Biofuels, Speculators Driving Food Price Surges

• by Amanda Wilson* (washington)
• Tuesday, October 11, 2011
• Inter Press Service

Released ahead of World Food Day on Oct. 16, the report calls for action to control price volatility in the global food market and protect the world's poorest from the scourge of famine.

The Global Hunger Index (GHI), released Tuesday by The International Food Policy Research Institute (IFPRI), Welthungerhilfe, and Concern Worldwide, points to climate change, growing demand for biofuels, and increasing commodities futures trading in global food markets as the causes of price increases in food, which it says were also at the root of the food crisis of 2007-2008.

Price volatility refers to the relative rate at which the price for a commodity changes over time, according to the GHI. The report points to an enduring period of high and increasingly volatile prices for food, which it says has economic, social and political impacts.

The GHI report places countries on an index of hunger based on three indicators: the proportion of undernourished people, the proportion of children under five who are underweight, and the child mortality rate. According to the report, 26 countries face hunger crises. Burundi, Eritrea, Chad and the Democratic Republic of Congo, which had a GHI score that increased 63 percent due to ongoing conflict, top the index with the most extreme levels.

Another major food security report released by the United Nations this week, 'The State of Food Insecurity in the World 2011', also highlights data showing that volatile food prices are increasing hunger in the world's poorest countries and forecasts that high prices will continue into 2012.

'Somalia, Ethiopia, Djibouti, Eritrea, and Kenya are severely suffering from a number of factors that contribute to food insecurity,' said Wolfgang Jamann, secretary general of Welthungerhilfe, during the Tuesday press conference. 'This is just one side of the coin — the other side of the coin is the so-called 'silent hunger' of over one billion people in the world who are suffering from acute or chronic hunger.'

Increasing food commodities futures trading, when investors bet on future prices for food commodities, in maize, soybeans, and wheat, have increased prices for those foods, according to the GHI. The report points out that money invested in food commodities futures trading went from 13 billion to 260 billion dollars between 2003 and 2008.

Maximo Torero, director of the Markets, Trade, and Institutions Division at IFPRI and co-author of the GHI report, said speculation in the food commodities market is excessive.

'In the case of wheat you have people trading for three times the production of wheat,' Torero told IPS.

He said the problem arises when investors enter and exit the market for short-term profit without ever making a real transaction. According to Torero, only two percent of transactions are ever realised in the food futures market. The situation is one that needs more regulatory measures, he said.

Increasing and excessive food commodities speculation coincides with an ongoing boom in biofuels. As the WHI report points out, the United States and European Union are subsidising biofuel production as an alternative to crude oil. This is encouraging farmers to shift their production to biofuel crops, such as maize, that never make it to the dinner table. Global biofuel subsidies reached 20 billion dollars in 2009, according to the GHI.

Torero said that when more food crops go to biofuel production in the United States, it affects the amount of crops that can be exported to other countries. This has an impact because the United States accounts for about 50 percent of all global corn exports. As the GHI points out, an increasing link between the energy market, which is highly volatile, and the food market, is also making prices more volatile.

Furthermore, extreme weather events such as droughts and floods, which may increase due to even very small changes in the global climate, have the potential to decimate crop yields, further raising food prices. The poor are hard-hit by food price spikes and volatility, especially in low-income countries where families spend a majority of their income on food, the report stresses.

The GHI presents several policy recommendations to address food price volatility and increases by 'revising biofuel policies, regulating financial activity on food markets, and adapting to and mitigating climate change'. It also urges countries to improve social services and invest in 'sustainable, small-scale agriculture'.

Other voices are calling for a dramatic re-examination of global food supply chains to make them shorter and more geared toward local needs. Olivier De Schutter, the United Nations Special Rapporteur on the Right to Food, has advocated for sustainable, small-scale agriculture under the banner of 'Agroecology'.

'International trade only concerns nine to 10 percent of the food that is produced globally, yet it has had decisive influence on the way decisions are made on the way infra develops and on how farmers are being supported,' DeSchutter told IPS earlier this year. 'Governments have generally supported export-led agriculture, supported global supply chains, and under-invested in local and regional markets.'

He said he encouraged governments to reinvest in agriculture that feeds local populations. Instead, he said small farmers around the world were being ignored by public policies, migrating to cities, and eventually ending up in poverty and eating heavily-subsidised, cheap, imported food.

DeSchutter told IPS, 'It's a vicious cycle in which small farmers are further impoverished because they can't compete - that's why we have one billion hungry.'

*With additional reporting by Kanya D'Almeida.

© Inter Press Service (2011) — All Rights ReservedOriginal source: Inter Press Service

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