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Lindsay Newland Bowker

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Commodities Speculation: A Cause of Food Crises? A Crime Against Humanity?

An important and credible new study, discussed at length in a recent Scientific American Article, seems to have penetrated all the hype and confusion about derivatives and about the causes of the food crises world wide that have caused famine, death, and revolt.:

http://necsi.edu/research/social/foodprices.html

The study concludes that ethanal has indeed been a major factor but also that the role of commodities market speculation is undeniable.

American and EU central banks and the biggest EU and American Banks are firmly commited to derivatives and resolutely opposed to any regulation, to any clearing houses or any changes that would fundamentally alter the current global free market in derivatives. Derivatives are an essential tool in global risk management, but if this studyis true are we allowing a systemic crime against humanity in not making least those corrections that would remove price distortions.?

Recently 10 ordinary game geeks with no background in scince and medicine solved a very complex problem in the study of HIV. . Can we do that here a TED conversations with this very important question?
Can we go beyond opinion, go beyond what we each already possess in expertise and knowldedge and become together here a global citizens collaborative seeking to understand and offer meaningful solutions to this truly critical global problem?

Can we become a collaborative of investigative journalists seeking the truth and bringing it here via links with commentary?

I think we can and I am proposing that we try. A monumental undertaking for anyone person but I believe the answer is out there in work that has alreday been done and published on the web. I think we as global citizens without a clue about global markets and murky mysteries of derivatives can penetrate this truly critical question. Can offer solutions the experts haven't come up with . I think its a great way to support Occupy Wall Street and use TED.

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    Oct 2 2011: Food politics (what you Lindsay, rightly coined as systematic crime) just changed it face. It was, still it is there.

    Heard about demand of bio-fuel putting pressure on food price in 2007-08 , now it's validated with a paper !!!, thanks for sharing.

    Many will start saying it's "conspiracy theory" , doesn't matter whatever we call it, human being will starve, kids will starve to death in some part of the world , which is not so important to this world !!! Important is we need to meet our energy challenge.

    Hunger is one side of the coin, other is threat to democracy. In countries where democracy is in infancy, government in power even if they are doing everything right , they will be at risk of being overthrown. Mass don't understand what is in it with food price vs Bio Fuel or speclations of some powerful street....... they just understand it's failure of the government that just they elected through vote...... what powertful tool power centers all the time having to control the governments of poor countries (some says there is no poor or 3rd world country though !!!)

    In the era of "speculative economics" share price goes up or down with speculator's speculation. Does not matter what the balance sheet of a company says, doesn't matter what the past performance of the company says, how hard employees working does't matter they will lose job as speculators speculated something so company need to cut cost !!!..................

    We are in unique time really...... need to do something.......
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      Oct 2 2011: I really first became aware of the corn to ethanol problem during my MBA. No one really doubted the simple fact that when you turn corn into biofuel you take it out of the mouths of the hungry and drive up the prices. I was horrified that we can so simply accept that more profit over here in the biofuel industry justifies the hunger and rising food prices elsewhere.
      How often in my classes did someone slough off my concerns with phrases like "this is just good business."

      It is not good business to let human beings starve. On a recent TED conversation a frequent commenter justified hoarding of food stuffs as 'just business' and replied that any interference with the unrestrained market is immoral. IMMORAL?

      Here is an infographic from the UN which helps to put the world food crisis into perspective.

      http://www.wfp.org/stories/rising-food-prices-infographic?gclid=CK_P_b6iyqsCFWhgTAodm0OM0A
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        Oct 2 2011: As usual Debra you came up with your wisdom and compassion.
        That's a very good link to get a snapshot, how buying power pushes people to hunger , not uanavialbility of food.
        In those countries where people need to spend more than 30-40% of income for food , a portion of population starves even after spending 100% of their income.......it's my observation of my own country.....
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          Oct 6 2011: @ Ted Barnes No I'm not saying Capitalists are exempt"

          Yes I was pretty sure that's where you were and I see you are well versed in banking history so especially glad to have you with us here exploreing this issue of the relationship between speculation as allowed by de regulation on the banking side and on the OTC side, and food prices.

          Greenspan admitted before congress right afer the need for a massive wall street bail out was announced in 2008 that he was wrong..Tht is decades of assurances that markets wold regulate themselves was wrong. And yet nothing meangful has been done to put menaningful checks and oversight back in place. All is exactly as it was from a ;egal and regulatory point of view the day the housing bubble burst. Now evryone is pretty much admitting we have a 1.4 quadrillion derivavtives bubble looming that is vulnerable to systemic failure and could cause a complete market collapse.

          The issue of the causal relationship between high food prices and speculation has not received any serious consideation from the Fed here or EU central banks. They seem to be absolutely certain that speculation has caused no distortion at all of market fundamentals.

          Have you seen any studies or data that do a better job thatn the Caimbridge study of examining the role of seculation in food prices?

          What is your sense of the data and studies that have been brought to this conversation? Is there still an open question in your mind about the role of speculation in food prices?
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          Oct 6 2011: @ Lindsay - Absolutely no question. There were always speculations, even welcomed ones, but what we see now is an absolute travesty. Alot of the conversations here have touched on the right subject about the deregulation of commodities in general and the impact that has had. Turning food into yet another "derivatives" market is heartless and immoral.

          "They seem to be absolutely certain that speculation has caused no distortion at all of market fundamentals." Yeah, that's what they say publicly. If you see some private interviews you'll see the proverbial bomb is ticking. It is going to explode just like all the other markets did.

          "We first became aware of this [food speculation] in 2006. It didn't seem like a big factor then. But in 2007/8 it really spiked up," said Mike Masters, fund manager at Masters Capital Management, who testified to the US Senate in 2008 that speculation was driving up global food prices. "When you looked at the flows there was strong evidence. I know a lot of traders and they confirmed what was happening. Most of the business is now speculation – I would say 70-80%." - http://www.guardian.co.uk/global-development/2011/jan/23/food-speculation-banks-hunger-poverty

          It goes on to say that Masters believes it will end as bad as Wall Street did and it will blow up.

          It's been proven how detrimental to society deregulation is, and I believe that the people responsible for these massive global ponzi schemes and frauds should be prosecuted and perp-walked straight to prison. Just like the housing bubble, they knew this was the outcome of 80 percent of the food market being speculation. They knew people all over the world would begin to starve. They knew the biofuel market morally should have been kept in check. They didn't stop any of it because like everything else in this horrible situation, it gained them LOTS of profit. The food industry is the largest industry in the world. So like my original statement, if you can corner the market and co
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          Oct 18 2011: @Ted Barnes Oct 6...there were always speculations.

          Ted,

          I am just seeing your comment for the first time and know from your email of the same date that you are away for several months. Thank you for taking the time to make this comment befo e your departure.

          I agree..everyone knows that speculation in food inflates already rising prices even more overwhelming and distorting food markets globally. Almost everyone who matters ( except Ben Bernanake and his fellow EU central bak leaders) have publicly acknowledged it..even the regulatory authroity for commodities markets has acknowledged it.

          Everyone sees the gorilla in the room. No one dares to try and escort him out.
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        Oct 2 2011: I;ll give you a thubs up on this next week..I am out for this week they say..

        These graphs were fascinating.

        The first one which tracks what the Caimbridge study and model address
        themselves to and interestingly includes the Lehman brothers collapse as one of the "events"..a sharp drop after that and then the phenomenal rise with the number of peopl ein hunger reaching $1 billion for the first time ever ( what % of the world population is that..almost 18%????)

        The second one which shows that in poor nations food takes as much as 50% of earnings. In egypot just before the Tahir square uprising food prices had reached as much as 70% of income ( as I recall) and was a major factor triggering the uprising. This is also addressed in Caimbridge study ..not in the methematical model but in their analysis and interpretation.

        Really wonderful graphs..thanks again Debra for bringing them here. to this thread where we are gathering the facts and stats on hunger and the effect recent food price praks have had in the poorest countries.
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          Oct 5 2011: Hi Lindsay!

          No no, I'm not saying capitalists are exempt from the consequences of their actions....I'm saying that they mostly don't care about the consequences of their actions. What I meant by their own set of morals is really, corporations don't fit morals into their calculations. For them, it's all about the bottom line and revenue increases every quarter. You have to understand, corporations don't give a rat's ass about world hunger or poverty or immoral treatment of animals or putting toxic chemicals in food. They care about the bottom line and cornering the market. From a business standpoint, food is a valuable commodity to them. If they can control the market, they can control the supply and demand. That's how it works. Try not to twist my words. I'm not defending these giant food corporations that will literally murder for profit. I'm just putting into perspective how rotten and evil they are.
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        Oct 5 2011: Debbie Downer! Just kidding, those graphs were startling! I agree with you that starvation is not good business, but you have to realize capitalists and people who believe in complete free-market and unrestrained corporations follow a different set of morals.
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          Oct 5 2011: Hello Ted,

          Not clear on your position, here Ted..are you suggesting that captilaists are somehow exmept from the consequences of their actions? That it's just ordnary business, ordinary fact that 85% of the wolr'd food is consumed by 2% of the wolrd's people..that the price of food drove unprecedented numbers into povert worldwide? That its safe for the wolrd that so few cororations own and ontrol the wolrd's entire food supply?
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      Oct 2 2011: Hello Salim and thanks for helping to launch this TED Conversations experiment in search of common wisdom on the economics of the global food crisis. This new study is very exciting because it trasncends all the hype and rehetoric with the eloquemce and truth of mathemetics ( in another thread I will be inviting our TED mathmeticians to comment on and explain the model.

      It would be great if you would be willing to moderate this thread you have stareted. I am hoping many others in our community will bring links and commentary on some of the facts of the world food crisis focusing especially on changes since 2000.

      This study sought only to correletae speculation with food prices. It was addressing itself to the refusal of th e world's central banks and the wolrds biggest banks and their regulators to believe that speculation through the derivatives market has had any impact at all on food or oil prices.

      This conversation is narrowly focused on that aspect which is blocking any effort to effect changes in the commodities marjet to address these price impacts. But you and I have participated in many discussions together on the politcal aspects of hunger and famine. We know that any price correction we might achieve through reform of the commodities markets will not change politics of famine. I think a thread, this thread on the politics and realities of famine are essential background to this experiement. And of course also the question of how these politics impact price and availability of food.
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        Oct 2 2011: Hi Lindsay
        It's my pleasure to be part of your intiative.
        Obliged I am with the honour.....

        Here comes an old article (Oct, 1998) by Jefrrey Sach of Harvard, based on Amartya Sen's (Nobel Prize winner Economist) findings and observation on hunger & famine........ how politics & economics of rich pushes poor to die starving

        http://www.time.com/time/magazine/article/0,9171,989405,00.html
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          Oct 2 2011: A good article Salim establishing that historically times of prosperity have brought rising food prices that push many poverty and hunger. Also interesting in its observation that in a democracy the response will usually be some sort of effrot to relieve the food crisis through aide ( beacuse politicians want to get re relected and because its part of the fabric of democracies) whereas no relief will be given in non democratic nations.

          Her's a good quote from it:

          "

          "Sen demonstrated that the Bengal famine was caused by an urban economic boom that raised food prices, thereby causing millions of rural workers to starve to death when their wages did not keep up. And why didn't the government react by dispensing emergency food relief? Sen's answer was enlightening. Because colonial India was not a democracy, he said, the British rulers had little interest in listening to the poor, even in the midst of famine. This political observation gave rise to what might be called Sen's Law: shortfalls in food supply do not cause widespread deaths in a democracy because vote-seeking politicians will undertake relief efforts; but even modest food shortfalls can create deadly famines in authoritarian societies"

          For our work here this article raises two questions.:

          (1).did the model take adequate account of the pre-Regan commodities reform ( mid 70's..I think)..of these old patterns between prosperity and high food prices

          (2) would the correction in food price distortion from speculation produce benefits that actually reach the parts of the wolrd where hunger and famine are most pressing?
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          Oct 5 2011: oo nice one salim!
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          Oct 6 2011: You know, I woke up this morning and I realized that Charles Dickens had pinpointed this problem of food speculation in A Christmas Carole back in 1843. What was Scrooge doing in many scenes? Driving up the price of corn just before his famous lines "are there no work houses...........well then they had better die then and decrease the surplus population".
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          Oct 6 2011: @ Debra on Scrooge

          ..literary lectio divina in reverse.?

          ...and too true.. an old story

          The issue with derivatives is that a lare part of that 1.4 quadrillion in notional value at the moment is in fact pure speculation ad not the facilitation of investment that Bernanke and industry insider claim. In effect central banks all over the world are being used to finance pure speculation that does not promote or serve investment,To me, that is a key public policy question all by itself..are we using central bank loans to finance pure speculation? Are we allowing markets created to support and further and lend stability to investment and growth to finance innovation to actually be subverted in a way that interferes with the original purpose of creating and regulating these markets.I don't have a sense yet of how much of the derivatives market is just pure profit seeking predatory exploitation of the economy and of our markets and how much is what Ben Bernanke says it is..what many insiders say it is.a vehincle for liquidity, stablity etc. etc that allows the fueling of our economy at much higher leverage ratios ( that's the whole thing with derivatives..more mprofit with more leverage)I just readd somewhere ( a reliable source) that the Fed itself as other central banks is leveraged 50 to 1...an all time high. It was over leveraging that brought down the markets in 2008..the reserves just weren't there to cover all the contracts presented for settlement..that's what our tarp money paid for..we essentially covered the gambling losses..The food issue and the energy issue as well are especially
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      Oct 4 2011: Salim,

      Wanted to bring to this thread on stats and research on causes of the food crisis this very interesting 2008 study by the USDA which gives some insight into global supply and demand for food.in the past two decades. Overall it suggests that market fundamentals have driven food prices high.

      From 2000 to 2008, according to this study "global consumption of aggregate grains and oilseeds exceeded production in 7 of the 8 years since 2000”

      From what I see of documentation provided on the Caimbridge model announced as proving that speculation caused the food crisis, the model did not control for or take account of supply/demand gaps or other aspects of market fundamentals.

      The USDA study provided more backgrond to Bernankes comment in February at the Washington Press Club about changes in eating habits in China and Brazil being a factor. The study says that prosperity in the 90's co-ocurred with higher consumotion of meat which, because of grain feeds added further pressure to a tight global food market. (Every pound of beef takes two or more pounds of grain to produce).The study also mentioned several other factors, not accounted for in the Caimbridge model that set up a sort of "perfect storm" for the food crisis

      .(1) reliance on storage had diminished considerably as concerns globally about food security dimisnished..so when the short fall between supply and demand ocurred global reserves were low

      .(2) production response was frustrated by weather in the case of Russia ( a major grains exporter) and higher production costs as the costs of fertilizer, weed killers and insecticides were influenced by rising oil prices.

      (3) countries with high demand and huge foreign exchange reserves decided to build food reserves

      ( discussion onUSDA food study continued below link to study below)
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      Oct 4 2011: USDA Study cont.

      The USDA study brought out the role of the falling dollar in escalating food prices and higher demand. The falling dolar in relation to many other key currencies made it possible forimportaing natins with stringer currencies toi , a sthe study said, consume more no matter what the price ( on wolrd markets trades are settled in dollars That must also mean that the $ shown as price rises aren't adjusted in any way to reflect the lower value of the dollar..

      Overall the USDA study supports and explains the resistence on the part of the FED and other Central banks to consider speculation as a major factor in the food crisei post housing bubble. The Caimbridge model dorsn't seem to account adeqautely for these strong underlying market fundamentals of yields, production costs, consumption, changes in consumption, the falling dollar and low food reserves and may not therefore make the case for speculation as a cause.

      www.ers.usda.gov/Publications/WRS0801/WRS0801.pdf

      Since this USDA study was pre-housing bubble collapse, preceding the huge drift of post 2008 speculation into commodities it is not a direct refutation of the role of speculation to heich the Caimbridge and other studies have pointed.

      Perhaps more a fuel on the fire scenario? That speculain drove food prives alreday moving up from market fundamentals even higher?

      Reading this study took me back to Bernanake's February 2011 comments at the Washington Press Club about the role and purpose of Central Banks. In reminding questioners there that Central banks are concerned aboutthe helath of their own countries economy not the health of global economy or the impact of global phenomenon on specific countries. In otherwords, central banks don't create policies to end wolrd hunger, they create policies to keep their own currency strong, their own country strong. That intervention for relief and better sceurity against food crises should come from the UN and NGO.s?

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