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Stop betting on hunger - regulate commodity derivatives

Speculators are earning huge profits from betting on food prices in unregulated financial markets. This creates instability and pushes up global food prices, leaving millions of people facing hunger, malnutrition and deeper poverty.

Read the full report 'Farming Money' here: http://www.foeeurope.org/publications/2012/Farming_money_FoEE_Jan2012.pdf

What is food speculation?

• Food speculation refers to bankers and other financial investors betting on food prices.
• Food speculation occurs if 'futures contracts' are written for the sole purpose of money making. Originally, future contracts allow farmers to sell crops at a future date at a guaranteed price - helping them to overcome unforeseen variations in crop production.
• Over the last two decades, bankers have successfully lobbied for weaker regulations on food speculation. They are now able to buy and sell futures contracts to make money.
• Bankers have also created special products and funds to help other financial companies make money from betting on food.

Food speculation explained in 7 minutes:

AlJazeera on food speculation:

The impacts of food speculation

• Betting on food prices creates huge market instability and increases food prices.
• Rising food prices leads to hunger and malnutrition for poor people across the world.
• Poor households, forced to spend more money on food, are less able to afford other essentials such as healthcare and education.
• People are forced into deeper poverty and debt and are therefore more likely (particularly women) to take on dangerous jobs such as becoming sex workers.

What FOEE is doing:

Due to recurrent food crises, FoEE has started to investigate the financialisation of global (food) commodity markets. Speculation in (food) commodity derivatives has substantially added to the effects of agrofuel demand and land-grab, causing on-going price hikes in global food markets. Excessive speculation creates volatility and price exaggerations ant thus, it eventually contributes to hunger and unrest. FoEE calls for sufficient supervision and strict regulation of commodity markets in order to reduce harmful degrees of speculation.

• FoEE is lobbying the European Commission and the European Parliament to (1) improve regulation of financial markets, (2) limit the amount that bankers can bet on food prices, and (3) ensure that all futures contracts are cleared through regulated and transparent exchanges.
• In 2011, FoEE submitted a reponse to the consultation of the European Commission on the review of the Markets in Financial Instruments Directive (MiFID)

How you can help:

• A large piece of financial market regulation is being reviewed by EU this year, called "MiFID". Ask your MEP and your national government to ensure, MiFID stops food speculation in Europe!

 

Sustainable banking

Banks play a fundamental role in allocating financial resources - by providing credit and re-investing deposits. Too often, however, banks do not adequately assess the sustainability risks - potential environmental and social impacts - of their financial products, as well as the businesses they finance. Banks should actively assess and manage their impact on social and environmental sustainability. Dangerous financial products and practices, such as speculation on foodstuff derivatives should be regulated, supervised and - if necessary - banned.

This year, the European Union (EU) will implement the revised international rules for banking, known as Basel III, into EU legislation. Basel III intends to improve banks? resilience to financial crises. It deals with advancing the quality and quantity of capital buffers of banks in order for them to better cope with stress and crisis situations.

Friends of the Earth Europe, BankTrack, CRBM and the Berne Declaration call upon the European Commission to include sustainability criteria in the new law - to ensure banks integrate sustainability criteria in their lending, financing and investment decision making processes. It would encourage them to reconsider unsustainable and dangerous investments and to invest in more responsible and sustainable businesses ? such as renewable energy producers and social entrepreneurs.

Large banks that assess their credit risks internally should differentiate risk weighting factors for their various categories of borrowers according to their level of sustainability. As sustainable borrowers have a lower probability of default, their risk weighting factor should be lower. Non-sustainable categories with a higher probability of default should have higher risk weighting factors. Credit rating agencies, which provide credit risk assessments to all other banks, should integrate sustainability criteria in their credit ratings and in determining their risk weighting factors. This proposal would not affect the overall capital reserve level. Thus, it would advantage banks focussing primarily on sustainable borrowers.

Specific and penal capital requirements should be considered for banks providing credit to companies grossly violating environmental and human rights standards, as well as for banks financing other investors that invest in such companies, such as private equity funds.

March 2011, Report: Why to integrate sustainability criteria in banking regulation?
March 2011, Report: How to integrate sustainability criteria in banking regulation?
March 2011, FoEE submission to the consultation of the European Commission on capital requirements for counter-party credit risk
January 2011, FoEE submission to the consultation of the European Commission on the review of the Markets in Financial Instruments Directive (MiFID)
January 2011, FoEE submission to the consultation of the European Commission on disclosure of non-financial information by companies
April 2010, FoEE Submission to the Consultation of the European Comission on the Capital Requirements Directive
September 2009, FoEE Position: An economy for the well-being of people and the planet

 

Financial transaction tax: Small change for banks - big opportunity for the world

Friends of the Earth Europe is one of the initiators of the European-wide cross-sectoral civil society network "Make Finance Work" (www.makefinancework.org) and takes part in the consultations for the planned civil-society expertise house "Finance Watch" (...).

With a broad joint civil society network across Europe and world-wide, FoEE aims at a fair contribution of the financial sector in regard to the costs of the financial crisis for the public and the economy. FoEE calls for a financial transaction tax that will help regulate financial markets and raise revenue to globally tackle the challenge of climate change. If not implemented on the global level, it should be introduced swiftly on the EU- or Eurozone-level.

TAKE ACTION: Sign the petition to the G20 for a financial transaction tax!

Some call it the Robin Hood Tax, others call it the Financial Transaction Tax, others call it a really good idea. This tiny tax could take $400,000,000,000 out of the pockets of the bankers who got rich by crashing the economy and use that money to stop domestic service cuts and help the people who are suffering the most from climate change, and who did the least to cause it. This amazing 0.05% tax also helps stabilize the economy by preventing high speed trading (done mostly by computers all on their own). Help us make this piece of common sense into a common practice.

 

Funding Statement

Friends of the Earth Europe (FoEE) gratefully aknowledges the financial assistance of Oxfam Novib, the Isvara Foundation, the Dutch Ministry for Development and the European Commission (DG Environment). The contents of this report are the sole responsibility of Friends of the Earth Europe (FoEE) and its partners and cannot be regarded as reflecting the position of the funders mentioned above. The funders cannot be held responsible for any use which may be made of the information this production contains.