The job gave me a perspective into a world that few anti-hunger advocates experience. (Heck, I was even an associate member of the National Association of Farm Broadcasters!) The pricing of commodities like soybeans, wheat, corn, cattle, hogs, etc... is not determined only by true supply and demand, but often by the activities of a group of people in a couple of buildings in Chicago, Minneapolis, and Kansas City. (And if you were talking cocoa, coffee and sugar--it was New York City and London).
I don't want to entirely dismiss the commodities trading business. There is ample justification for the existence of this pricing mechanism. A very informative article published by the non-profit organization Food & Water Watch offers a good explanation:
The commodity futures market provides a vital link between farmers and the buyers of agricultural products like meatpackers, flour mills and food manufacturers.
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.Here's the problem:
Over the past two decades, the safeguards that prevented excessive speculation from distorting the futures markets were eroded or eliminated.This lack of regulation led to uncontrolled price speculation, which contributed greatly to the Food Crisis of 2008. The issue is relevant because there is concern that another crisis might be looming in 2011. The Bread for the World Institute addressed this in a recent blog post. And here's what Bread for the World says in its Web site:
The world is facing a hunger crisis unlike anything it has seen in more than 50 years. 925 million people are hungry.
Every day, almost 16,000 children die from hunger-related causes. That's one child every five seconds.
There were 1.4 billion people in extreme poverty in 2005. The World Bank estimates that the spike in global food prices in 2008, followed by the global economic recession in 2009 and 2010 has pushed between 100-150 million people into poverty.Food and Water Watch looks closely at the 2008 crisis in a very informative article entitled Casino of Hunger: How Wall Street Speculators Contributed to the Global Food Crisis. Here is an excerpt:
During 2008, rising food prices — accelerated by an unprecedented run-up of prices on the commodities futures markets — created a food crisis that increased global hunger, sparked civil unrest and hurt farmers in America and worldwide. The global food crisis is an overlooked symptom of the broader global economic crisis.
The food crisis shares many characteristics of the financial meltdown — it was exacerbated by the deregulation of the commodity markets (including agriculture) that encouraged a tidal wave of Wall Street speculation — leading to further increases in already rising food and energy prices.I highly recommend that you read the full article to add perspective to your anti-hunger advocacy. Here is one version (in .pdf format) Or if you want to read it online, click here.