Western speculators are manipulating the price of cereals to make quick profits. A report from the United Nations Special Rapporteur on the Right to Food Olivier de Schutter argues the practice is hurting farmers in poor countries. He fears the market for foodstuffs is being turned into some kind of casino.

A month ago a London investment firm made its move. It bought 241,000 tons of cocoa on the futures market - enough to provide the whole of Germany with chocolate for a year. But the move by the Armajaro firm was designed to make money not chocolate bars. The company gained control of the entire European stockpile of cocoa, explains Dr De Schutter.

"Well this is an investment fund which bought some seven percent of global cocoa production through acquiring futures contracts [...] and the problem is that this artificially creates a price spike, because operators on the market - traders - begin to panic and to wonder if they'll be able to buy cocoa in the future."

And the cocoa price did indeed soar to its highest level for over 30 years.

Olivier de Schutter goes on to say that "Well that is particularly bad for the countries which depend on imports of food commodities to feed themselves." These countries end up not being able to pay and get into financial problems.

Cocoa may not be a staple food, but the same speculation may hit essential foodstuffs, such as rice, wheat and other cereals. Many countries in sub-Saharan Africa have to import these staple foodstuffs.

Speculators
It's a major development that's come about over the last decade: speculators moving in to take over the commodities market, which trades in food products. Dr De Schutter has researched the phenomenon, and his findings are to be presented at a special session of the United Nations Food and Agriculture Organisation (FAO) in Rome at the end of this week. He leaves no room for doubt: the speculators are only interested in one thing. "To make as much money as possible in as short a time as possible."

Driving up prices
The investors, banks and pension funds buy up as much rice or wheat as possible in order to drive prices up and sell at a profit. And the practice is becoming increasingly common.

In 2003 there were half a million 'term contracts' to buy and sell maize within a fixed period of time. In 2008, that figure had gone up to 2.5 million. The enormous increase was almost entirely due to speculators, attempting to make money on the back of the price of maize. Dr De Schutter has dubbed this "the casino economy".

"Well, if you look at what happened in 2007 and 2008, we have basic commodities such as wheat, maize, rice doubling their price over only 12 or 15 months. And that is, of course, absolutely unrelated to fundamental changes in diet or production."

Harvest
The price hikes of 2007 and 2008 had nothing to do with factors such as the quality or quantity of the harvests. They were down to speculation.

Food prices are rising once again and it's not just because Russia has currently suspended its wheat exports. As Olivier de Schutter points out, Armajaro, for instance, buys massively into cocoa in London while in Mozambique rioting breaks out because people can no longer afford to buy basic foods.

"Well, Mozambique is a case of a country which became heavily dependent on imports to feed its population [...] The local currency, the metical, lost lots of its value against the South African rand, so imports were suddenly much more expensive. In addition to this, during July and August, the price of wheat went up ... [Mozambique] could not continue to subsidise food and raised prices ... It's not directly attributable to speculation, but this could have worsened something caused by other factors."

In his report Dr De Schutter pulls no punches; he talks about "excessive speculation which is not regulated enough". The United States has made a start on new, tougher rules for speculators trading in food but, he says, the European Union is still a long way behind.

© Radio Netherlands Worldwide