Over a period of months, a number of institutional investors have begun taking steps back from the speculative rush into food commodities. Most recently, the Stockholm-based financial services group, Nordea, announced it would remove food commodities from their financial products. This comes after Deutsche Bank made a similar (if temporary) ban. In 2010, the California State Teachers’ Retirement System pulled back from commodities, saying, “social issues are a factor in all our investments.”

So, a trickle. Is it a trend?

Some activists are showing up at corporate shareholder meetings and trying various lobby and pressure tactics.

There’s some evidence that the commodities investment play may not be working out so well—speculative bubbles do correct eventually. But most of the biggest players remain serenely unfazed by both erratic performance and potential collateral damage (i.e. food price volatility). Goldman Sachs, under Robert Rubin, pioneered the field of commodity index funds. Goldman has been accused of creating the food crisis. Has Goldman ever answered?

A rough consensus has emerged around the causes of the high food prices that spiraled up in 2007 and 2008; increasing global food demand due to rising incomes and population, stalling agriculture productivity, and biofuels. But one factor that remains hotly debated is the role of financial speculation in food prices.

The amount of food produced and consumed has grown gradually in the last decade, but the amount of investment interest in food commodities has skyrocketed. For the most part, investors and speculators are not actually buying food commodities; they are buying futures contracts and various financial derivatives. Volumes have grown from less than $10 billion to more than $450 billion in a little over a decade. And while commodities markets once were largely composed of speculators who were directly engaged in food industries, financial investors—index funds, hedge funds, etc.—now dominate the markets. The usual explanation of the rapid movement of capital into commodities is that investors were seeking new, safer places to put money now that economic catastrophes have struck dot-coms, the stock market, the housing sector, and even government debt. Commodities, historically, have not been as tied to other economic assets, so are a good hedge; i.e. if the stock market collapses, commodities might not—and vice-versa.

Some analysts argue that this investor rush into commodities has inflated food prices. But the dominant view is that this financial activity on futures contracts and derivatives doesn’t really affect prices directly—that “market fundamentals” of supply and demand are still what determines the price of corn on Chicago Mercantile Exchange.

Part of the challenge is finding a way to test the question. The accelerating financial activity is not in physical hording or dumping of agriculture commodities, but in trading futures contracts and “derivatives” of these contracts—some of them quite exotic, obscure, or unregulated. The analytical tools to measure the impact of speculative activity on prices are not well developed. Attempts to do this have usually found no impact—or found mixed results. But it’s also true that the methods have been flawed—only able to capture parts of the market and activity—and good data is not always available.

Now comes a contribution from researchers at the United Nations Conference on Trade and Development (UNCTAD). They tried to investigate commodities trading at shorter intervals than the standard daily rate (i.e. were prices up or down each day?). Instead, they look at data measuring trades at one second, 10 seconds, 5 minutes, and one-hour. They analysis tells an interesting story, shown in this graph (Source: VoxEU.org):

What it measures is the correlation between commodities futures prices and stock market futures. And what it shows is that starting in 2008, at the height of the food price crisis—and at the moment of the collapse of Lehman Brothers, something changed. Before then, commodities futures and stock market futures had low correlation; close to zero. After that point, they have begun to move together more closely; closer to 1, which would be perfect correlation.

So, what does this tell us?

Well, I’m not totally sure. And this is just one study. And, you could certainly ask whether this tool—measuring the correlation of short-term movements between commodities futures and equities futures—is useful.

But here are some possible implications:

The authors say that “high-frequency trading strategies, in particular the trend-following ones, are playing a key role.” They argue that the “financialization” of commodity markets is impacting price determination—that if prices were set based on supply/demand fundamentals, there shouldn’t be a correlation with equities. Commodity prices should be affected by seasons, weather, demand, etc. not by changes in stock market prices. They find similar correlations over a range of commodities—including non-food commodities. So—they argue—the shifting “financialization” is changing price formation.

They argue that linking commodity markets to financial actors and stock markets in this way means “commodity markets are more and more prone to events in global financial markets and more likely to deviate from their fundamentals.”

The linkage also undermines the purpose of many financial actors in investing in commodities; to hedge against other markets, like the stock market. The idea that they are increasingly correlated will mean that commodities won’t be safe if the stock market crashes.

If true—and if, indeed, caused by the high frequency trading—this might also add the arguments in favor of measures like the financial transaction tax, which could help to mediate or reduce this linkage and risk.

Tuesday, Deutsche Bank announced it would not seek new investments in basic agriculture commodities this year and will study the issue of how these investments might affect food prices. This is significant because Deutsche Bank (DB) is considered a big player among European commodities investors and has reported record profits in commodities. There’s some hope that the investor community might be taking this issue seriously and try to understand—and reduce—the impact of their actions on food security.

A small, but dedicated, group of activists and organizations have taken on the issue of excessive speculation in commodities markets, arguing that it is a factor in the recent rise in food commodity prices and has created volatility and confusion in commodities markets. Foodwatch, a German organization, is credited with pushing DB to take this action. Foodwatch released a report criticizing DB last year (My Oxfam Germany colleague, Marita Wiggerthale, gets a credit in the acknowledgements.).

In the USA, other organizations have been serving as watchful midwives for the US Commodities Futures Trading Corporation, which has been trying to give birth to new regulations to address the problem. They have also pushed institutional investors to take note of the possible impacts of excessive speculation on food commodities. Led by the Maryknolls, they convinced one of the country’s largest pension funds to reduce agriculture commodities from their portfolio.

But the biggest players still have not signaled any change in approach: Goldman Sachs, JP Morgan, Morgan Stanley. It might be time for them to come in from the cold and start examining their role in food security.

Oxfam supporters participate in World Food Day. Photo by Irene Perlman. http://gallery.me.com/ileneperlman#101167/Oxfam-20Farm-20Mark-0220&bgcolor=black

“We have failed to end hunger using the traditional recipe that saw hunger as a technical problem, requiring only that we produce more. We’ve failed because we’ve underestimated the need to empower people and hold governments accountable.”

- Olivier De Schutter, UN Special Rapporteur for the Right to Food

World Food Day 2011 marked the GROW campaign’s biggest effort yet to upend the traditional recipe for hunger relief and empower Americans to hold the US government accountable for a more just food system. In the face of economic challenges in the US, turmoil in Europe, conflict in Libya, and other major world events, the prospect of making World Food Day a tangible and real moment for Americans seemed daunting when we first started planning. Yet, on World Food Day, we learned that US citizens do care about global food justice. They joined us by the thousands, bringing GROW messages to communities across the country.

Oxfam’s World Food Day celebration had two main aims: to support the GROW campaign’s five policy goals and to boost the campaign’s central goal of supporting the burgeoning food justice movement worldwide. Indeed, the two purposes go hand and hand. GROW’s policy goals take aim at powerful special interests–like Big Ag and the US maritime industry around food aid reform, Wall Street around agricultural speculation, and companies and countries around land grabs. Without active engagement by people who care about repairing our broken food system, these special interests will win—and people living in poverty will keep losing.

Case in point: the way supporters of Big Ag in Congress recently tried to push through the Farm Bill without any democratic debate in an effort to avoid real reform. The kind of national support for food justice that World Food Day generated is increasingly important not only to advocate for effective policies like Feed The Future, but to stop bad policy and bad process, exemplified in the rushed Farm Bill, that harm the poor.

The results of World Food Day were impressive:

• More than 9,700+ people attended 400+ Sunday Dinner conversations in 42 states and four countries.
• Oxfam volunteers tabled at 60 Farmers Markets nation-wide—engaging communities on the GROW Campaign.
• At the World Food Prize in Iowa, Oxfam hosted two women farmers from Ethiopia and Colombia, and supported nine events attended by about 750 people.

• Oxfam’s World Food Day celebration was truly global: People all over the world participated in events, awards and actions during Oxfam’s GROW week.

Not only did Oxfam supporters start conversations in their communities, but they also sent Congress a strong message that cutting poverty-focused foreign assistance will harm global food security. Cuts to foreign aid would decimate both capacity-building programs that help small-scale farmers feed their communities and emergency food aid that saves lives during crises.

• Activists collected 2,400 petition signatures at Sunday Dinners and Farmers Markets and Oxfam online supporters sent 7,838 emails urging Congress not to cut poverty-focused development assistance.

• 15 Oxfam Sisters on the Planet Ambassadors, business leaders and military veterans had 22 meetings on Capitol Hill – including 11 meetings with their Senators and Members of Congress—and secured committements from several to support strong foreign aid that will help improve food security on World Food Day–and every day.

This blog was written by Suzy Glucksman, private sector senior advisor, policy and campaigns.

This past Tuesday, the Commodity Futures Trading Commission (CFTC) voted 3-2 to approve new limits on commodity speculation. This “final rule” was mandated by the landmark Dodd-Frank Wall Street reform bill passed in 2010. Action to bring sanity to the commodity markets is certainly good news–it was rumored that a vote could have been pushed into next year or not happen at all. But sadly, the new limits are woefully weak and could potentially even facilitate further excessive speculative activity if they go unchanged. As my colleague Gawain remarked, these kinds of baby steps may deserve recognition, but the adults at the CFTC should already know how to walk.

Excessive speculation has repeatedly been shown to increase food price volatility and contribute to the record-high food prices that have pushed tens of millions of people into poverty in the last year alone. A recent letter from over 461 economists called on the commissioners of the CFTC to take urgent action to rein in speculation pointing out the serious and harmful impacts on poor people.

The Dodd-Frank Act directs the CFTC to issue regulations, known as “position limits”, that cap the size of bets that can be made in the futures market and the number of futures contracts a market player may hold. These position limits can go a long way to diminish, eliminate, or prevent excessive speculation.

But the limits in the final rule are set far too high and will be delayed in implementation, weakening the safeguards against the most harmful trading practices. In fact, no position limit caps will be imposed on transactions known as “forward month trading” until the word “swap” is defined. The CFTC has yet to even announce a timeline for when that definition will be made.

The CFTC, after receiving over 15,000 comments on the draft rule and conducting thousands of meetings, has appeared to have bowed to the wishes of an organized and well-funded campaign by Wall Street banks, hedge funds, and traders to water-down the rule. The result is the commission took the absolute minimum level of action necessary to begin to address excessive speculation. Many experts say it fails to even meet that basic responsibility.

Although the CFTC could improve the rule down the road, troubling signs suggest they have little motivation to do so. The initial review period of the rule pertaining to agricultural commodities has been extended from one year to two, slowing the timeline for possible fixes. Even more worrying may be that the data they will need to conduct this analysis in a timely manner has been slow to trickle in with the commission continuously delaying reporting requirements imposed on swap dealers to bring transparency to the market. In fact, the CFTC also voted Tuesday morning to propose delaying rules affecting the swap market until as late as July 16, 2012. These rules were required under Dodd-Frank to take effect in July of 2011.

It is up to Congress and the Administration to act to ensure the CFTC implements stronger limits that protect vulnerable people around the world. Legislation has already been introduced in both the House and Senate to compel further action. Sadly, in the current highly polarized environment, these efforts face an uphill fight.

But though slow in coming, this rule cannot be the end of the story. With public support for further action and leadership from elected officials, additional steps to stabilize the markets and prevent excessive speculation are possible.

If you spend any time reading about food policy, you might have felt a strong wind at your back pushing you vaguely in the direction of Zuccotti Park last week. Some of my favorite food bloggerati including Jane Black, Mark Bittman, Tom Philpott, and Kristin Wartman (among several others) all wrote compelling pieces urging those of us in the “food movement” to start to align ourselves squarely within the ranks of the 99%.

And they’re right. As Philpott writes, “as Occupy Wall Street evolves, food policy should be on the plate.” The food movement needs more energy, more creativity, and as Black suggests, a more ruthless commitment to “winning” political battles. If productively directed, the dynamic power that #OWS seems to be building could be a promising addition to the movement’s arsenal. The only problem in reading these articles, is one gets the idea that food reformers don’t actually know all of this already. In reality there are many of us in the food movement who spend our lives doing just this. But, it’s much easier to talk about the injustices and failures of our food system than it is to motivate action on specific winnable battles.

Protest is essential. Voicing anger and dissatisfaction with the countless failures of our political, financial, and food systems helps bring to light the injustice embedded in how these systems can distort our society and undermine our health, security, and general well-being. But, more productive than a generic call to arms to voice our collective anger, is a specific call to action that can help overcome real injustices.

Among the issues raised by Black, Bittman, Philpott, and Wartman are the financial industry’s impact on food prices, the drive by investors to acquire land in developing countries, and the need to raise revenue from the banks that helped create the economic mess we currently face. Here are a few examples of what Oxfam is trying to do on each of these issues to create real, concrete change, and some ways that individuals, including our friends in the bloggerati, can help. Alone, none of these actions will create the bold institutional reforms our food system needs, but they’re a darn good start:

Last week Oxfam released a letter from 461 economists urging regulators to reign in excessive speculation on commodities that drives food price spikes and hunger:

http://www.oxfamamerica.org/press/pressreleases/461-economists-call-for-urgent-action-against-excessive-speculation-on-food-commodities

You can sign your own letter to the top regulator at the CFTC urging strong action here:

http://www.change.org/petitions/world-food-day-action-cftc-should-regulate-commodities-trading-2

Last month Oxfam revealed that major corporations are pushing poor farmers in the developing world off of their land and into hunger and poverty. Since our report release, farmers in Uganda who spoke out against land grabs have felt intimidation and harassment after questioning from the New Forests Company:

www.oxfamamerica.org/landgrab

You can send a letter to the CEO of the New Forests Company, 20% of which is owned by the major international bank HSBC, demanding that he take immediate action now to bring justice to these communities:

https://secure.oxfamamerica.org/site/Advocacy?cmd=display&page=UserAction&id=1273

Around the world, momentum is building behind a tiny tax on bankers that could generate billions of dollars to help with problems at home and overseas:

http://www.oxfam.org/en/campaigns/health-education/robin-hood-tax

You can add your voice to this campaign joining tens of thousands of other advocates in urging leaders of the G20 nations to put this tiny tax into place and help millions of people in the US and around the world get the health care, education, clean water, and nutritious food they need:

http://www.oxfam.org/en/campaigns/health-education/robin-hood-tax

It looks like the big banks got away scott free in the debt bill signed by President Obama last night while the poor and middle class are likely to pay the price. We won’t know how all of the numbers shake out until the fall, but there will be added pressure for greater cuts to international programs that are key to US standing globally and to our national security, not to mention the livelihoods of millions of poor people around the world.

In June, the European Commission proposed an EU-wide tax on financial transactions (such as large stock or options trading) to fund its next long-term budget. Details have not yet been released, but estimates have found that a small tax could raise €30 billion a year by 2020. French President Nicolas Sarkozy has expressed support for a Financial Transaction Tax (FTT) and the French Parliament voted by a big majority to support an EU-wide financial tax in June.

This is exactly the type of revenue raising proposal that makes sense in the US right now. As noted in Reuters Money over the weekend, most of the major US banks are pulling in profits while they still owe taxpayers $1.5 trillion of the $4.8 trillion in federal bailout loans are still outstanding. And prominent US pollster, Stanley Greenberg, pointed out in a Sunday Times op-ed that most Americans would support at least a modest tax on financial speculation and other types of large transactions that benefit institutions over people.

The debt ceiling compromise, and the politics surrounding it, left revenue raising mechanisms, whether taxes or other measures, off the table. But there’s an opportunity for the administration and Members of Congress to incorporate a Financial Transactions Tax into a longer-term strategy to reduce the deficit and save critical government programs. An important step in gaining some traction on a FTT would be a signal of support from the administration to EU countries in the lead up to the G20 in November.

This afternoon Agriculture Secretary Tom Vilsack will speak at the National Press Club in Washington on global food security ahead of the G-20 Agricultural Ministerial in Paris later this month. A quick glance at the USDA media advisory indicates that those looking for “coherence” in US policies on food security may be disappointed:

“Vilsack will discuss how the continued innovation and creativeness of scientists, farmers and policymakers is essential to confront the combined challenges of feeding a growing global population, mitigating the effects of climate change, and meeting increasing energy demands at home and abroad. The Secretary will also address the importance of maintaining open, transparent markets for trading food and agricultural goods, as well as address misconceptions about the production of U.S. biofuels.”

That last line describes in short order the challenges we face. On one hand the US has been a global leader in dealing with the emerging food crisis, championing investment in small holder farmers through Feed the Future and pledges made in 2009 at L’Aquila, beginning to address the challenges farmers face due to climate change, taking important initial steps to rein in excessive commodity speculation through the Dodd-Frank financial reform bill, and pushing for increased transparency in food stocks at the G-20 that will help cut back on price volatility.

But at the same time US policies are undermining the very initiatives we are investing in. Take the suite of ethanol incentives that Secretary Vilsack seems poised to defend again this afternoon. This $6 billion dollars in taxpayer funded giveaways drive 40% of the US corn crop- 15% of global corn production- into ethanol, helping push food prices to record heights. The World Bank estimates that high food prices have sent 44 million people into poverty in recent months.

As Secretary Vilsack speaks this afternoon, I hope he will push aside the failed ideas of the past and embrace the burgeoning consensus that we need to change how business is done here in Washington. Already there is strong bipartisan momentum for reform to our biofuels incentives that could take some of the pressure off of prices. Votes are scheduled in the Senate this week to end the Volumetric Ethanol Excise Tax Credit, and to prohibit certain funding for ethanol pumps and storage tanks.

Secretary Vilsack’s speech will call for innovation and creativeness in the face of immense challenges. There would be no better sign of innovation than the Secretary’s full-throated support for these reforms.

Learn more about Oxfam’s work to fight global hunger.

Today’s guest blog is written by Vicky Rateau, the manager for Oxfam America’s new GROW campaign. It originally appeared at Civil Eats here.

The movement for reform to our flawed food system is growing stronger every day. Cooks, consumers, and campaigners alike are waking up in increasing numbers to the dangerous and unsustainable impacts of the way much of our food is grown, sold, and consumed.

This progress could not come at a more important moment. Our global food system works only for the few–for most of us it is broken. It leaves consumers lacking sufficient power and knowledge about what we buy and eat, and almost a billion people hungry worldwide, millions of whom live here in the U.S.

The failure of the system flows from failures of government–failures to regulate, to correct, to protect, to resist, to invest–which mean that companies, interest groups, and elites are able to plunder our resources and to redirect flows of finance, knowledge, and food to suit themselves.

And now we have entered an age of growing crisis, of shock piled upon shock: Vertiginous food price spikes and oil price hikes and devastating weather events that catch us somehow unaware and unprepared. Behind each of these slow-burn crises continue to smolder creeping and insidious climate change; growing inequality, chronic hunger, and vulnerability; and the erosion of our natural resources. The broken food system is both a driver of this fragility and highly vulnerable to it.

But all of this can change, and in fact it already is. Today Oxfam is launching our new campaign GROW. GROW is a campaign for the billions of us who eat food and the one and a half billion men and women who produce it. GROW is a campaign for a better future where we expose and overcome the threats we face and help build movements for a new era of prosperity.

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