May 16 2011 - Pension funds and other institutional investors that have poured billions of pounds into commodity index funds could be unwittingly fuelling a rise in global hunger, says a new report from Christian Aid. Please also find PDF version of the report here: www.christianaid.org.uk/hungry-for-justice
Such investments in indices of commodities bundled together have become increasingly popular in recent years following deregulation and the bursting of the dot.com bubble.
Food price rises led World Bank President Robert Zoellick last month to warn: ‘We are one shock away from a full blown crisis.’
Cereal prices, which are of crucial importance to the world’s poorest people, hit a record high in recent weeks on the UN Food and Agriculture Organization’s price index. Even with inflation taken into account, the rate was 5.5 points above the previous record in mid-2008, when food riots broke out in more than 30 countries .
Almost a billion people now live in chronic hunger , with a further 44 million forced into extreme poverty since mid-2010, surviving on the equivalent of just $1.25 a day.
Christian Aid’s new report Hungry for Justice: Fighting Starvation In An Age Of Plenty, calls on policy makers to investigate why food price rises have in recent years begun to mirror the level of investment in food futures.
Christian Aid chief policy adviser Alex Cobham says: ‘A wealth of evidence is emerging that while at one time commodity prices moved independently of other investments, they have now started responding to the massive amounts of money that have flowed into the market.
‘Deregulation in the US in 2000 meant that US banks and other financial institutions were suddenly able to develop and trade a variety of unregulated financial products.
‘That in turn attracted an influx of non-traditional investors, such as pension funds, looking for a safe place to put their money after the dot.com bubble burst. Between 2003-2008, the volume of index-fund related investment soared by 1,900 per cent.
‘It is time for policy makers to conduct a proper investigation into the effect deregulation has had on food prices. In addition, they should commit to carrying out a full assessment of the potential impact on the poor of any further significant regulatory changes.’
In the report, Christian Aid says it does not appear to be investment in commodity indices themselves that directly causes problems. Rather, it is the fact that for every such investment made, the wealth fund manager or investment bank handling the trade will make a similar investment in ‘futures’ of each of the individual, underlying commodities.
The sheer amount of money arriving has had the effect of distorting prices, forcing them to rise with the market, driven less by fundamentals such as consumer demand and the success or otherwise of harvests, and more by international finance and macroeconomic considerations.
Hungry for Justice: Fighting Starvation In An Age Of Plenty also looks at the effect on food prices of climate change, ‘land grabs’, tax manipulation by some multinationals in poor countries and conflict.
In addition, it assesses the impact of population growth on food security, with global numbers expected to rise to 9bn by 2050, saying that it is not the increased numbers that pose the problem, but the nature – and spread – of ‘rich country’ consumption patterns, particularly meat eating.
Major improvements to food security in the developing world, it says, could be brought about by a massive increase in support for small-holder farmers, and the adoption of sustainable agricultural practices.
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Further information from Andrew Hogg on 0207 523 2058 or 07872 3505234. 24-hour press duty phone – 07850 242950
1 FAO Food Price Index, release date 5 May 2011, www.fao.org/wprldfoodsituation/wfs-home/foodpricesindex/en/
2 FAO website:. www.fao.org
3 Food Price Hike Drives 44 Million People into Poverty, World Bank press release, February 15 2011 http://search.worldbank.org/all?qterm=44%20million
Notes to Editors:
1. Christian Aid works in some of the world's poorest communities in nearly 50 countries. We act where the need is greatest, regardless of religion, helping people build the lives they deserve.
2. Christian Aid has a vision, an end to global poverty, and we believe that vision can become a reality. Our report, Poverty Over, explains what we believe needs to be done – and can be done – to end poverty. Details at http://www.christianaid.org.uk/Images/poverty-over-report.pdf
3. Christian Aid is a member of the ACT Alliance, a global coalition of 100 churches and church-related organisations that work together inhumanitarian assistance and development. Further details at http://www.actalliance.org
4. Follow Christian Aid's newswire on Twitter: http://twitter.com/caid_newswire
5. For more information about the work of Christian Aid visit www.christianaid.org.uk
6. Christian Aid Week, the UK’s longest-running fundraising week which has raised more than £60m over the past five years to help people in poverty, starts this week and runs until May 21.