Banks, Betting on Food and Hunger IntroductionDoane of the World Development Movement could be right when she asserted that banks are making a killing from betting on food while people are dying from hunger (Vidal 2011). One could argue that hunger is caused by a number of reasons droughts being top on the list especially in the third world nations. The United Nations on the other hand, holds an otherwise position; they aver that a ‘perfect storm’ of human and natural factors have merged to hyper-inflate food prices (United Nations 2012).
In addition, they further argue that traders and economists have claimed that the same banks that hedge out finances and the financiers whose suppositions on the global money markets led to the sub-prime mortgage crisis, are the ones causing food prices to increase. According to (Vidal 2011) these institutions have taken advantage of the deregulation of global commodity markets and are making billions from betting or speculating on food prises causing hunger and misery around the world. This paper discusses this assertion that banks are making a killing from betting on food while people are dying from hunger. Banks and Betting on FoodBanks in essence are the avenues through which the economy of a nation is moderated given that central banks often makes use of them to regulate inflation through manipulation of interest rates and borrowing patterns (Armendariz & Beatriz 2010).
Banks have also been vital in carrying out speculative functions by making use of a number of investment derivatives as a way to hedge risks and make profits through forecasting future economic events. Unfortunately, in 2011 a new form of speculation was introduced in the banking arena known as the ‘food derivative’ speculation (Bramhall 2012).
This ‘food derivative’ speculation has replaced the common financial derivatives being employed by banks as the hot new investment supported by major investment banks in the world like Goldman Sachs, Barclays and JP Morgan (Bramhall 2012). New research conducted by the World Development Movement shows that the same banks that caused the economic crash experienced in 2008 are also responsible for the skyrocketing of food prices (World Development Movement website 2012). The Ecologist estimates that in 2010 alone Goldman Sachs made one billion dollars in profits from food speculation alone (Bjerga 2011).
In addition to the heavy speculation, private investment firms are purchasing huge tracts of land in the third world countries. Investors have always possessed the ability to trade in commodities futures; like buying a bushel of corn early in 2010 at a certain fixed price before it is actually produced then delivering it at higher price later. Despite of this ability, the commodities market has always been perceived as volatile by serious investors who have compared it to games like horse racing.
However, investment banks like Goldman Sachs, JP Morgan, Barclays and other key players have made use of factors that seem to threaten food security like extreme weather conditions, water shortages, and increasing food demand due to Asian economic boom to aggressively pitch their ‘agri’ funds to investors. The effect of this massive trading in food futures is the driving up of the current cost of food in the same way the subprime mortgage bubble massively drove up the cost of real estates just before the 2008 economic crash.
The difference that this trading on future prices of food has brought is a life and death issue for billions of people around the world due to the high prices of it brought.