The Commodity Futures Trading Commission (CFTC) has again delayed the introduction of position limits required under the Dodd-Frank Act. These limits are intended to prevent speculation in (among other things) agricultural commodities, speculation which, many critics argue, have driven up the price of food worldwide and plunged millions into hunger.

In late 2006, the price of food and other commodities began rising precipitately, continuing throughout 2007 and peaking in 2008. Millions were cast below the poverty line and food riots erupted across the developing world, from Haiti to Mozambique. While analysts initially framed the crisis in terms of market fundamentals (such as rising population, increased demand for resource-intensive food, declining stockpiles, biofuel and agricultural subsidies, and crop shortfalls from natural disasters), a growing number of experts have tied the massive spikes to financial intermediation. As economist Jayati Ghosh explains:

"It is now quite widely acknowledged that financial speculation was the major factor behind the sharp price rise of many primary commodities , including agricultural items over the past year ... Even recent research from the World Bank (Bafis and Haniotis 2010) recognizes the role played by the "financialisation of commodities" in the price surges and declines, and notes that price variability has overwhelmed price trends for important commodities."

Trading Regulation for Financialisation

This kind of speculation was made possible by deregulation in the US financial sector, in particular the Commodity Futures Modernization Act 2000 (CFMA), exempting commodity futures trading from regulatory oversight. Crucially for our narrative, this removed limits on the number of contracts that could be held at any one time (called position limits) from the equation. Firms like Goldman Sachs, Morgan Stanley and Barclays began developing index funds (collective investment schemes) based on these commodities, specializing in buying futures contracts in the belief that the future price will be higher than the present price. Journalist Fred Kaufman eloquently stated this in his Harpers article 'The Food Bubble':

"Goldman Sachs envisioned a new form of commodities investment, a product for investors who had no taste for the complexities of corn or soy or wheat, no interest in weather and weevils, and no desire for getting into and out of shorts and longs - investors who wanted nothing more than to park a great deal of money somewhere, then sit back and watch that pile grow."

All manner of institutional investors began dumping capital into these funds, driving prices, and profits, through the roof:

"As the global financial system became fragile with the continuing implosion of the US housing finance market, large investor, especially institutional investors such as hedge funds and pension funds and even banks, searched for other avenues of investment to find new sources for profit. Commodity speculation increasingly emerged as an important area for such financial investment."

Traditionally, futures contracts play an important role in price discovery, reducing the price risk of the commodity itself. However without a limit to the number of commodity futures contracts that could be held, investors were able to withhold huge amounts of food from entering the market. When combined with the real supply and demand factors mentioned above, this spelt volatile price spikes; between 2005 and 2008 the price of maize nearly tripled, wheat prices increased by 127%, and rice by 170%. Throughout the crisis, at least 40 million people went driven into hunger, and the number of people driven into extreme poverty rose from 130 to 150 million.

And worse, this speculation wasn't limited to the 2007-2008 period. While commodity prices fell again in 2009, the latter half of 2010 saw them again skyrocket, reaching an all-time high at the end of that year, and remaining high into this year. Today, over a billion people remain hungry, while wealthy investors continue to reap huge profits by gambling on the stomachs of the world's most vulnerable.