In 2011, "food derivative" speculation has replaced financial derivatives as the hot new investment promoted by major investment banks like Goldman Sachs and JP Morgan. According to new research from the World Development Movement, the same banks that caused the 2008 economic crash are also responsible for skyrocketing food prices (see http://www.wdm.org.uk/sites/default/files/hunger%20lottery%20report_6.10.pdf and http://www.theecologist.org/News/news_analysis/931513/a_guide_to_food_speculation_how_to_argue_with_a_banker.html). They estimate that in 2010 Goldman Sachs made $1 billion in profits from speculating on food (http://www.theecologist.org/News/news_round_up/54253/goldman_sachs_makes_1_billion_profit_on_food_price_speculation.html). The really scary news is that in addition to speculating heavily on food commodities, these same private equity funds are also buying up huge tracts of land in the third world.
Trading in Commodities Futures
Individual investors have always had the ability to trade in commodities futures (i.e. buy a 2012 bushel of corn at a fixed price before it's produced). However the commodities market has always been so unreliable that serious investors have viewed it in the same category as roulette and horse racing. Recently, however, Goldman Sachs, JP Morgan and other investment banks have used factors that appear to threaten food security -- extreme weather events, water shortages and increasing demand due to the Asian economic boom -- to aggressively pitch "agri" funds in a big way to investors. The ultimate effect of massive trading in food futures is to drive up the current cost of food, in the same way the subprime mortgage bubble massively inflated the cost of real estate prior to the 2008 economic crash.
The difference here is that high food prices are a life or death issue for billions of people around the world. Yet, as usual, the issue is virtually invisible in the US media.
The Great Land Grab
A 2009 research project by the Oakland Institute (The Great Land Grab http://media.oaklandinstitute.org/sites/oaklandinstitute.org/files/LandGrab_final_web.pdf) reveals startling facts about the corporate land grab in the third world -- another major factor in skyrocketing food prices. The Spain-based non-governmental organization GRAIN first drew attention to the land grab issue in its October 2008 brief, Seized! The 2008 land grabbers for food and financial security. The International Food Policy Research Institute (IF PRI) has reported that foreign investors sought or secured between 37 million and 49 million acres of farmland in the developing world between 2006 and the middle of 2009. In addition to the role played by major investment banks, multilateral institutions like the International Financial Corporation (the private sector branch of the World Bank) are also major players in the "corporatization" of global agriculture. The IFC plays a dual role in increasing private investment in the third world -- via direct investment and by lobbying developing countries to create "business enabling environments." Another World Bank agency, The Foreign Investment Advisory Service (FIAS ), also plays a role in pressuring third world governments to improve their "investment climate," by relaxing environmental, tenant rights and food security laws and abolishing tax and duties on foreign investments.
Africa is the major target, both for western investment banks and booming Asian economies, driving tens of thousands of subsistence farmers off land they have farmed for generations.
Corporatizing the Global Food Supply
A UK company started in 1997 called Emergent Asset Management claims to be the largest speculative fund investing in African industrial agriculture. See http://media.oaklandinstitute.org/sites/oaklandinstitute.org/files/OI_EAM_Brief_1.pdf. It uses private equity to take control of large tracts of African farm land for transformation into factory farms. Their prospectus attracts investors by predicting a armed conflict between the West and China will trigger mass food shortages -- accompanied by price spikes that guarantee a handsome return to investors. Emergent's founders, Susan Payne and David Murrin are former high level traders for Goldman Sachs and JP Morgan -- well-known as the architects of food derivative speculation. See http://www.wdm.org.uk/sites/default/files/hunger%20lottery%20report_6.10.pdf
Payne joined JP Morgan in 1986 and moved to Goldman Sachs International in 1993 as an Executive Director and Head of Sales and Trading. In the latter role, she was responsible for developing Goldman Sachs' emerging markets debt business in Europe. David Murrin joined JP Morgan 1986, where he traded (i.e. speculated) on the major bond, interest rate, bullion, foreign exchange and equity markets.
Emergent's direct control of large amounts of agricultural land -- combined with its ability to attract investors through its equity fund -- puts unprecedented control of the global food supply in private hands. It does so by creating a new type of vertical integration, in which a single company controls vast amounts of land, food production and processing -- while simultaneously inflating global food prices due to the speculative nature of the fund. Click here to see the video Emergent uses in their pitch to investors: http://media.oaklandinstitute.org/emergent-video
The Perp Walk
On June 30, 2011, the Oakland Institute released a new report (http://media.oaklandinstitute.org/meet-millionaires-and-billionaires-suddenly-buying-tons-land-africa-0) fingering other millionaires and billionaires playing a major role in the African land grab. The report also details their unscrupulous deals with corrupt African leaders, who sign away land rights without consulting local residents -- as well as the direct role some of these funds play in armed attacks on villagers who refuse to leave their land. Some of the names that stand out include:
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