

Banks cause hunger - djinn
http://www.wdm.org.uk/blog/infographic-how-banks-cause-hunger

======
Tichy
Uh, I don't really buy it. Banks can not just fix arbitrary prices for food.
They speculate on high food prices because they have reasons to believe that
prices will rise. Those reasons are the real culprits.

And sorry, how bad is the infographic, if the chart just says "rising food
prices driven by speculation" - that is not proof, that is just a claim.
Unfortunately many people will just fall for it :-(

~~~
crdoconnor
>Uh, I don't really buy it. Banks can not just fix arbitrary prices for food.
They speculate on high food prices because they have reasons to believe that
prices will rise. Those reasons are the real culprits.

It's like any other bubble - it started basically because of a lack of
anywhere else to invest, and at some point it just grew because it was
growing. Remember 1999?

>And sorry, how bad is the infographic, if the chart just says "rising food
prices driven by speculation" - that is not proof, that is just a claim.

I thought it was common knowledge. Certainly none of the fundamentals of the
market for food have changed enough to warrant price rises to that extreme,
and most of the demand is being driven by the futures market, not by, say, the
entire world eating 70% more food.

~~~
Tichy
If it is common knowledge, then why make an infographic about it? I don't see
that "certainly" you mention. Rather, there are lots of factors that seem to
threaten food supply in the future (isn't the latest scare the depletion of
phosphor?).

Also other than a failed startup, a ton of wheat still sticks around if you
buy it. You can either sell it off or let it deteriorate (for a 100% loss).

Sure, you can try to artificially shorten supply and drive prices up that way.
It is an age old economic strategy, but as far as I know it has never really
worked before (from what I remember from economics textbooks). It would only
work for a very short time. Say you hoard rice this year and sell only a
little rice at exorbitant prices. Peasants the world over would increase their
rice production, so next year there would be a lot more rice, plus your
warehouses are already stocked to the ceiling with rice from last year. The
prices will now be low - either you sell your rice for cheap, or you throw it
into the river. In both cases, the attempt was not really worth it.

~~~
crdoconnor
>If it is common knowledge, then why make an infographic about it?

Because I can't be bothered?

>Sure, you can try to artificially shorten supply and drive prices up that
way. It is an age old economic strategy, but as far as I know it has never
really worked before (from what I remember from economics textbooks). It would
only work for a very short time. Say you hoard rice this year and sell only a
little rice at exorbitant prices. Peasants the world over would increase their
rice production, so next year there would be a lot more rice, plus your
warehouses are already stocked to the ceiling with rice from last year. The
prices will now be low - either you sell your rice for cheap, or you throw it
into the river. In both cases, the attempt was not really worth it.

If I'm understanding you correctly, a similar argument was made in 2007 - it's
actually really expensive to hoard millions of barrels of oil (which is what
was assumed if people were speculating), it wouldn't be easy to hide and
nobody had really found any evidence of it. I think Paul Krugman made this
argument.

Then the bubble went POP pretty spectacularly. I think Krugman eventually
admitted he was wrong there.

Hoarding wasn't necessary as the price increases from the futures market were
transmitted to the actual market for oil (since most oil is bought on futures
anyway, very little is bought at spot price) and the speculators weren't
actually taking delivery of the oil they were just rolling the contracts
forward. I assume a similar dynamic is in play for wheat right now.

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colinhowe
This doesn't address any other possible causes:

    
    
      * population growth
      * biofuels
      * climate change
      * increased demand for 'expensive' food such as meat
      * corruption
      * the effect of 'fair trade' on food prices 
        (fair trade wants them to go up so farmers get more)
    

Banks may be speculating that the prices are going to go up - but they will
have reasons for this speculation. Once the price gets too high then banks
will likely also start speculating that the price will go down.

~~~
yummyfajitas
_Once the price gets too high then banks will likely also start speculating
that the price will go down._

When this occurs, we'll get poorly researched articles talking about how banks
are hurting poor rural farmers.

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jsmcgd
Some related links worth reading:

How Goldman Sachs Created the Food Crisis

[http://www.foreignpolicy.com/articles/2011/04/27/how_goldman...](http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis?page=full)

The food bubble: How Wall Street starved millions and got away with it

<http://www.harpers.org/archive/2010/07/0083022>

~~~
patrickk
There seems to be a lot more detail in those articles.

The 1999 deregulation of the futures markets by the Commodities Futures
Trading Commission for example, is missing from the World Development Movement
infographic. This appears to be a critical detail that's missing.

For your second link, I hit a paywall, so here's a link to get around that:
[http://theglobalrealm.com/2011/02/04/the-food-bubble-how-
wal...](http://theglobalrealm.com/2011/02/04/the-food-bubble-how-wall-street-
starved-millions-and-got-away-with-it/)

~~~
jsmcgd
Thanks.

------
yummyfajitas
Strangely, the article doesn't actually explain the mechanism by which banks
cause hunger. They point out (correctly) that short term price spikes are
caused by speculation, without explaining the long term price increases.

~~~
timthorn
Although one of the side effects of speculation is that price volatility
should be reduced.

~~~
yummyfajitas
Although that is usually a side effect of speculation [1], it does not
preclude speculation causing the occasional sudden price move.

For instance, if speculators believe there will be scarcity in 3 months (which
starts gradually), the futures price will spike now. This will incentivize
people to reduce consumption now, rather than when the scarcity actually
manifests itself. Of course, reduced consumption now leads to greater
availability later.

If we had no speculators, we'd continue overconsuming until it was too late,
but there would be no sudden jump in prices.

[1] The best test case is onions vs other goods, since futures contracts for
onions are illegal.
[http://resolutedetermination.wordpress.com/2011/05/07/oil-
pr...](http://resolutedetermination.wordpress.com/2011/05/07/oil-price-
speculators-onions/)

------
muraiki
Another significant element in the rise of global food prices is the
devaluation of the USD. The US exports considerable amounts of wheat, and as
more money is printed this inflation increases the cost of US wheat for
importing nations. Furthermore, USD inflation and monetary policy affects food
economics in ways far beyond that of buying wheat from the US: consider that
low interest rates make borrowing money for speculation quite easy and with
less risk. In addition, there are a number of factors causing shortages in the
production of wheat, such as droughts, bad weather, and diseases that were
once though gone but are now resurgent due to the lack of genetic diversity in
wheat strains.

From June 2010 to January 2011 the cost of wheat increased by 73%, according
to the World Bank. The true price of this is not only in the suffering of
individual humans and their families, but in the destabilizing of governments
and the revolutions seen in the Arab Spring.

~~~
anamax
There's also ethanol. It has the trifecta of govt support, a subsidy, an
import restriction, and a mandated use.

This has significantly reduced the amount of US corn available for food and it
also decreased the amount of other food grown as farmers switched to corn when
possible.

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chrisbennet
For all those who "don't get it", read jsmcgd's link. For convenience I'll
repeat it here "How Goldman Sachs Created the Food Crisis"
[http://www.foreignpolicy.com/articles/2011/04/27/how_goldman...](http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis?page=full)

The very briefest answer is that G.S. created a "long only" investment vehicle
based on food staples with no mechanism for shorting it.

~~~
anamax
> The very briefest answer is that G.S. created a "long only" investment
> vehicle based on food staples with no mechanism for shorting it.

In other words, GS didn't create a mechanism for speculation....

Note that the financial industry is often trashed for shorts, as in "those
folks are betting on/profiting from failure".

So, now we find that they're also wrong for not creating an opportunity for
shorting.

------
pontusw
The World Development Movement has published a report today which explains
exactly how speculation impacts on real food prices, and outlines why climate
change, population growth, biofuels etc are not to blame for the short-term
price rises we've seen recently. Well worth a read!

[http://www.wdm.org.uk/stop-bankers-betting-food/broken-
marke...](http://www.wdm.org.uk/stop-bankers-betting-food/broken-markets-how-
financial-regulation-can-prevent-food-crisis)

