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Food prices have been rising steadily around the world and this summer's drought isn't the only reason why, according to Frederick Kaufman, author of "Bet the Farm: How Food STOPPED Being Food."
Kaufman tells The Daily Ticker that the price of global grains -- the primary dietary staple for most people on the planet -- have tripled since 2002 after decades of stability. "Something new has come to this market and we're seeing absolute levels of volatility that we've never seen before," Kaufman says.
Related: World food prices rise, stay close to crisis levels: UN
That new development, he notes, is the exponential growth of commodity derivatives. U.S. derivatives trading in wheat alone has surged from $10 billion to $300 billion in less than a year, says Kaufman. "Speculators are completely overwhelming" the commodity futures market, says Kaufman, "subverting a market that has worked so well for over a hundred years."
Traditionally the commodity futures market has allowed food producers and manufacturers to hedge price risk in a market that also includes speculators. There have been position limits on this type of speculation since 1936. But since 1999 those limits have been lifted for some big banks as Wall Street looked for more ways to make money. That paved the way for the increased speculation in the market today.
Kaufman says more speculation exacerbates food prices. Higher food prices have led to a global food crisis and civil unrest in the Mideast and North Africa.
Related: Food is the New Oil and Land the New Gold: Lester Brown
According to the UN's Food and Agriculture Organization, which is holding a week-long meeting in Rome on world food security, 870 million people around the world?or one in eight?are starving or undernourished.
"While the chance of food prices returning to levels seen in 2008 and 2011 in the coming months may be slim, they remain at historically high levels, and the underlying factors driving them are here to stay," the organization says in a press release.
The UN FAO cites population growth and a growing middle class in the developing world as factors boosting demand for grain-intensive protein and rising energy costs. "High food prices, therefore, are here to stay," it says.
Kaufman says the U.S. should be concerned about this global situation. Higher food prices can cause civil unrest and become a national security concern for this country, which itself has 17 million households that are at risk of going hungry.
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