Food riots are back with a bang. The current uprisings in North Africa were sparked by public anger at high bread prices. The blame is often targeted at speculators aiming to profit from the food market. But there is more to the story.

The forces of nature play a considerable part: agricultural areas in Australia and Pakistan are under water. China’s wheat-producing provinces are in the middle of a massive drought. The UN’s Food and Agriculture Organisation (FAO) even devoted a special alert to the issue this week. If China has to import wheat, that will have a huge impact on world trade.

But even without natural disasters, food prices are under pressure. This is due to the rising world population (almost 17 billion), the increasing demand for meat and the effects of climate change. And if food-exporting countries keep their poor harvests for themselves, this will have a direct effect on importing countries.

Unpredictable
Prices are being driven up even further by intensive speculation on the food markets. Investors are buying up basic foodstuffs and storing them to sell at a time when the price is favourable. This obscure trade causes unpredictable price fluctuations says Agnes van Ardenne, the Dutch representative at the FAO. “They happen so quickly, we can hardly keep track. The market is no longer transparent.”

The FAO is working on rules for transparency and a code of conduct for speculators and institutes that finance food speculation. The G20 is also getting behind these moves. Ms Van Ardenne hopes that the 20 biggest industrialised nations will draw up rules for the food markets, just as they previously did for the financial markets.

Don’t exaggerate
But we shouldn’t exaggerate the role played by the speculators, warns Rick Torken. He is head of ABN AMRO’s Agri Commodities and keen to emphasise that his division is not involved in this type of speculation. “If you look at the analyses, speculation is only partly responsible for price rises: no more than five or ten percent.” Mr Torken argues that the involvement of the banks is negligible. “The investment funds that speculate in food run high risks. Generally speaking, they are not financed by banks, but by individual investors.”

Rick Torken believes we should be far more concerned that the United States and Europe have been subsidising their farmers for decades, leading to the dumping of cheap surplus produce on markets in poor countries. At the same time, developing countries have been allowed hardly any access to Western markets. “This subsidised agriculture has stood in the way of the gradual increase of food production in the developing markets. And now we are paying the price. It started in 2008, when the first food riots broke out.”

No ban
In spite of the global instability that high food prices can cause, Agnes van Ardenne does not believe that a ban on food speculation is the answer. She points out that there is insufficient international support for such a measure and action at national level is simply unworkable. Rick Torken of ABN AMRO agrees: “You would remove a small part of the problem, if that. What you can do is make structural changes to the stock market. I have no objections whatsoever to greater transparency.”