By Kimberly Bien
In recent years, the media has focused on global food riots that have resulted from increasing food prices. For example, rioting over high food costs in Algeria earlier in 2011 can be seen here. The rising violence of the food riots in Algeria and Tunisia demonstrate how quickly both individual’s lives and how society operates when people are unable to feed themselves. The global food crisis has forced the poorest people in the world to give up important social expenditures, like health and education, to be able to buy basic commodities like corn and sugar, and face the real risk of hunger and malnutrition. In fact, from June 2010 to January 2011 corn and sugar prices had increased an astounding 73%
The Stop Tax-Breaks for Oil Profiteering and Commodity Speculation Act (STOP Commodity Speculation Act) would close a loophole that gives financial speculators tax incentives to gamble on the commodity market, which has been linked to the rising food prices. Senator Wyden’s (D-OR) legislation, and would likely bring an end to uncontrollable rising commodity prices, allowing the poorest to buy basic commodities and social investments.
Currently, commodity producers (farmers, granaries, etc.) are paying general income taxes of 35% on income made on these markets, while hedge funds and other financial institutions pay a much smaller portion of their long-term and short-term profits (23%). The lower taxes for hedge funds encourage financial institutions to gamble and speculate in the commodity futures market. Compared to other markets, like stock, it has lower margins and low brokerage rates. Therefore, large investors take advantage of this market and indirectly raise commodity (largely corn, wheat, and edible oil) prices through speculation, which restricts the world’s poorest ability to purchase food to feed their hungry families.
It is crucial to support the STOP Commodity Speculation Act to remove tax-break incentives from big financial speculators in order to bring stability to the world commodities market. In this way, we can assist poor citizens in meeting the basic nutritional needs of themselves and their families.
Additional Sources
See Dave Kane’s (Associate for Latin America and Economic Justice, Maryknoll Office for Global Concerns) blog “Stop Gambling on Hunger” to learn more about the damaging effects of speculation on commodity futures market.
Take a look at the video above to get a brief background on the negative impact of financial futures speculation on the world economy’s different markets.
Works Cited
“Food Riots 2011,” http://theeconomiccollapseblog.com/archives/food-riots-2011
World Bank statistic from Reader’s Digest, “5 Things that will be more expensive in 2011” http://www.rd.com/money/5-things-that-will-be-more-expensive-in-2011/
“When you buy a futures, you don't have to pay the entire amount, just a fixed percentage of the cost. This is known as the margin.” Margins in the commodity futures market are very low compared to other markets. See Chakravarty, Sulagna. (2006). “How commodity trading works.” http://www.rediff.com/getahead/2006/jan/19com.htm
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