The Dangers of Agricultural Speculation 'Price Increases Are Costing Millions of People their Health'

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Part 2: 'It Will All Come at the Cost of the Poorest of the Poor'

Braun: Absolutely, because Russia, for example, would not have imposed a ban on wheat exports, thereby triggering the wave of speculation. Instead, it would have been able to rely on other countries pitching in. India and China, for example, are sitting on huge surpluses. Their warehouses are full and, in some cases, inventories are rotting.

SPIEGEL: The concept of a selfless international grain club sounds naïve. Each country would surely take care of itself first.

Braun: An every-man-for-himself policy is inconsistent with a world in which hunger is a growing problem. Naturally, politicians in threshold countries are worried that higher food prices could trigger unrest, particularly now that people are much better informed than they used to be. That's the reason some of the inventories are so absurdly high. But this wouldn't be necessary if everyone participated in the world market.

SPIEGEL: It is difficult to imagine the prime ministers from India and China having much faith in such a central grain bank.

Braun: If the Indians or the Chinese are part of this bank, they'll do it. Indian Prime Minister Manmohan Singh was the first head of state with whom I discussed these issues, back in 2007. Later on, I also had the opportunity to touch on the subject briefly with his Chinese counterpart, Wen Jiabao. Both men are very interested in securing the food supply.

SPIEGEL: Even politicians in France and Italy were afraid that protests over rising food prices would break out in 2008. Many consumers in Germany are uneasy at the moment.

Braun: The concerns of German consumers are completely unfounded. The price of wheat, for example, is just a tiny part of the price of a breakfast roll. But the situation is different for the world's poorest three billion people. For them, the price of wheat or rice plays a huge role in their lives -- and survival. What we refer to as hunger, or a lack of sufficient calories, is only part of the deeper problem of silent hunger, which is triggered by malnutrition. This affects about two billion people. And the consequences are irreversible. Someone who is exposed to extreme hunger as a child will only achieve half of his productive potential throughout the rest of his life.

SPIEGEL: Is hunger just a problem of distribution? Or of real scarcity?

Braun: The shortage of healthy food products is real. By the middle of the century, the world's population will have grown from seven billion people today to nine billion, but with the eating habits of 12 billion: more meat, more milk and more eggs. And we mustn't forget that agriculture is producing more and more biomass for energy. The only way to ensure that we can feed the next generation and protect the environment is to invest more in global research into improving agricultural productivity. Arable land cannot be increased at will -- at most it will grow by 10 to 15 percent by mid-century. And water is also becoming increasingly scarce.

SPIEGEL: Speculators are most active in markets that are tight and confusing. The development of a global grain reserve will hardly be sufficient to rein them in.

Braun: That alone won't be enough, especially now that financial investors themselves are trying to buy warehousing capacity, wharfs and terminals. We desperately need appropriate regulation of the agricultural markets that would curb speculation.

SPIEGEL: How would that work?

Braun: Speculation needs to become more costly. In the future, financial players should be required to deposit capital for each transaction in the futures markets, so as to underscore a serious interest in trading. This will deter all those who merely intend to quickly jump in and out of the market to turn a profit.

SPIEGEL: But money is no object for a wealthy bank like Goldman Sachs.

Braun: Deposited capital, which would be payable for each traded contract, increases the costs of speculation because it ties up liquidity. It's similar to the minimum reserve rule we also have in the banking sector…

SPIEGEL: …and that would slow down trade, as it were.

Braun: Slowing things down, even if it were only for a few minutes, would benefit international commodities trading. But a more transparent market is also important. It has to become clear who is trading out of a genuine interest in the commodity and who is merely speculating for financial reasons. In addition, an independent clearinghouse should supervise trading in the future. It should monitor each transaction to make sure that financial institutions are clearly separating their deals. At the moment they are wildly juggling their financial products back and forth within their organizations, products like derivatives on bonds, real estate, loans, foreign currencies and agricultural commodities. These products should be traded separately, or else transparency will be completely lost.

SPIEGEL: It would make the most sense to ban speculation on food products altogether.

Braun: That would be an ill-advised step toward a planned economy. Besides, we need "good" speculation, that is, the signals that predict a real shortage, for example. It's a form of protection that enables us to quick react to a fragile supply situation.

SPIEGEL: And what happens if the agricultural commodity markets don't change in the way you describe?

Braun: Then the fatal development of recent years will repeat itself. There will be dramatic bottlenecks in developing countries. More and more countries will seal off access to their food production, and instead of good globalization we'll experience a return to costly autarchy, and it'll all come at the cost of the poorest of the poor. An undesirable development that the world cannot afford.

SPIEGEL: Professor von Braun, thank you for this interview.

Interview conducted by Susanne Amann and Alexander Jung
Translated from the German by Christopher Sultan


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kevin kirchman 08/26/2010
1. What???
"Financial speculators have discovered agricultural commodities"? When, in 1900? There could be nothing more favourable than food price rises for the 60%+ of the world's population who live in rural areas and thus make their livings substantial from farms, farm labour, or in someway dependent upon the agricultural industry. Silly journalists are missing half the equation. What, they want 5-year agricultural plans again?
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