Megan Whitacre is a former Oxfam America intern and current CHANGE leader. 

Here in the Midwest, we know farmers can get creative to deal with fluctuating prices. But this summer local farmers are turning their feed trough into an ice cream sundae. In Elkhart County, Indiana, one farmer has started to feed his dairy cows ice cream sprinkles, cookies, marshmallows, and gummy bears to give his cows the energy they need to produce milk. And in Reno County, Kansas, another farmer is feeding his cows thousands of pounds of chocolate scraps from a local chocolate factory.

Dairy cows on a US farm. Jacob Silberberg/Oxfam America

This isn’t just a treat to help cows beat the heat; in fact, it shows how US farmers are resorting to extreme measures to deal with the worst drought in 50 years across big corn and soy-producing states in the Midwest. Last year saw similar problems with drought in the US; as climate change endures, farmers in these states will continue to face hardship, and food prices will continue to surge. This year produced one of the smallest corn yields in 6 years, according to the USDA, and has sent food prices soaring worldwide. Meanwhile, last year, the US burned up 40 per cent of our domestic corn crop to make ethanol—pushing corn and other food prices higher. The corn farmers feed their animals is pricier than it ever has been—and sometimes not available at all.  And when feed prices go up, so does the cost for meat, dairy products, and other food that comes from animals.

Unfortunately, poor people don’t have the option of chowing on chocolate all day to dampen the impact of food costs. Worldwide, poor people bear the brunt of high food prices as food becomes an increasingly larger percentage of their budgets. And in countries where food is already scarce, not only do high prices make food aid increasingly necessary for basic survival, high prices also hinder the ability of thousands to break out of poverty as school costs and basic necessities are lost to the price of food. So it’s not just a lull in the fight against poverty. It’s a huge step back.

Next time you see headlines about food prices, bacon shortages, or even crazy stories about chocolate-eating cows, remember those who are being impacted the most. Organizations like Oxfam are taking a stand to address this growing food crisis. Join us by taking action on October 16 for World Food Day, and educate others about how they can help.

Sometimes a quote says more, much more, than the person saying it intended. Today an article in POLITICO looks into how potential reforms to international food aid programs in the US farm bill could impact the shipping industry.

In defending the wasteful and inefficient practice of mandating that virtually all US food aid is grown by preferred growers and then shipped by preferred shippers from the US to countries-in-need, Clint Eisenhauer, vice president for governmental relations for Maersk, a Danish-based shipping company, said, “but if you could grow the grain in Somalia, people wouldn’t be starving.”

Well, yes. Exactly. Let’s leave aside for a second the irony of an executive of a Danish shipping company lecturing anyone on why Congress should double down on regulations supposedly set up to promote American interests. The real issue is that Eisenhauer’s quote displays a fundamental misunderstanding of why people end up struggling to find enough food in the first place. In many food emergencies, food availability is not the challenge. The challenge is that people are too poor to afford to buy it, or they are displaced by conflict or crises. There is ample food available, often very close to where the hungry people are, but because of economic, political or other shocks, many people just cannot access or afford enough of it to support their families.

But more important than those basic facts is that even in many of the countries that most often require emergency assistance, countries like Sudan, Niger, Ethiopia, and yes Somalia, there is vast, untapped potential to grow food.  Lots and lots of food that could sustainably support the livelihoods of millions of people.  Suggesting that it is impossible to grow food in these countries is not just offensive, it’s factually wrong. Transforming how aid is delivered so that more can be invested in building self-sufficiency and resilience is exactly what we should be doing with our scarce foreign aid dollars.

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.

Victoria Marzilli is Oxfam America’s New Media Specialist focusing on social media.

Join us on May 17 for an interactive discussion on Twitter with global hunger expert and author of Enough and The Last Hunger Season, Roger Thurow.

What is a Twitter town hall? The Twitter town hall is meant to be an interactive Q&A session that anyone can participate in from anywhere!  Follow #G8chat to get an expert’s take on global hunger and how we can work towards solving it at this year’s G8 Summit.

How can I participate? Just log in to your Twitter account (or sign up if you haven’t already) and then follow the #G8chat hashtag for all the tweets. This will automatically refresh with new tweets from the chat as they come in. The conversation will begin promptly at 11am EST and will run for one hour. Jump in anytime with a question or comment, in 140 characters or less, but remember to include the #G8chat hashtag so that we can find your question! Roger Thurow @RogerThurow will answer your questions about hunger, poverty, and how we can work towards a solution. The chat will be moderated by @OxfamAmerica. Also joining us will be @ChicagoCouncil, @GlobalAgDev, and members of Oxfam America staff.

About Roger: Roger Thurow is a senior fellow for Global Agriculture and Food Policy at the Chicago Council on Global Affairs. For thirty years, he was a reporter at the Wall Street Journal. He is, with Scott Kilman, the author of Enough: Why the World’s Poorest Starve in an Age of Plenty, which won the Harry Chapin Why Hunger book award and was a finalist for the Dayton Literary Peace Prize and for the New York Public Library Helen Bernstein Book Award. His new book, The Last Hunger Season: a year in an African Farm Community on The Brink of Change, will be released on May 29, 2012. He is a 2009 recipient of the Action Against Hunger Humanitarian Award. He lives near Chicago.

After months of negotiation and a failed attempt to write new rules for agriculture into the Super Committee debt deal last Fall, the Senate Committee on Agriculture Nutrition and Forestry took the first step towards reauthorizing a new Farm Bill last week by passing a Farm Bill out of committee. Most of the energy and attention in the bill has been focused on commodity policy and new provisions for crop insurance, both issues Oxfam has written about in the past and continues to monitor in the current deliberations. After all, this is where the real money is and where US agriculture interests really dig in their heels.

Far less scrutiny has been placed on the section of the Farm Bill containing provisions for food aid programs. Over the last several months, Oxfam has sought to shine a light on these issues as a core component of the US response to global hunger.  We’ve argued that the current program is badly outdated and in need of repair.

So, after round one of what is sure to be a bruising, multi-round fight on food and farm policy for the next five years, whither food aid reform? Here’s a quick run-down of what’s included in the food aid provisions of the Farm Bill:

1. Local and regional purchase (LRP): Buying food closer to the source of need seems like a no-brainer since independent analysis has already shown that in many cases it is faster and cheaper than purchase and shipment from the US. Oxfam supported the integration of LRP into the core food aid programs. Instead, the Committee chose to reauthorize a stand-alone program (basically making the existing pilot program permanent) with funding up to $40 million per year. This cap is too low, especially considering that over the life of the current Farm Bill, spending on food aid has averaged $2.3 billion annually. But keeping LRP in the bill is a step in the right direction.

2. More cash: Currently, NGOs implementing development programs using food aid (think, for example, of integrated nutrition programs with a food distribution component) can request up to 13 percent of their program costs in cash. But the needs of these programs often far exceed that 13 percent threshold, leaving aid groups struggling to find the cash they need to run their programs. The upper limit is now set at 35 percent. This isn’t high enough to satisfy need, but is a big step forward nonetheless.

3. Selling less food aid?: To get around the problem of not having enough cash to run programs, NGOs routinely sell food aid, a wasteful practice especially given how expensive it is to ship it  on US-flag vessels (a requirement of current legislation). Selling food aid in developing countries usually generates less funding than it cost to buy the food in the first place. The rate of return on these sales, known as “cost recovery rate,” has been documented at 58 percent for USDA and 76 percent for USAID. What this means in practice is tens of millions of dollars are lost that could otherwise be used to reach millions of people, 2.1 million people per year by one recent estimate. In the proposal adopted last week, this practice gets some discipline: “monetization” cost recovery will be required to meet or exceed 70 percent of the cost of purchase and shipment from the U.S. The architecture of this provision is solid, but the 70 percent floor set for cost recovery is too low. If we’re serious about reducing waste in the US food aid program, the rate of return on food aid sales should be 80 percent at a minimum.  This would be a true compromise as many, including Oxfam, have advocated for eliminating the practice of monetization altogether. Strong monitoring of market impacts of monetization to make sure this activity is not harming local agriculture markets is also missing from the legislation and should be incorporated.

4. Non-emergency food aid:One of the trickier issues in the bill turned out to be the earmark for NGOs to use food aid in development programs. In the last Farm Bill, a special carve-out was created to ensure that non-emergency programs get a portion of the food aid budget.  The problem is this earmarking ties USAID’s hands in times of crisis, making it difficult for them to meet urgent needs and spend money as effectively and efficiently as possible. The Senate Farm Bill proposal now provides for the earmark to fall within a band of between 15 and 30 percent of the total food aid budget, with a floor of no less than $275 million. This gives USAID more flexibility in determining how much of a limited aid budget should go to meeting emergency needs and how much to provide for non-emergency activities. This is a reasonable compromise between the position of many aid groups—including Oxfam—calling for maximum flexibility, and those groups calling for a hard earmark of $450 million (groups, by the way, who have been strangely silent on reforms needed to make food aid less wasteful).

5. And some welcome surprises: Two other issues of note in the Farm Bill are:

• A call to focus on improving nutritional quality; and

• A proposed pilot program for food resilience.

Both provisions carry the name of the late Representative Donald Payne, an advocate of Africa and development and sponsor of legislation to make US food aid more nutritious. Current Senate legislation picks up where the last farm bill left off in terms of promoting a greater focus on nutritional quality of food aid and incorporates provisions from Payne’s legislation. Additionally, the Donald Payne Horn of Africa Resilience Program would, if enacted, provide up to $10 million annually to link short and long-term responses to food insecurity in the Horn of Africa to reduce vulnerability and increase household and community coping capacities.

The reforms proposed by Chairwoman Stabenow (D-MI) and Ranking Member Roberts (R-KS) represent a solid basis for rethinking US food aid. The proposal represents an evolution, not a revolution, in the program, but a welcome move toward greater accountability of foreign aid resources.

The Agriculture Committee’s opening gambit paves the way for deliberation by the full Senate as well as the House Agriculture Committee, which has recently embarked on Farm Bill hearings. House Chairman Lucas (R-OK) has already made clear he has a different opinion about what US agriculture needs. And the House Committee’s recent proposal, cutting $33 billion over 10 years out of the Supplemental Nutrition Assistance Program (SNAP), puts it on record attacking the nation’s largest domestic food assistance program. The question is which direction are they heading with international food assistance?

Post Script

Last week, Oxfam America’s “Food Games” video premiered during the ad breaks on Comedy Central’s “Daily Show” and “Colbert Report” as part of our push to get food aid reform on the Senate agenda. The video, an irreverent (some say creepy) look at how Washington plays with food aid, has also garnered more than 46,000 views on YouTube. Everyone from Mashable to Marion Nestle to Djimon Hounsou and the ONE Campaign has taken a peek, helping to promote Oxfam’s call to fix food aid so that up to 17 million more people can eat during times of crisis.

As my colleague, Gawain, blogged about at the launch, “Food Games” has been a departure for us…a “gamble,” as he puts it. Tell us what you think.

When it comes to debates over policy, it’s easy to find yourself deep in the weeds. Discussions over how to save lives quickly devolve into symposiums on tendering procedures and assessments of equivalent expenditures. But if you can hack your way through the complex thicket of jargon, sometimes you find yourself with a number that just makes sense.

In our efforts to articulate why food aid reform is worthy of support in the Farm Bill, the number that makes the most sense to me is 17.1 million. That’s the number of additional people the US could reach with life-saving food aid if two basic reforms are pursued by Congress. And all this without costing taxpayers a single extra penny. We make the case for these reforms in a new report with American Jewish World Service.

But sometimes a report isn’t enough to make a number sink-in; even one as a staggering as 17.1 million. That’s why we’ve produced a food aid infographic, in the form of a receipt, which shows Americans what they’re getting for their food aid dollars. Like most receipts, ours comes with an easy cost-saving opportunity to help drive home the very simple point: reforming food aid saves money and lives. Check it out and let us know what you think.

Last week, new legislation (HR 3097) was introduced by a bipartisan group, led by Bob Goodlatte (R-VA) and Jim Costa (D-CA), to try to make the US ethanol mandates more responsive to corn supply and, we hope, less likely to drive food price volatility. Oxfam considers volatility in food prices a major concern for food security. We even have an acronym for it, “FPV”.

This bill would ease the US ethanol mandate if the corn stockpile (stocks-to-use ratio) falls below historical levels. The approach is seen as sort of “relief valve” for the government ethanol mandates.

The bill would require the US EPA to review corn stockpiles twice a year. If the stocks are below 10 percent of overall use, then the ethanol production mandate would be reduced by 10 percent. If the stocks fall below 7.5 percent, the mandate shrinks by 15 percent. If stocks fall very low, the ethanol mandate could be cut by 50 percent.

High food prices make it hard for poor people to access enough nutritious food. When food prices go up, poor people have a hard time affording it. Irregular food prices can be a major obstacle to agricultural producers who must manage their risk–especially difficult for poor farmers who have very few tools to manage this risk to their livelihood. The issue of food price volatility is a concern for major economic and development institutions, like the IMF, which recently hosted a one-day seminar on commodity price volatility (disclosure: Oxfam America’s President Ray Offenheiser was on a panel.)

In food markets, underlying supply and demand factors are pushing prices up as demand from consumers in developing countries grows rapidly and production lags behind. Climate change looms as a threat to supply.

Ethanol produced from corn is contributing to high corn prices. Photo by James Rodriguez/Oxfam America.

The growth of biofuels is a factor in food prices, albeit hotly debated. Governments around the world are mandating production and consumption of biofuels, which, in turn, consumes important food commodities like corn or palm oil.

The fact that these government mandates are set in law and are inflexible makes prices more volatile. Unlike other consumers, the government mandate doesn’t change when prices for corn go up, or supply goes down. This means other consumers and producers have to make the adjustments and/or pay even higher prices. In the US, the government is mandating that a huge volume of ethanol be produced from corn. This is contributing to historic high prices for corn. Beef producers, for example, who rely on expansive corn to feed their livestock, have reduced their herds to the fewest number of cows in 50 years. The difference between corn at $2/bushel and $7/bushel corn is something like millions of cattle. The difference between corn at $2/bushel and $7/bushel for US ethanol mandates is zero. The difference between high food prices and low for poor people is increased hunger.

The Goodlatte bill is a welcome sign that policy-makers and politicians are beginning to respond and develop policies to reduce volatility. Let’s see if other lawmakers agree.

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