the profits of the Goldman Sachs of the world.


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