Big Banks Are Breaking the Poor for Food Profits

Manipulation from major banks is prevalent in every traded commodity, but nowhere has it been as dangerous as in food. Price manipulation through large futures contracts led to massive profits, along with unrest, riots, violence and death.

Deregulation in the late 1990s allowed financial institutions to bet on food prices, resulting in some $200 billion being poured into the market.

Global food prices have more than doubled since 2003 and volatility is through the roof. While some of the changes can be attributed to droughts, inflation or ethanol production, new studies are placing a majority of the blame squarely on financial profiteering by large firms such as Goldman Sachs.

A report from the World Development Movement estimates the company collected $400 million of profits in 2012 as a result of out-sized futures contracts.

The amount of speculative money in these futures contracts has become so large in proportion to physical inventories of commodities that wild multi-year upward swings in prices have occurred three times in the last decade.

The manipulation isn't limited to futures contracts either. Hedge fund Armajaro single-handedly sent global cocoa prices to a 33-year high in July 2010 by buying roughly 15% of global supply.

The effect on the poorest populations in the world has been crippling and has led to unrest, including many of the “Arab Spring” movements and revolutions in the last several years. A study by researchers at the New England Complex Systems Institute shows the correlation between violence, unrest and the FAO Food Price Index.

The numbers in parentheses reflect the number of deaths from the riots.

The situation has had mixed interpretations and reactions from the financial world. While the UN is warning that the worst drought in 50 years in the USA and weak harvests in Russia will likely worsen the situation, there is no indication the major players causing upward pressure on food prices will stop.

If the UN predictions ultimately come true, we can expect more windfall profits from Goldman Sachs, large institutional investors and hedge funds as violence and unrest flares up across the world yet again.