1. Speculation and the Food Crisis David Woodward PHA3, Cape Town, 7 July 2012

2. World Cereal Prices 1960-2005

3. World Cereal Prices to March 2008

4. “Stocks of key food commodities are 20% higher in 2009/10 compared to 2007/08; yet the nominal food price index averaged 23% higher in December 2009 compared to a year ago, rather surprising given that an often cited reason for the food price spike of 2008 was low inventories” (Baffes and Haniotis, 2010, World Bank)

5. “In none of these markets was there any restriction of supply or expansion of demand even remotely sufficient to explain the full extent of price increases…. The 2008 food price crisis arose because a deeply flawed global financial system exacerbated the impacts of supply and demand movements.” (UN Special Rapporteur on the Right to Food)

6. World Cereal Prices to June 2010

7. World Cereal Prices to April 2012

8. Why? Very little to do with agricultural supply or consumer demand Some potential factors, but not enough – poor Australian crop – increased use of maize for biofuel – higher oil prices (also speculative) – no acceleration in Chinese demand growth Based partly on (exaggerated) expectations and financial market considerations

9. Why? Stock adjustment: – small increase in % of portfolio in commodities  large purchases Self-fuelling nature of speculative investment

10. Speculation Promotes Speculation Speculative demand High rate of return Price increases

11. Why? Stock adjustment: small increase in % of portfolio in commodities  large purchases Self-fuelling nature of speculative investment Expansion/Globalisation of finance Post-crisis: flight to safety  shift to assets with “real” value Financialisation: demand and supply have little to do with production and consumption

12. More fundamentally…. …the problem is inequality, and the failure of economics to take account of it Markets are assumed to be “efficient” because those who benefit most are most willing to pay But with major inequality, willingness/ability to pay does no reflect need/benefit

13. Global Inequality

21. By far the most valuable use of food is for a hungry person to eat it But to the market, what matters is ability and willingness to pay …and an investor who can make 0.1% profit by buying maize to sell the next day can pay much more… …as can someone wanting to drive one more mile in their SUV, or an over-weight child wanting another packet of popcorn

22. This isn’t just a problem of finance – it’s a fundamental flaw in economics as a whole We need to develop a new economics based on real value, which maximises benefits to people’s lives, not financial profit and economic growth