“Perhaps there is an argument to be made that when it comes to farming, bigger is better. The problem is that the commodities themselves are increasingly being priced based on the activities of international financial institutions, not the farmers, millers and bakers… Of course, it is great when you invest in a product and watch the line on the graph go up. Except for the fact that each uptick in the global price of food is also an uptick in the number of people who cannot afford the food, the growing number of the world’s food insecure…” Fredrick Kaufman – Bet the Farm
— A tagline from the world of advertising: “What’s in your wallet?”
Modified answer: Speculation.
— Why should this, speculation, matter when it concerns food, especially to Muslims?
* Muslim do not control the halal food supply chain.
* Many Muslim countries, like the six GCC, are net importers of food.
* About 22 of the 57 Muslim countries are least developed, hence, food is a basic need after air and water.
* The rising Muslim population and increasing in per capita income amongst many Muslim countries implies increase in meat/poultry consumption.
Halal food and beverage is the largest component, approximately $1 trillion, of the eight economic sectors of the Muslim Lifestyle Marketplace, totalling more than $2.4 trillion, according to the Thomson Reuters. Putting it in perspective, halal food is about 16 per cent of all produced foods and the Muslims consume more food than all of China. But, its growth is generally fuelled by Muslim consumption but dominated (supply slide) by non-Muslim owned multinational food companies in places like Brazil, Thailand, Australia, US, New Zealand, so on.
Lessons from credit crisis?
As the credit crisis (I) hit, subprime in 2007-08, the comments from the Vatican newspaper, Osservatore Romano, stated: “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service… Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral… Sukuk may be used to fund the ‘car industry or the next Olympic Games in London…”
The Vatican, as a representative moral authority to many followers, was not espousing another religion, but, rather highlighting the essential principles of collateral based financing over the destructive elements of speculative, i.e., derivative contracts, profiteering.
Yesterday, the world may have been on the brink of global meltdown, led by the double whammy of subprime mortgages and sovereign debt (credit crisis II), but today, with minimal lessons learned, its about another kind of meltdown with a greater multiplier effect: food price speculation, and not about food shortages, which can mean street chaos.
One of the most important and far-reaching byproducts of the subprime and sovereign debt crisis was the Occupy Wall Street movement. More than anything else, it sent a message to the ‘captains of casino capitalism,’ they are being watched and will be held accountable not just by regulators (where applicable), but by the ‘man on the street.’
One of the sparks of the Arab Spring was issues linked to food availability and prices, hence, the Muslim world, as a whole, was both a participant and observer in real time on social media.
The UN’s special rapporteur on the Right To Food, Olivier de Schutter commented on food prices in 2007-08 was a “price crisis, not a food crisis… (and) inaction to halt speculation on agricultural commodities… Prices of wheat, maize and rice have increased very significantly but this is not linked to low stock levels or harvests, but rather to traders reacting to information and speculating on the markets.”
Food as a derivative
Food, as a primary substance source, has been hoarded through the ages via speculators, and, today, another type of price-impacting hoarding is taking place on exchanges, called: derivative contracts.
“This basic futures contract enabled commodity sellers, such as farmers and grain elevator operators, to avoid sudden price drops and commodity users or traders to avoid sudden price increases; it was generally regarded as a kind of insurance. But it ceased to work as such after the deregulation of the global agricultural markets… The main culprit (food price speculation) is the commodity derivative. Commodities are the actual raw materials while ‘commodities derivatives’ are financial contracts derived from the value of the underlying commodity…” Abdalhamid Evans, Founder, HalalFocus.
Fredrick Kaufman in a recent interview about his book, Bet the Farm, suggests a vision for curbing food price speculation:
First step: Get Wall Street out of the global food supply. And that’s simple: Bring back the so-called “position limits,” which limit the number of futures and options contracts non-agricultural institutions can hold. That would make food less of an investment, and allow food to be what it is: In short, the most precious thing on earth. We can also ease plant patent laws, so that food can become less of a legal construct. In the United States, we can bring back the national strategic grain reserve, which we had under the Clinton Administration. These buffer stocks help blunt the peaks and valleys of food price and help farmers manage risks going forward. Finally, we need to encourage countries to stop using food as a political football, a tool of foreign policy. Every nation needs to develop its own systems of food security and support their farmers: big, medium, and small.
The conversation needs to be about a (halal) food security index and less about a food price index. Surely, the ‘financialisation’ of farmers will negatively impact more lives than positive returns.
The writer is a co-founder and chief executive of Zilzar. Views expressed by him are his own and do not reflect the newspaper’s policy – Khaleej Times