The UN recently reported that more than 1.2 billion people worldwide are undernourished. This number is staggering by itself, but what makes it even more appalling is the fact that, last year, enough food was produced on our planet to feed humanity nearly twice over. If we have so much food, how is it that 30 children will die of hunger or a related cause by the time you finish reading this column?
Policy makers pay a huge amount of attention to food production issues, and when the media covers hunger, it tends to focus on food scarcity. Indeed, an important solution to this problem is to ensure that farmers in the developing world get the resources, technology and training in methods of sustainable agriculture they need in order to grow their own food on their own land.
But ultimately, by focusing exclusively on the production of food, we miss one of the most critical root causes of food insecurity: the over-commoditization of our global food supply. By treating food exclusively as a paper commodity that can be speculated on for profit, the developed world has put an adequate diet out of reach for approximately one out of every six people.
Over the past three decades, there has been a dramatic scaleback of regulation on the exchanges where large quantities of grains and other food staples are bought and sold. This has led to an influx of participation by speculators who have no intention of actually taking possession of the food. They are simply in the game for profit, bidding up unlimited quantities of agricultural output in the form of futures contracts, hoarding product until the last possible second and then abruptly cashing out.
For decades, the futures market for agricultural commodities served a useful, stabilizing purpose. The tightly-regulated exchanges allowed farmers and wholesalers to sell their future output to processors, at a locked-in price, months before harvest. These contracts insulated the entire agricultural sector from dramatic and sudden pricing shifts caused by external factors, such as weather or the cost of fuel. There was little, if any, Wall Street participation.
But, beginning in the 1980s, rapid changes began to transform the food market as regulators started to spend more time and resources policing other, more complex, markets. A series of subsequent policy moves by the Commodities Futures Trading Commissions (CFTC) and the U.S. government allowed for the influx of speculation on agricultural futures by banks, hedge funds, pension managers and university endowments.
When the housing bubble began to deflate in 2007, food futures became the new infatuation of Wall Street, where corn, grain and rice futures were quickly bid into the stratosphere. Speculation of agricultural commodities reached its peak in 2008, when corn, wheat and rice futures all nearly tripled in price from 2005. Even though prices for food staples have fallen about 50 percent in the last year, the consequences of rapid food inflation have been devastating in the developing world. A poor family is typically faced with an untenable choice: Either pay 75 percent of its income on food or simply not eat enough.
True, it is intellectually dishonest not to acknowledge that the oil bubble, tightened global supply due to weather, diversion of agriculture from food production to biofuels and other cash crops, and increased demand from emerging middle classes in China and India are also factors in the dramatic food price escalation we've seen in the second half of this decade. But it stands without question that the unprecedented speed and intensity of this explosion was ignited by speculation. In fact, the Food and Agriculture Organizations of the United Nations (UNFAO) reported in March 2008 that wheat price volatility surpassed by more than 60 percent what could be justified by supply and demand economics.
Like other man-made factors underlying global hunger--undercutting farmers in the Global South by dumping surpluses from the developed world onto their markets and trade policies that leave these small farmers in the lurch--the only thing that is preventing society from effectively tackling food insecurity once and for all is political will. For example, an international agency could create a global regulatory environment that could prevent speculators from flocking to havens of weaker regulation. Also, by demanding real-time transactional data from financial institutions and establishing barriers between those on the food supply chain and those who are in the game for a quick buck, regulators could get a better sense of the forces driving speculation and the extent to which it is forcing prices to rise. The CFTC could then use that data to set fair imits on the amount of product a speculator can hold on paper at any given time.
Very few people realistically expect to eliminate speculation in commodities futures altogether. Nor should we want that. The realities of the global financial markets are such that we depend on financial institutions to remain solvent. Speculation--for better or worse--is part of the bargain. But we must lean on our government to provide a regulatory atmosphere that balances the interests of profiteers with those of farmers and consumers.
It's a matter of treating food as the human right that it is. And today, which is International Human Rights Day, we must be clear: A ton of wheat in a Kansas field or rice in a Cambodian paddy may be blips on a computer screen for a privileged few--but to more than a billion people worldwide, it is survival.
Ruth W. Messinger is president of American Jewish World Service (AJWS), an organization dedicated to alleviating hunger, poverty and disease among people of the developing world.