You may remember that last month in Mozambique people demonstrated against a proposed increase in the cost of bread. The demonstrations lasted several days and abated after police fired on demonstrations killing at least 13 people.
Most of the people demonstrating were desperately poor and were having a hard time feeding themselves and their families even before the increased bread prices went into effect.
The IUF’s Private Equity Buyout Watch reports that the plight of the people of Mozambique and that of millions of more hungry people around the world is the result of increased speculation in agricultural commodities.
According to the UN Special Reporter on the Right to Food, from 2005 to 2008, the number of people living in hunger increased by between 130 million and 150 million. Today the number of people living in hunger is nearly one billion.
Increased hunger has been caused by the increased price of basic agricultural products like wheat, rice, and maize. The International Monetary Fund finds that the increase is due to higher demand and lower supplies of food.
But the UN Special Report, finds that financial speculation is the main cause of food price increases and the subsequent increase of people living in hunger.
During the last decade, commodity speculation increased significantly. Between 2002 and 2008 investment in commodity index funds, a speculative derivative investment based on future prices of commodities, increased from about $25 billion to more than $250 billion.
Index-fund investments in corn, soybeans, wheat, cattle, and hogs more than quadrupled in a one-year period between 2006 and 2007, growing from $10 billion to $47 billion.
As speculation in agricultural commodities increased, food prices worldwide increased 83 percent between 2005 and 2008. Wheat prices increased by 127 percent, rice by 170 percent, and maize by 300 percent.
The result of this increase was an increase in the number of people living in hunger. In 2008 at the height of the food crisis 40 million people were driven into hunger and desperation.
Speculators bought index-fund investments that derived their value from commodity futures, which, essentially, are bets that the price of commodities will increase in the future. In order to attract more investors, large commodity traders with ties to investment bankers, drove up the price of these investments.
The increased price of commodity futures drove up agricultural prices on spot markets, where the actual exchange of commodities takes place. Spot market increases, then, drove up future prices even higher, and a bubble ensued.
The effects of this bubble worsened as more institutional investors, such as pension funds, dived into the commodities futures market in hopes of offsetting losses suffered in the bond and securities markets.