Comments on: Food Profiteering: Investing in Starvation

By: Pete Smith

Pete Smith — Mon, 19 May 2008 13:15:58 +0000

Which brings us almost back to where this thread started, with middlemen taking their cut and driving up the price of food for people who just want to eat.

By: Bishop Hill

Bishop Hill — Sun, 18 May 2008 15:25:14 +0000

All I’m saying is that the bank wouldn’t want to take delivery of the wheat. They’d sell it on, having provided the service to the farmer and having made their profit.

By: Pete Smith

Pete Smith — Mon, 12 May 2008 22:21:37 +0000

I don't understand this. Why would a bank enter into a contract with a farmer to buy wheat in 6 months time and then not take delivery of what they had bought? They could, I suppose, hand over the money as agreed and let the farmer keep the wheat, but the guy signing off on that arrangement would soon get the sack. Wikipedia he say: "A futures contract gives the holder the obligation to buy or sell, which differs from an options contract, which gives the holder the right, but not the obligation. In other words, the owner of an options contract may exercise the contract, but both parties of a futures contract must fulfill the contract on the settlement date. " That means the farmer gets the money he wants, and the bank gets the wheat. What the grain wholesaler thinks about the bank muscling in on his business is another matter.

By: Bishop Hill

Bishop Hill — Mon, 12 May 2008 20:56:18 +0000

I don’t think you’re right here. If a bank offers to buy a farmer’s wheat six months forward and the farmer accepts, why should the bank actually need to take possession of it at harvest time? They don’t want it! But they have got the capital to make the promise to the farmer that makes his business secure, and they want to use it to make a profit. The farmer is happy because he gets his guaranteed price, and if it makes a profit the bank is happy too. Why do you insist that the bank has to take possession of the wheat to make the transaction an acceptable one? What is this adding?

By: Pete Smith

Pete Smith — Mon, 12 May 2008 10:35:44 +0000

I think you’re confusing things by blurring the distinction between the two categories into which futures traders are conventionally classified; hedgers and speculators. Despite recent bad publicity for the billion-dollar global hedge funds, hedging has a long and mostly honourable history, as you rightly point out. Quite right for both sides of a traditional contract to know what price it will be exchanged at on delivery.
Speculators are a completely different species, having no direct interest in the commodity either as producer or consumer. They are merely betting on market changes to make a paper profit.

By: Bishop Hill

Bishop Hill — Sun, 11 May 2008 21:18:11 +0000

It’s worth pointing out that farmers have engaged in hedging contracts for as long as recorded history. There is evidence that the Babylonians engaged in forward sales. The history of futures is not as long, but still hundreds of years. It’s pretty important if you’re a farmer - would you borrow money to buy seed if you didn’t know what price you’d get in six months time when you got it to market? And why do you think farmers enter these deals if they’re not getting something out of them?

There is a strong suggestion that the alleged rising demand in China and India is not a significant factor in the current price surge. These countries’ share of the global market hasn’t changed (according to the FAO). It would be pretty surprising for demand to change so suddenly anyway. Something cultural like taste in food would surely change over many years rather than a single year. Either way, Pete’s claim that the price is no longer related to the supply is an odd one. Price is always driven by supply and demand. The relationship is the same as it’s always been. Speculators have always been with us (see my point above about hedging contracts in the ancient world) and they can only change things in the short term and only then if they can find people to do deals with. Nothing has changed here.

By: earthpal

earthpal — Fri, 09 May 2008 07:01:36 +0000

Pete #16, that’s well summed up.

Like Jose said, free trade causes many injustices and the system needs to change. This futures trading needs controlling. In my humble little view anyway.

By: matt

matt — Thu, 08 May 2008 19:29:42 +0000

‘Futures trading’ …. Hmmm, electronic grain stores, but without the grain. Betting on what might be soon seems a daft passtime but then, it’s invented by countries that no longer produce real products. Guess the little earthlings have got to bide their time somehow. Like the H&S and security industries in the UK … created out of thin air! And damned annoying too.

By: Pete Smith

Pete Smith — Thu, 08 May 2008 10:53:42 +0000

“Starvation is not primarily caused by food shortage”

This is still true, although maybe not quite as true as it used to be, given sudden hikes in demand as the new middle classes in the developing countries get a taste for Big Macs.
What is true is that the price of food no longer has a direct relationship to the supply. We come back to the original point of this post, that food markets are being grossly distorted by speculation.
Food is just a commodity, traded on global markets. Commodities are regarded as a safe haven into which investments are switched at the touch of a button in reponse to uncertainties in other markets. Things aren’t exactly helped by cunning little tricks like futures trading.

By: earthpal

earthpal — Wed, 07 May 2008 23:03:42 +0000

Starvation is not primarily caused by food shortage. I know that food stocks are declining and that there are regional shortages but there is still enough food produced overall to feed the world. Gawd! There must be enough if the West can throw so much of it away and still be overweight.

Trade injustices are one of the root causes of hunger. And market speculation is exacerbating the problem, as is the rush to biofuels etc. etc . . . .

The system throughout discriminates in favour of the West - the multinationals and the dealers and it desperately needs reforming.