This year, Food Banks Canada announced that food prices are set to rise 2-4 per cent after a 4 per cent increase last year which some attribute to climate change and speculation driving up food prices.
Food Banks Canada says rising food prices are disastrous “for families and individuals trying to survive on a limited budget, price increases often result, not in a higher grocery store bill, but in fewer nutrient-dense foods like fresh fruit and veggies, meat and fish.”
The group points to a study by Guelph University which notes that in addition to a low dollar and procurement troubles that climate change “remain[s] one of the most significant, unpredictable influences on food prices.” As though El Nino is expected to be the “one of the strongest on record,” a possible rise in precipitation levels “are highly unlikely to redeem the four years of drought experienced in some regions previously.”
Similarly, Oxfam Canada notes that “droughts, floods and storms have played havoc with harvests over the past few years, and climate scientists predict the problem is only going to get worse,” further manipulating prices as “climate change and other environmental degradation are making it harder to produce more food.”
Additionally, the organization points to a more controversial long-term cause: speculation. Though Oxfam cautions that not all experts agree, it says that following the financial crisis “large-scale investors, anxiously seeking havens for their money, turned to commodities futures markets because the rising price of food seemed to make it a safe bet. Many economists believe the influx of billions of dollars from pension funds and hedge funds into commodity index funds drove food prices higher.” Particularly as today, Oxfam notes that “Commodity markets are now a component of most institutional investors’ portfolios.”
This was described in a Harper’s magazine article with the telling title “The Food Bubble: How Wall Street starved millions and got away with it,” but Oxfam says this really is a global system with Deutsche Bank and others pumping up the global food price “bubble.”
Basically, this goes back to the late 1990s with the deregulation of futures markets which Foreign Policy says meant that “bankers could take as large a position in grains as they liked, an opportunity that had, since the Great Depression, only been available to those who actually had something to do with the production of our food.” The Guardian reports that 1996, speculators held 12 per cent of the Chicago wheat market, which rose to 61 per cent in 2011. The structure allows firms to “go long,” rather than buying and selling. This means that they accumulated futures until supply became scarce and global food prices rise. This continued through a “demand shock,” which Foreign Policy says “undermined the innate structure of the commodities markets, requiring bankers to buy and keep buying — no matter what the price.” This perpetuates the problem, as Foreign Policy says “the more the price of food commodities increases, the more money pours into the sector, and the higher prices rise,” as a result. More recently, The Guardian reported that “for several years, it was hotly debated whether speculation in food commodities drives up prices. But the evidence now firmly says it does.”
Oxfam concludes that “There are worrying signs that prices will continue to climb unless government intervene,” which will require fighting climate change and “countries with major financial centres (United States, UK, Germany, and Canada) [agreeing] to improve transparency in commodity markets [to] rein in excessive speculation, such as [with] price limits and position limits, so that commodity futures markets can play their proper role without being hijacked by hot money.” However, Oxfam says this is unlikely to occur as “Canada has to date opposed any new regulation of commodity markets.”