Skip to content

Posts tagged ‘pension funds’

The Root of the Evil

Over the past few weeks I’ve been watching with barely-disguised glee, the evisceration of a recent Newsweek article by Niall Ferguson – pet historian of the American right – in which he provides a deeply flawed analysis of Barack Obama’s past four years in power. As Matthew O’Brien notes, before systematically working through Ferguson’s argument (or, indeed, ‘argument’), ‘He simply gets things wrong, again and again and again.’

I’m no fan of Ferguson’s. This has less to do with our political differences – in relation to him, I’m so left-wing I should be living in a Himalayan hippy commune practising an obscure form of yoga while teaching Capital to peasants – but because of the way he shapes his interpretations of the past to suit a particular neoliberal agenda.

Of course, no historian is capable of writing an absolutely objective history of anything – nor would we want to because it would be dreadfully boring – but Ferguson presents, and defends, his arguments on the grounds that they are absolute truth.

He was called out on this last year by Pankaj Mishra, in a fantastic review of Civilisation: The West and the Rest for the London Review of Books. In Civilisation, Ferguson argues that

civilisation is best measured by the ability to make ‘sustained improvement in the material quality of life’, and in this the West has ‘patently enjoyed a real and sustained edge over the Rest for most of the previous 500 years’. Ferguson names six ‘killer apps’ – property rights, competition, science, medicine, the consumer society and the work ethic – as the operating software of Western civilisation that, beginning around 1500, enabled a few small polities at the western end of the Eurasian landmass ‘to dominate the rest of the world’.

Leaving aside the strange question of why an historian writing in the twenty-first century thinks that it’s possible to divorce the ‘West’ (whatever we may mean by that) from the rest of the world – and even why an historian feels like writing a triumphalist history of Europe and North America (I thought we stopped doing that in the sixties?) – this is a history which largely ignores, or plays down, the implications of modern capitalism and globalisation for those people outside of the West.

As in his writing on the creation of European empires, Ferguson has a problem with accounting for the widespread resistance of Africans, Asians, and others to European conquest – and the violence and exploitation which followed colonisation. Mishra writes:

he thinks that two vaguely worded sentences 15 pages apart in a long paean to the superiority of Western civilisation are sufficient reckoning with the extermination of ten million people in the Congo.

Recently I’ve been thinking a great deal about a comment which Roger Casement made in a report for the British government about atrocities committed in the Congo Free State during the late nineteenth century. Writing in 1900, he concluded:

The root of the evil lies in the fact that the government of the Congo is above all a commercial trust, that everything else is orientated towards commercial gain….

The Congo Free State came into being at the 1884-1885 Berlin West Africa Conference, where the assembled representatives of European states acknowledged the Belgian king’s right to establish a colony in central Africa. Leopold II’s International Association – a front organisation for his own commercial interests – was allowed to operate in the region.

There were strings attached to the deal – Leopold had to encourage both humanitarianism and free trade, for instance – but with the sharp increase in international demand for rubber in the 1890s, after JB Dunlop’s invention of inflatable rubber tyres, Leopold’s interest in the Congo, which had only ever extended to exploiting the country for its natural resources, narrowed even further. Leopold operated his own monopoly on the rubber trade, leasing some land to other companies on the proviso that they pay him a third of their profits.

The ‘evil’ to which Casement referred was the transformation of the Congolese population into a mass of forced labourers compelled to contribute quotas of rubber to the various businesses operating in the Free State. Those who failed to do so, those who refused to do so, or those who were suspected of not doing so, faced brutal reprisals from the State’s Force Publique, including being killed, often along with their families; having their hands cut off; and seeing their villages and property burned and destroyed.

It’s estimated that ten to thirteen million Congolese died as a result of murder, starvation, exhaustion, and disease between 1885 and 1908, when international condemnation of Leopold’s regime forced the Belgian government to take control of the Free State.

Although other colonial regimes in Africa could be brutal, violent, and unjust, none of them – with the possible exception of Germany in (what is now) Namibia – managed to commit atrocities on the scale that Leopold did in the Congo. As Casement makes the point, ‘the root of the problem’ was that the Congo was run entirely for profit, and that the businesses which operated in the region were not regulated in any way. This was capitalism at its most vicious.

But what does this all have to do with food? Well I was reminded of Casement’s comment when reading about Glencore’s response to the current droughts – chiefly in the US, but also elsewhere – which are partially responsible for global increases in food prices:

The head of Glencore’s food trading business has said the worst drought to hit the US since the 1930s will be ‘good for Glencore’ because it will lead to opportunities to exploit soaring prices.

Chris Mahoney, the trader’s director of agricultural products, who owns about £500m of Glencore shares, said the devastating US drought had created an opportunity for the company to make much more money.

‘In terms of the outlook for the balance of the year, the environment is a good one. High prices, lots of volatility, a lot of dislocation, tightness, a lot of arbitrage opportunities [the purchase and sale of an asset in order to profit from price differences in different markets],’ he said on a conference call.

This weekend, it was revealed that Barclays has made more than £500 million from food speculation:

The World Development Movement report estimates that Barclays made as much as £529m from its ‘food speculative activities’ in 2010 and 2011. Barclays made up to £340m from food speculation in 2010, as the prices of agricultural commodities such as corn, wheat and soya were rising. The following year, the bank made a smaller sum – of up to £189m – as prices fell, WDM said.

The revenues that Barclays and other banks make from trading in everything from wheat and corn to coffee and cocoa, are expected to increase this year, with prices once again on the rise. Corn prices have risen by 45 per cent since the start of June, with wheat jumping by 30 per cent.

What bothers me so much about these massive profits is partly the massive profits – the fact that these businesses are actually making money out of a food crisis – but mainly it’s that these monstrously wealthy businessmen are so unwilling to admit that what they’re doing is, even in the most charitable interpretation, morally dubious.

Barclays’s claim that its involvement in food speculation is simply a form of futures trading is disingenuous: futures trading is an entirely legitimate way for farmers to insure themselves against future bad harvests. What Barclays and other banks, as well as pension funds, do is to trade in agricultural commodities in the same way as they do other commodities – like oil or timber.

In 1991, Goldman Sachs came up with an investment product – the Goldman Sachs Commodity Index – which allowed for raw materials, including food, to be traded as easily as other products. When the US Commodities Futures Trading Commission deregulated futures markets eight years later, for the first time since the Great Depression, it became possible to trade in maize, wheat, rice, and other foodstuffs for profit.

The current food crisis has been caused by a range of factors – from the drought, to the excessive use of maize and other crops for biofuel – and exacerbated by climate change and pre-existing conflicts, corruption, inequalities, and problems with distribution. In Europe, unemployment and low wages will add to people’s inability to buy food – hence the rise in demand for food banks in Britain, for example.

Food speculation has not caused the crisis, but it does contribute to it by adding to food price volatility. I’m not – obviously – comparing Glencore or Barclays to Leopold II’s International Association, but the atrocities committed in the Congo Free State provide an excellent example of what happens when capitalism is allowed to run rampant. Let’s not make that mistake with our food supply.

Creative Commons License
Tangerine and Cinnamon by Sarah Duff is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.

Food Futures

One of the funniest articles I’ve read recently was Robert Webb’s account of his experience writing a weekly column for the Daily Telegraph. He describes – for gleeful readers of the New Statesman – his battles with the commentators on the newspaper’s online edition. The internet’s equivalent to the ‘green Biro brigade’ of usually right-wing newspaper letter-writers, these ‘Ghouls’ as, Webb calls them, used the Telegraph’s comment function to heap scorn and ridicule on Webb.

These guys love Britain so much that they all seem to live in Gibraltar. Their ‘comments’ were characterised by a suspicion of nuance, a tin ear for irony, a conviction that political correctness and Stalinism were the same thing, and a graceless irascibility of the kind we are now expected to find endearing in Prince Philip. There was also an assumption of intellectual superiority, rather cruelly undermined by a vulnerability to cliché and an inability to spell.

The problem was not that they disagreed with Webb, but that their comments were aimed solely at reminding him what a ‘worthless bastard’ he was.

I hadn’t realised that these internet trolls had moved beyond the places I’d usually expect to find them – news sites, mainly – and on to food sites as well. In a post which seems to have gone viral this week, Shauna James Ahern of Gluten Free Girl explains the extent to which she’s been subjected to internet bullying:

Every day, there is some nasty, vituperative comment on a post, something I skim quickly then delete. It could be comments about my husband (‘He’s obviously retarded. Look in his eyes. There’s something wrong.’) about our life on Vashon (‘Oh that’s right, everything is perfect on  your fucking ISLAND.’), about our food (‘That looks like dog vomit. Why does anyone pay you to do this?’), and mostly about me (my weight? my writing? my hair? my mere presence in the world? take your pick).

I want to make this clear: criticism and debate are absolutely vital – even on food blogs. I have no truck with writers who believe that any form of critical thinking is ‘mean’ or ‘negative’. But I have no time whatsoever for bullies. I had a small brush with one (or two?) this week after publishing a post critical of the Toffie Food Festival’s Menu magazine. A few commentators using dodgy Hotmail accounts and a suspiciously identical IP address sent comments which were fairly personal and meant only to tell me and the world that my ideas are stupid.

But a decade in academia has helped me to grow rhino hide for skin and it takes more than a few bullies to stop me. So troll who lives at IP 41.133.175.4, you know who you are. As do I.

Troll at IP 41.133.175.4 did, though, ask a good question, and one which is worth answering. He (or indeed she) responded to my point that the authors of Menu have a profoundly problematic conception of food as a consumer product – like jewellery or clothing – which can be used and thrown away at whim, by asking: ‘where do you live where you don’t have to buy food’?

Yes, dear troll at IP 41.133.175.4, you’re quite right: food is a product or commodity which has to be bought (unless, of course, you grow or rear it yourself). But there’s an important difference between food and bed linen, perfume, cutlery, or clothes, for example. Only one of those products is absolutely essential to human life – only one has a significant impact on people’s incomes and the ways in which they live. Only one can cause ordinary people to protest when prices become too high.

Food is, then, is bought by consumers and treated as a consumer product even though it’s significantly different from other products. Our understanding of food as a consumer product is a relatively recent phenomenon: it’s only a century or two old, and linked strongly to the industrial revolution and mass production, as well as the development of a very powerful advertising industry.

Why should we care about this? Given that the mass production of food allowed greater numbers of people to eat better and more cheaply than ever before, surely these processes could only be considered a Good Thing. There is nothing inherently wrong with the industrialisation of food production as long as it is environmentally sustainable, humane to animals, respects workers’ rights, and produces safe and uncontaminated food – which, as the industry functions at the moment, is not always the case.

Moreover, as I wrote last week, this conception of food as a consumer product means that we understand food differently. Food moves from being something we associate primarily with nourishment to being a commodity which has the same meaning for consumers as other, less essential goods. This means, for example, that they are more willing to throw away large quantities of food. As the United Nations’ Food and Agriculture Organisation reported a few months ago, the average consumer in the West wastes 95 to 115kg of food every year – and wealthy countries are responsible for half of the total amount of food wasted every year.

There are many other implications for seeing food as a consumer product – not least the foodie worship of food since the early eighties – and I’ll consider these more carefully in the next few weeks. For the moment, I’d like to take a quick look at food speculation.

Of the many causes of the current global food crisis, food speculation is the most contested and seems to be the most complicated to understand. As the UN’s Special Rapporteur on the Right to Food Olivier de Schutter as well as Oxfam and other organisations have argued recently, the deregulation of commodities markets in the West during the mid-nineties have had catastrophic implications for food prices.

Let me explain: farmers have long traded in food futures to secure their incomes. Farmers protect themselves against bad harvests by selling their produce in advance to traders. They use the profits they make in bad years – when they have less to sell – to protect themselves against future losses. This works well for traders, who do particularly nicely in good years. Writing about the United States, Frederick Kaufman explains how well this tightly regulated system worked:

The result: Over the course of the 20th century, the real price of wheat decreased (despite a hiccup or two, particularly during the 1970s inflationary spiral), spurring the development of American agribusiness. After World War II, the United States was routinely producing a grain surplus, which became an essential element of its Cold War political, economic, and humanitarian strategies – not to mention the fact that American grain fed millions of hungry people across the world.

But things changed at the end of the twentieth century. Partly because of intensive lobbying from hedge funds and banks, like Barclays, governments in the West deregulated commodity derivatives markets. Banks and investors became interested in trading on the commodities market – once the preserve of specialists like Glencore – when bankers at Goldman Sachs (yes, they really do their best to be the embodiment of venality) devised new investment products which included speculation in food futures. Investors which hadn’t before been involved in the commodities markets, like pension funds, were, then, willing to play the futures markets.

As a result of this, food – grain, cocoa, fruit, rice, and meat – can be traded in exactly the same way as other commodities, like gold, timber, and coal. Brett Scott writes:

The controversy can be broken down into two separate issues. Firstly, are financial players in commodity derivatives markets causing derivatives prices to disassociate from what the price ‘should be’ if it were reflecting the fundamental balance of supply and demand in the underlying commodity? Secondly, does such a disassociation in futures prices get transmitted into the real price of food people end up paying?

The answer from the UN and a range of other charities is a definite, ringing ‘yes’. Irresponsible banks are driving up the price of food, they argue. John Vidal cites two well-known examples of food speculation causing price spikes:

Last year, London hedge fund Armajaro bought 240,000 tonnes, or more than 7%, of the world’s stocks of cocoa beans, helping to drive chocolate to its highest price in 33 years. Meanwhile, the price of coffee shot up 20% in just three days as a direct result of hedge funds betting on the price of coffee falling.

But what role does speculation play in causing food prices to rise more generally? This is more difficult to pin down, as Scott implies. De Schutter argues, convincingly in my mind, that even if speculation was not responsible on its own for causing the spike in food prices in 2008, it was a major contributing – and new – factor. I think it’s worth quoting him at length:

a number of signs indicate that a significant portion of the price spike was due to the emergence of a speculative bubble. Prices for a number of commodities fluctuated too wildly within such limited time-frames for such price behaviour to have been a result of movements in supply and demand: wheat prices, for instance, rose by 46% between January 10 and February 26, 2008, fell back almost completely by May 19, increased again by 21% until early June, and began falling again from August. The 2008 food price crisis was unique in that it was possibly the first price crisis that occurred in an economic environment characterized by massive amounts of novel forms of speculation in commodity derivative markets.

The particular area of concern is speculation in derivatives based on food commodities. A study conducted by Lehman Brothers just before its bankruptcy revealed that the volume of index fund speculation increased by 1,900% between 2003 and March 2008. Morgan Stanley estimated that the number of outstanding contracts in maize futures increased from 500,000 in 2003 to almost 2.5 million in 2008. …the changes in food prices reflected not so much movements in the supply and/or demand of food, but were driven to a significant extent by speculation that greatly exceeded the liquidity needs of commodity markets to execute the trades of commodity users, such as food processors and agricultural commodity importers.

Food speculation is a manifestation on a very grand scale of a shift in thinking of the value and significance of food: here, food is simply another commodity to be bought and traded, often very lucratively. We know the futures are useful and important to farmers, but the unregulated speculation of food means that food prices are no longer linked to what people can afford to pay. When the UN and other organisations call for a greater regulation of commodities markets – to a return, to some extent, to the derivatives trading of the twentieth century – they are also pointing to the fact that food cannot be understood in the same terms as other commodities and consumer goods.

Creative Commons License Tangerine and Cinnamon by Sarah Duff is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.