Food Speculation

Food Speculation

Introduction

Speculation can be defined as an open opinion on what is expected in the future, which is based on incomplete evidence. It may range from different things like the speculation of how the economy will be and speculation on the different prices of different commodities. Therefore, food speculation is the open opinion of food prices in future due to incomplete evidence. The evidence that leads to speculation may range from several factors like the demand and supply or the increase in prices of other related goods, which are involved in the production of these commodities. These food speculations have led to the increase in food prices leading to hunger in the developing countries.

How has speculation increased food prices around the world?

In the past before 1990, food was sold by the different methods where the farmers could form contracts and sell their produce in advance before they could harvest the crops. This ensured the farmers that there was no risk of losing in the market. This was because if the prices of food went down, the farmers could benefit and on the other hand, if the food prices went up they could still benefit because all the costs had been covered and the profit was still there. During this time, the contracts were not transferable from one person to another. This meant that once the prices were set they would not change (Hari, 2010).

For example, one farmer, X, grows maize in large-some for the purposes of selling. Since X is afraid that the prices of maize may go down due to his speculation and on the other hand, buyer, Y, speculates that the food prices might rise, the two, X and Y, meet and negotiate on a price even before X has harvested his produce. They form a contract at price, which is acceptable to all. When X harvests his produce, the prices might be higher than the agreed contract or the price might be lower than the agreed one between him and Y. However, despite the price being higher or lower than the contract, the price in the contract cannot be changed. Additionally, Y cannot sell the contract to another third party (Vidal, 2011).

However, after 1990, wealthy people in the Wall Street like the Goldman Sachs, Deutsche bank, Merrill Lynch and many others met and decided to change this mode of speculation. The changes they made were that the contract could be transferable from one buyer to another. The contract became to be known as a derivative. In addition, the contract price could change from one buyer to another. This led to people who are even not interested in farming to invest on this because of the different speculations they had. This led to the increase in food prices (Hari, 2010).

To understand this clearly, this example will help. A farmer X might want to sell his produce after speculating that he might lose if the prices go down. Therefore, they meet with a company like Goldman Sachs who are interested in buying the produce even before it has been harvested. They agree the price of the produce to be $100. Goldman Sachs then decides to sell to another buyer like Barclays bank after speculating that the price of food will increase. They decide that the price of the produce should be $120. Then Barclays Bank speculates that there would be an increase in prices of the produce and decides to sell to another buyer Deutsche Bank. They agree together that the price of the produce is $150. Deutsch Bank might want to sell the contract due to speculation that the prices of the produce will go down. However, they find another customer, Merrill Lynch, who has speculated that the price of the produce will go up. They decide that the price of the commodity is $170. During this time, X has not yet harvested. When X harvests the produce, the price of his produce is now $170 and it cannot be changed leading to a seventy percent increase in price (Hari, 2010).

How have the high prices of food prices affected the poorer countries?

            The poorer countries mostly depend on the developed countries to help them be able to survive. This means that the developed countries would not be affected that much but the people in the developing countries would be adversely affected. This is because the prices in which they used to buy food have almost doubled leading to them not being able to buy the food. They can only buy what they can afford. Therefore, the people in the developing countries continue to suffer out of no reason just because of speculation.

One of the effects that it has caused in the developing countries is hunger. When the prices are very high, the poor countries are not able to afford to buy this food. Since they are not able to buy this food, the countries go into a shortage of food, which leads into hunger. The confusing part about this is that the demand and supply has not changed meaning that there is food. Therefore, the people in the developing countries who are poor continue to starve to death and yet there is food but they cannot afford it due to the speculation (Institute for Food and Development policy, 2011).

Another way in which the developing countries have been affected by this drastic increase in food prices due to speculation is the high cost of living. People in the developing countries are hit by the high cost of living since the food prices have increased. This is because many people in the developing countries are unemployed; consequently, they are unable to afford the food leading to hunger. Thus, most of the people are not able to survive especially the children and the women and they end up dying. Additionally, due to the increase in food prices, other commodities’ prices raise leading to a nation having high costs of living and yet they cannot afford to sustain themselves.

Due to the increase in food prices that was caused by speculation, the level of crime related cases increased in the poorer countries. In the poorer countries, very many people are unemployed and if employed, very many people do not have good jobs that can be able to sustain them and their families. In order to survive, most of them start to engage themselves in criminal activities. They become thieves, murderers and others become prostitutes so that they can be able to survive and feed their families. Additionally, a developing country might go into civil war where a government is dethroned by the people or the military and yet it was not their mistake but because of the increase in food prices due to speculation.

How has speculation of food prices led to famine around the world?

            After the wealthiest people in Wall Street decided to increase the food prices due to speculation, the world was hit by famine. This is because when the prices of food almost doubled very many people could not afford to buy the food. In the developing or the poorer countries, the governments were unable to support their citizens in terms of food. The food that was cheap started to get finished in this developing country and there was no money to buy food to supplement (Wahl, 2008). Therefore, due to lack of money to buy food supplies, the whole world wet on famine especially those poorer countries and yet there were rains.

Conclusion

            In conclusion, speculation of food prices can be said to be somebody’s opinion about the future food prices without conclusive evidence. This speculation has led to the increase in food prices bringing with it very many negative effects all over the world. Additionally, speculation has also led to some countries go into civil war while the costs of living continue to increase. Additionally it has led to famine especially in the developing countries where they could not afford to buy the food leading to food shortages. Therefore, the people who are involved in the speculation of food prices should be kindly asked to change the policy of speculation for the purposes of humanity.

 

References

Hari, J., (2010). How Goldman Gambled on Starvation. The Independent. Retrieved from http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-how-goldman-gambled-on-starvation-2016088.html

Institute for Food and Development policy, (2011). Reform Commodity Trading – Food Speculation Causes Hunger. Institute for Food and Development policy. Retrieved from http://www.foodfirst.org/en/node/3294

Vidal, J., (2011). Food Speculation: People die from hunger while banks make a killing on food. Sott.net. Retrieved from

http://www.sott.net/articles/show/222252-Food-speculation-People-die-from-hunger-while-banks-make-a-killing-on-food-

Wahl, P., (2008). Food Speculation the Main Factor in the Price Bubble. World Economy, Ecology and development. Retrieved from

http://www2.weed-online.org/uploads/weed_food_speculation.pdf