Prices of basic food crops including wheat, maize and rice, have been rising in the global markets since 2005.  They have skyrocketed since 2007.  Over the past 12 months, wheat prices have increased by 112% – that is, more than doubled. This is the most rapid annual rise in world food prices in more than 30 years. What is the cause of this extraordinary phenomenon?

Bourgeois economists, including the so-called experts of the World Bank, are pointing to numerous factors, including the following:

It is estimated that petroleum and fertilizer price increase would have increased production costs by about 15% in the US and less in other countries. It could therefore be only a minor factor, not the main cause for the steep price rise in the last 12 months. 

Increased bio-fuels production has been taking place in the US for several years now.  According to the US Department of Agriculture, global maize production increased by 55 million tons from 2004 to 2007, during which time the US increased bio-fuel use by 50 million tons. The effect of this trend is an upward movement in food prices by about 10% per year during 2004-07. But this does not explain why food prices rose by more than 100% in 2007-08.

Drought in Australia reduced global grain exports by only 4%. The decline in the value of US dollar was steeper in 2002-05 than more recently. So these are not the major causes either.

The factor listed last by bourgeois economists, as part of “other factors”, is actually the biggest cause, namely: increased speculative activity in commodity trade. The total value of wheat futures contracts on the Chicago Board of Trade reached record levels in 2007 and 2008, about 4 times what they were during 2002-05.

The story can be summarized as follows. Supply shortage caused by the shift to bio-fuels, alongside rising costs of fertilizers, sparked the beginning of the most recent round of commodity price rise on the world scale. However, if these were the only causes, then the effect should have been only a moderate rise in food prices. Something else also happened in 2007, which converted it into an extraordinary boom in food prices. This something else was the crisis in banking and financial sector, sparked by the collapse in housing finance and the housing market in the US. The big banks and monopolies of the world responded to the crisis by looking for alternative markets to earn maximum profits. They seized on the commodity markets, because food prices were on a rising trend, while real estate and stock markets were down. And it is this factor – the shift of finance capital to commodity markets and commodity futures – that has resulted, not in a 10% or 20% increase in food prices, but as high as 100% within a year.

Finance capital

Since the early part of the 20th century, a major trend in the capitalist system on the world scale is the merger of banking capital with industrial capital, to give rise to what is called finance capital. Giant financial institutions, linked by a thousand threads to monopoly corporations in various sectors of production and trade, manipulate prices and price expectations, with maximum private profit as the prime motive. 

Finance capital has invented many ways to overcome the falling rate of profit in the capitalist economy. These methods involve theft of value that has already been produced in some sector of the economy, through speculation, intrigue and manipulation of market prices, including the price of currencies. All these methods cause economic crises, which are becoming worse and more frequent.

Beginning in the mid nineties, the global economy has experienced two boom and bust crises; the current food crisis is the start of a third one. The first two were centred on Internet "dot.com" company stocks and on real estate. No sooner has the housing bubble burst, finance capital has already begun to move massive quantities of accumulated-value towards its new target, the commodities market.

Bourgeois economists create the impression that surplus value can be created for the finance capitalist by moving capital from here to there, and through speculation and manipulation of prices and currencies. In actual fact, none of these activities produce any value. Only human labour – the physical and mental toil of the workers – produces value. Speculative financial activity only enables theft of value from various productive sectors. They produce misery for those who toil. The capitalist propaganda machine spreads the lie that what is not produced can somehow be consumed, and that speculation can add to the wellbeing of society.

With regard to food, finance capital generates for itself greater value from existing food stocks by circulating and speculating on their money-equivalents. No value is created from the rise in food prices. Value is robbed by the richest minority in society, and food is denied completely to those who cannot pay

The stranglehold of finance capital over the economies of the world must be challenged and overcome. Manipulation and speculation over currencies and prices by private banks and monopoly corporations, and the global movement of accumulated-value for private gain, must be immediately restricted. They must be recognised as being in conflict with the public good. Private wealth accumulation must be eliminated from the economic base of society, starting with the sectors of food production and distribution. This is a necessary path toward guaranteeing food security for all peoples of the world.