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Global free market for food and energy faces biggest threat in decades
Telegraph.co.uk
10 Maggio 2008
The global free market for food and energy is facing its biggest threat in decades as a host of countries push through draconian measures to hold down prices, raising fears of a new "resource nationalism" that could endanger world food security.
 India shocked the markets yesterday by suspending trading in futures contracts for a range of farm products in a bid to clamp down on alleged speculators and curb inflation, now running at 7.6pc.
The country's Forward Markets Commission said contracts for soybean oil, chana (chickpeas), potatoes, and rubber had been banned for four months, even though a report by the Indian parliament last month concluded that soaring food costs had almost nothing to do with the futures contracts. Traders in Mumbai slammed the ban as an act of brazen political populism.
The move has been seen as a concession to India's Communist MPs - key allies of premier Manmohan Singh - who want a full-fledged ban on futures trading in sugar, cooking oil, and grains.
As food and fuel riots spread across the world, a string of governments have resorted to steps that menace the free flow of food and key commodities. Argentina has banned beef exports, while Egypt and India have stopped shipments of rice.
Kazakhstan has prohibited wheat exports. Russia has slapped a 40pc export duty on shipments, and Pakistan a 35pc duty.
China, Cambodia, Malaysia, Philipines, Sri Lanka, and Vietnam have all imposed export controls or forms of rationing to ease the crisis.
UN Secretary-General Ban Ki-moon has warned that this lurch towards national controls is becoming a threat to the open global system we all take for granted. "If not handled properly, this crisis could result in a cascade of others and affect political security around the world," he said.
A new report by UBS says the scramble for scarce raw materials is turning ever more political, with ominous implications for ill-endowed societies that rely on imports.
"The bottom line is that countries with resources, particularly in food and energy are becoming more protective of these resources," it said.
Nationalist policies are making the crisis worse. Governments are blocking foreign investments in sensitive sectors, imposing arbitary taxes, or meddling in details.
UBS said political intervention in the African Copper Belt, Kazakhstan, and Mongolia was already taking its toll on copper output, while oil companies are being shut out of key markets such as Russia - with damaging effect on oil production.
Even the US and Europe are falling prey to some of these populist impulses. A group of top Democratic senators on Capitol Hill this week called for draconian measures to halt speculative trading on oil futures, widely blamed for pushing crude prices to $124 a barrel.
They have drafted the Consumer-First Energy Act mandating higher margin requirements on oil futures contracts, as well as revoking $17bn in tax concessions for oil companies and imposing a 25pc windfall tax on oil profits.
"Big oil is making money hand over fist: We will hold them accountable for their unconscionable price-gouging and force them to invest in renewable energy," said Senator Harry Reid, the Senate Majority Leader.
Trade constraints in agriculture
Jim Newsome, the head of the New York Mercantile Exchange, said trading curbs on hedge funds woold achieve nothing. "All you're going to do is potentially cripple the US exchanges and move that flow of trading to non-US regulated markets," he told the Wall Street Journal.
US regulators deny that speculators have been a major force behind the latest surge in oil prices, blaming the rise on relentless growth in demand from China and the Middle East and a string of supply upsets in Russia, Mexico, and the North Sea.
Martin Schulz, MEP, the leader of the Socialist group in the European Parliament, said speculators had crossed a moral line by trying to corner positions in the staple foods at a time when 100m people in the poorest countires are at risk of famine.
"Casino capitalism has taken a seat at the table of the poor. This is immorality carried to the extreme. We need international controls on financial markets," he said, echoing a feeling share widely by Europe's political class..
The UN's Food and Agriculture Organization says the global food bill has risen 57pc in the last year. Soaring freight rates have compounded the effect. The Balic Dry Index has doubled since January, vaulting through the 10,000 mark this week.
The FAO says the cost of food for poor countries that rely heavly on food imports has raised food prices by 74pc.
The import ratio for grains is over 80pc in Eritrea, Sierra Leone, and Niger. It is 65pc in Bangladesh. FAO experts said the diversion of 20pc of the US grain harvest into bio-ethanol for fuel has been a key factor in surging prices from corn, wheat, and other grains.
By Ambrose Evans-Pritchard
Source > Telegraph.co.uk
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