Transcript
NARRATOR:
The cost of food across the world is on the rise, and many have blamed the scale of price spikes on one thing-- rampant food speculation on the global financial markets. The ecologists travelled to Mexico, the birthplace of corn, to find out how speculation is forcing up the price of the country’s staple food, with profound effects felt across Mexican society.
In the mountains of Oaxaca State in southern Mexico, it is coffee production that fuels the local economy. Rural communities like these are not self-sufficient in food and are dependent on a cash crop, making them vulnerable to sudden price rises of staples such as corn.
IGNACIO CANSECO:
[Speaks Spanish]
NARRATOR:
Lorenzo Hernandez and his wife [? Genovena ?] Olivera look after their grandchildren during the day, while the rest of the family work in the coffee fields.
LORENZO CANSECO HERNANDEZ:
[Speaks Spanish]
NARRATOR:
Food price volatility on this scale has been linked directly to speculation.
MURRAY WORTHY:
Food speculation is basically the way in which banks and other financial traders can essentially bet on the price of food. And this takes place through what are known as futures markets. So these were originally set up to help farmers, and food producers, and buyers-- to kind of manage their risk of prices changing over time. But instead, what we’re seeing now is other people coming who’ve got no connection with the food supply whatsoever, coming in and using these markets just to bet on the rising and falling price of food.
ALFONSO MURILLO:
The speculation is going stronger and stronger. Right now, we think that about 20 per cent of the total market for corn is in the area of investor-- financial investor, speculators-- that are just making a contract and re-selling the contract. They don’t need the grain for any other purpose.
NARRATOR:
At a wholesale market in Oaxaca City, traders have seen prices rise in recent months.
MARIA VELASRO:
Corn prices have increased due to the cold front in February that happened in Sinaloa. It supplies nearly all of Mexico’s corn, and so supplies were affected
ALFONSO MURILLO:
In Sinaloa, that is the principal state of production of corn, there were frosts, very heavy frosts. So the production expected went down. About half of the total production was lost. So during the year we have been importing corn from the US and from South Africa also.
MURRAY WORTHY:
What we’re seeing somewhere like Mexico is that when there’s a good local harvest, things are fine. They can rely on the local crops. But increasingly, particularly in Mexico, domestic maise production is being undermined by free trade deals with America, where maise is much more heavily-subsidized. So now what we see is, when there are poor harvests, Mexico now relies on importing food from abroad, which is where the high prices that have come from food speculation really hit them hardest.
NARRATOR:
For Mexicans, that means higher prices for their daily tortilla.
LUIS HERNANDEZ NAVARRO:
[Speaks Spanish]
ALEIRA LARA GALICIA:
[Speaks Spanish]
LORENZO CANSECO HERNANDEZ:
[Speaks Spanish]
MURRAY WORTHY:
It’s not just hunger that’s the real problem here. It has massive impacts across different aspects of poverty. So for example, we found that when food prices have risen, families had to eat less fruit, and less vegetables, less meat and dairy, and have a far less healthy diet. We’ve also seen households that have had to eat into their savings or take out loans, just to be able to afford food. And we’ve also seen them have to cut back on expenditures such as health care and education. And all these things have much longer-term impacts than just the impact of a shortage of food in the short term.
KENNETH SHWEDEL:
The impact of the higher prices is felt throughout the expenditures of the poorer Mexicans. And then subsequently, it’s felt in terms of a lower demand for other things within the Mexican economy, which is a real concern because we don’t see the domestic demand growing as fast as would be necessary.
MURRAY WORTHY:
Food speculation has become a real issue now because of deregulation of these markets that happened about 10 years ago. What we’ve seen since then is big investment banks-- people like Barclays Capital and Goldman Sachs-- moving into commodity markets. So over the last 10 years, we’ve seen about $100 billion pour into these markets-- flooding, as I said-- the farmers and food producers that normally are around these markets and overwhelming them. And that’s why this has become such a problem now.
NARRATOR:
In an unusual move, the Mexican government has itself begun speculating on the food futures market, in an effort to counter volatility in corn prices. But many believe that the only answer is regulation.
KENNETH SHWEDEL:
My particular opinion is, if you look at any regulation in the market, we’ve got to look at some sort of regulations, or some sort of movements, or some sort of actions which would limit the volatility in the market, as you move into the future. I’m not really worried about the large money coming in. I’m worried about the coming in, moving out, and coming in, and moving out. That’s the real concern on the future.
MURRAY WORTHY:
So what we’re calling for is a limit to be introduced, that limits the amount of the market these traders can hold. At the moment, they’re dominating the market. They make up much more of the market than farmers and other traders, who actually rely on these market day-in and day-out. What we want to see is new rules put in that cap that, that limit their influence, and can then allow prices to be more fair, more stable, and more transparent in the future.