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Environmental disasters and speculative investors are to blame for volatile food commodities markets, says UN's special adviser

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UN warned of major new food crisis at emergency meeting in Rome

Environmental disasters and speculative investors are to blame for volatile food commodities markets, says UN's special adviser

July's wildfires in Russia have led to a draconian wheat ban, pushing up prices. Photograph: Maxim Shipenkov/EPA

The world may be on the brink of a major new food crisis caused by environmental disasters and rampant market speculators, the UN was warned today at an emergency meeting on food price inflation.

The UN's Food and Agriculture Organisation (FAO) meeting in Rome today was called last month after a heatwave and wildfires in Russia led to a draconian wheat export ban and food riots broke out in Mozambique, killing 13 people. But UN experts heard that pension and hedge funds, sovereign wealth funds and large banks who speculate on commodity markets may also be responsible for inflation in food prices being seen across all continents.

In a new paper released this week, Olivier De Schutter, the UN's special rapporteur on food, says that the increases in price and the volatility of food commodities can only be explained by the emergence of a "speculative bubble" which he traces back to the early noughties.

"[Beginning in ]2001, food commodities derivatives markets, and commodities indexes began to see an influx of non-traditional investors," De Schutter writes. "The reason for this was because other markets dried up one by one: the dotcoms vanished at the end of 2001, the stock market soon after, and the US housing market in August 2007. As each bubble burst, these large institutional investors moved into other markets, each traditionally considered more stable than the last. Strong similarities can be seen between the price behaviour of food commodities and other refuge values, such as gold."

He continues: "A significant contributory cause of the price spike [has been] speculation by institutional investors who did not have any expertise or interest in agricultural commodities, and who invested in commodities index funds or in order to hedge speculative bets."

A near doubling of many staple food prices in 2007 and 2008 led to riots in more than 30 countries and an estimated 150 million extra people going hungry. While some commodity prices have since reduced, the majority are well over 50% higher than pre-2007 figures – and are now rising quickly upwards again.

"Once again we find ourselves in a situation where basic food commodities are undergoing supply shocks. World wheat futures and spot prices climbed steadily until the beginning of August 2010, when Russia – faced with massive wildfires that destroyed its wheat harvest – imposed an export ban on that commodity. In addition, other markets such as sugar and oilseeds are witnessing significant price increases," said De Schutter, who spoke today at The UK Food Group's conference in London.

Gregory Barrow of the UN World Food Program said: "What we have seen over the past few weeks is a period of volatility driven partly by the announcement from Russia of an export ban on grain food until next year, and this has driven prices up. They have fallen back again, but this has had an impact."

Sergei Sukhov, from Russia's agriculture ministry, told the Associated Press during a break in the meeting in Rome that the market for grains "should be stable and predictable for all participants." He said no efforts should be spared "to the effect that the production of food be sufficient."

"The emergency UN meeting in Rome is a clear warning sign that we could be on the brink of another food price crisis unless swift action is taken. Already, nearly a billion people go to bed hungry every night – another food crisis would be catastrophic for millions of poor people," said Alex Wijeratna, ActionAid's hunger campaigner.

An ActionAid report released last week revealed that hunger could be costing poor nations $450bn a year – more than 10 times the amount needed to halve hunger by 2015 and meet Millennium Development Goal One.

Food prices are rising around 15% a year in India and Nepal, and similarly in Latin America and China. US maize prices this week broke through the $5-a-bushel level for the first time since September 2008, fuelled by reports from US farmers of disappointing yields in the early stages of their harvests. The surge in the corn price also pushed up European wheat prices to a two-year high of €238 a tonne.

Elsewhere, the threat of civil unrest led Egypt this week to announce measures to increase food self-sufficiency to 70%. Partly as a result of food price rises, many middle eastern and other water-scarce countries have begun to invest heavily in farmland in Africa and elsewhere to guarantee supplies.

Although the FAO has rejected the notion of a food crisis on the scale of 2007-2008, it this week warned of greater volatility in food commodities markets in the years ahead.

At the meeting in London today, De Schutter said the only long term way to resolve the crisis would be to shift to "agro-ecological" ways of growing food. This farming, which does not depend on fossil fuels, pesticides or heavy machinery has been shown to protect soils and use less water.

"A growing number of experts are calling for a major shift in food security policies, and support the development of agroecology approaches, which have shown very promising results where implemented," he said.

Green MP Caroline Lucas called for tighter regulation of the food trade. "Food has become a commodity to be traded. The only thing that matters under the current system is profit. Trading in food must not be treated as simply another form of business as usual: for many people it is a matter of life and death. We must insist on the complete removal of agriculture from the remit of the World Trade Organisation," she said.
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Global food crisis forecast as prices reach record highs

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Global food crisis forecast as prices reach record highs

Cost of meat, sugar, rice, wheat and maize soars as World Bank predicts five years of price volatility

• Six casualties of the world food crisis
• UN warned of major new food crisis at emergency meeting in Rome

An Indian farming family carry bundles of paddy from a rice field in the northeastern state of Tripura. India has had food price inflation of 17% in the last year. Photograph: AFP/Getty Images

Rising food prices and shortages could cause instability in many countries as the cost of staple foods and vegetables reached their highest levels in two years, with scientists predicting further widespread droughts and floods.
Although food stocks are generally good despite much of this year's harvests being wiped out in Pakistan and Russia, sugar and rice remain at a record price.
Global wheat and maize prices recently jumped nearly 30% in a few weeks while meat prices are at 20-year highs, according to the key Reuters-Jefferies commodity price indicator. Last week, the US predicted that global wheat harvests would be 30m tonnes lower than last year, a 5.5% fall. Meanwhile, the price of tomatoes in Egypt, garlic in China and bread in Pakistan are at near-record levels.
"The situation has deteriorated since September," said Abdolreza Abbassian of the UN food and agriculture organisation. "In the last few weeks there have been signs we are heading the same way as in 2008.
"We may not get to the prices of 2008 but this time they could stay high much longer."
However, opinions are sharply divided over whether these prices signal a world food crisis like the one in 2008 that helped cause riots in 25 countries, or simply reflect volatility in global commodity markets as countries claw their way through recession.
"A food crisis on the scale of two or three years ago is not imminent, but the underlying causes [of what happened then] are still there," said Chris Leather, Oxfam's food policy adviser.
"Prices are volatile and there is a lot of nervousness in the market. There are big differences between now and 2008. Harvests are generally better, global food stocks are better."
But other analysts highlight the food riots in Mozambique that killed 12 people last month and claim that spiralling prices could promote further political turmoil.
They say this is particularly possible if the price of oil jumps, if there are further climatic shocks – suchas the floods in Pakistan or the heatwave in Russia – or if speculators buy deeper into global food markets.
"There is growing concern among countries about continuing volatility and uncertainty in food markets," said Robert Zoellick, president of the World Bank. "These concerns have been compounded by recent increases in grain prices.
"World food price volatility remains significant and in some countries, the volatility is adding to already higher local food prices."
The bank last week said that food price volatility would last a further five years, and asked governments to contribute to a crisis fund after requests for more than $1bn (£635m) from developing countries were made.
"The food riots in Mozambique can be repeated anywhere in the coming years," said Devinder Sharma, a leading Indian food analyst.
"Unless the world encourages developing countries to become self-sufficient in food grains, the threat of impending food riots will remain hanging over nations.
"The UN has expressed concern, but there is no effort to remove the imbalances in the food management system that is responsible for the crisis."
Mounting anger has greeted food price inflation of 21% in Egypt in the last year, along with 17% rises in India and similar amounts in many other countries. Prices in the UK have risen 22% in three years.
The governments of Kenya, Uganda, Nigeria, Indonesia, Brazil and the Philippines have all warned of possible food shortages next year, citing floods and droughts in 2010, expected extreme weather next year, and speculation by traders who are buying up food stocks for release when prices rise.
Food prices worldwide are not yet at the same level as 2008, but the UN's food price index rose 5% last month and now stands at its highest level in two years.
World wheat and maize prices have risen 57%, rice 45% and sugar 55% over the last six months and soybeans are at their highest price for 16 months.
UN special rapporteur on the right to food, Olivier de Schutter, says a combination of environmental degradation, urbanisation and large-scale land acquisitions by foreign investors for biofuels is squeezing land suitable for agriculture.
"Worldwide, 5m to 10m hectares of agricultural land are being lost annually due to severe degradation and another 19.5m are lost for industrial uses and urbanisation," he says in a new report.
"But the pressure on land resulting from these factors has been boosted in recent years by policies favouring large-scale industrial plantations.
"According to the World Bank, more than one-third of large-scale land acquisitions are intended to produce agrofuels."
But the World Development Movement (WDM) in London warned that food speculation by hedge funds, pension funds and investment banks was likely to prompt further inflation.
According to the US Commodity Futures Trading Commission, speculators on the trading floor of the Chicago Exchange bought futures contracts for about 40m tonnes of maize and 6m tonnes of wheat in the summer.
Longtime hedge fund manager Mike Masters, who has worked with WDM, said: "Because there is already much more capital available in the world than hard commodities, speculators can increase the price of consumable commodities, like foodstuffs or energy, much higher than traditional consumers and producers can react.
"When derivative markets are linked to commodity markets, this nearly unlimited capital from the financial sector can cause excessive price volatility."
US government reports of much cooler-than-normal water temperatures in the Pacific, which traditionally lead to extreme weather around the world, last week added to food price uncertainties.
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