The latest “get rich quick” scheme for American investors: Steal food from the hungry. But do it legally. It’s called commodity speculation.
Investors buy large amounts of food commodities, such as corn, soy or sugar. But rather than use these commodities to cut costs on products they manufacture (as, say, a bread company might by investing in wheat), they wait for the price of that commodity to go up, then sell it to other speculators for profit.
Like many upper class money-making schemes in the country, commodities speculation ultimately harms working and middle classes worldwide by driving up the price of food. It’s been cited as a major reason for rapidly rising grocery prices during the past few years.
When speculators buy large quantities of commodities that means less food to go around. This is great for the speculators: Food prices go up, and they can sell those commodities for profit. However, it’s not so good for families struggling to make ends meet. It’s even worse for poor countries unable to feed their citizens. The effect of rising food prices is felt worldwide, even in the U.S.
The price of milk in America has gone up 12 percent since last year. Bread costs have risen 17 percent. These aren’t luxuries. These are staple foods. When a child must go hungry because their parents have to choose between buying bread and paying the rent, the responsibility lies with the people who are artificially inflating food prices for their own profit.
Worse than simply raising prices, commodities speculation is making the markets unstable. We’ve seen the effects of this kind of speculation before: The tech bubble of the ‘90s led to a recession in the early 2000s, and we’re still in the recession caused by the 2007 housing market crash. Commodities speculation is creating a food market bubble. Rapidly rising prices are attractive to investors who want to cash in. But once speculation goes past what the market can bear, the bubble bursts, causing a sudden crash in food prices.
At first this might seem like a good thing. After all, isn’t it high food prices we’re worried about? But a sudden drop in food prices could mean disaster for the agricultural industry. And farms shutting down would be a lot worse in the long run for world food prices, never mind the ripple effect that such a crash would have on the already weakened world economy.
Fortunately, the dangers of commodities speculation are beginning to come to light. The Dodd-Frank Wall Street Reform Act requires new rules on commodity speculation, which are expected to be issued soon. And the subject will be brought up at the upcoming G20 summit, an economic meeting between leaders of the world’s biggest economies.
We need to ensure that these reforms happen. It’s dangerous to think that identifying the problem means it will be solved. We need to demand action from our Congress and legislators at the state and federal levels. But it is the speculators themselves who can do the most to end this. The practice may be lucrative, but it is unethical. Commodities speculation steals food from the poor and raises prices for those who can’t afford to pay them.
Do the right thing — invest ethically.