Olivier de Schutter on food speculation

Recht auf Nahrung
Olivier de Schutter, Uno-Sonderberichterstatter für das Recht auf Nahrung
Article as analysis
If food security is to be guaranteed, we must fight financial speculation with agricultural products, says Olivier de Schutter, UN Special Rapporteur on the Right to Food. In the following an interview.

Aliance Sud: There is debate about the extent to which financial speculation is responsible for price increases of staple foods. Is there at least international agreement that it does play a role?

Olivier de Schutter: The experts, including those from international agencies, have now agreed that speculation does influence price volatility. However, its part in the current price increases is smaller than in 2008. Price volatility is highly disadvantageous to producers. It complicates planning and increases the risks. It can also create panic situations. If an investment fund speculates on a price increase, buyers will want to buy as quickly as possible, whilst sellers will want to sell as late as possible. They do so in the conviction that the speculator has made his decision with full knowledge of the facts, and create an artificial shortage that drives up the price.

Price then no longer reflects the interplay between supply and demand...

Speculation does encourage price fluctuations but I freely acknowledge that they are not the ultimate reason for an upward or downward price movement. A derivatives market where options and futures are exchanged is even necessary up to a point. It enables traders to hedge against natural price fluctuations. Such a market must be regulated however. If derivative market operations are not regulated, they destabilise markets. They send out signals that are not unequivocally «readable». The boom in commodity index funds and the financial market philosophy that is gaining ever more ground disconnect these derivatives markets from the real economy. Bubbles form, then burst, without having anything to do with real supply and demand. To prevent this, markets must be regulated and must make a distinction between agricultural traders and financial investors.

Under pressure from NGO campaigns, some German financial institutions such as Kommerzbank have decided to cease speculating in derivatives based on agricultural commodities. Is that genuine progress or just a question of image?

It is gratifying that some European financial institutions are giving up these speculative transactions, but there should be more of them! I think it is more than just cosmetic. In that way they are acknowledging that the financialisation of agricultural markets leads to prices that are no longer being determined by supply and demand but by the expectations of financial players. They often exhibit a herd mentality («I do what my neighbour does or what I think that he will do») and become sure-fire successes. Prices increase because a large number of market players speculate on a rise.

To limit speculation with foodstuffs, the USA and EU are now reviewing their laws. Under discussion are position limits (quantitative restrictions) for bank funds and other speculative investors, as well as transaction reporting requirements. Are those suitable means for promoting food security?

From a food security standpoint, it is right and important to combat speculation. But stabilising agricultural markets will certainly call for more transparency on physical markets as well as more responsible agricultural policies. The EU and USA could send a strong signal by declaring a moratorium on biofuel subsidies. Those subsidies were decided before people became aware of the tremendous impact of biofuels on the levels and volatility of food prices. Some 40 per cent of US corn production today goes into ethanol production and cars in the USA consume 13 per cent of world corn production. That is equivalent to the output of the EU.

Wouldn't anti-speculation measures have to be implemented globally and specifically include tax havens, where most financial funds are headquartered?

It would be ideal for the G20 to tackle financial speculation with agricultural commodities and the problem of biofuels without delay. One way could be to build up emergency food stocks as was discussed at the June 2011 G20 Summit. Regrettably, hardly anything has happened since.

The problems of agriculture are not just about speculation. What should we tackle as a matter of priority in order to improve global food security?

For a long time, agricultural policy in developing countries was determined by international markets. Governments poured investment into the export sector and neglected local and regional markets. Yet the small producers – those producing sorghum, manioc and other crops – depend on these local and regional markets to develop further. Infrastructure in Africa often mirrors this policy in that it is much easier to export agricultural products to Europe than to trade them amongst African countries. The strongest producers receive support whilst all the others – the vast majority in other words – are left to fend for themselves. Regional integration is the key to correcting the situation. It would give producers access to a market on which they are not at a disadvantage.

Is there any sign of a correction?

For some years now questions have been raised about the model that has dominated so far. Things are beginning to move and that is extremely encouraging. Hunger is no longer regarded as destiny or a disease. It is now acknowledged as primarily the outcome of misguided decisions. Consequently, there is now discussion in decision-making centres about questions of governance and responsible behaviour. Ever more countries are recognizing the right to food in their Constitutions and endeavouring to safeguard it. Although it does figure in the 1948 Universal Declaration of Human Rights, awareness of it has started growing only relatively recently. Because of its very abstract formulation and the fact that it was not being much respected, the 1996 FAO Food Summit decided to define it more precisely. In 2004 the «Voluntary Guidelines for the Right to Food» were adopted. Since then, this right has been occupying ever more space in international discussions, and this not least of all because it is also being promoted by civil society, NGOs and producers' organisations, most particularly in Latin America. Work should continue along these lines, because the recognition of the right to food means that hunger is being viewed as closely bound up with questions of access, participation and democratic and legal processes.

Interview: Isolda Agazzi, Alliance Sud