Monday, July 4, 2011

The World Bank addresses food security: let them eat derivatives

"The World Bank has teamed up with JP Morgan to offer farmers and food manufacturers in poor countries access to financial derivatives to hedge their risk from volatile food prices. Two other banks, one in sub-Saharan Africa and one in Europe with Middle East partnerships, as yet unidentified, are expected to launch similar products with the World Bank shortly.

Excessive speculation in agricultural commodities has been attacked by development charities for fuelling price swings that undermine poor farmers' livelihoods. However, the World Bank believes that giving them access to the markets will act as an insurance policy. It says safeguards are in place to ensure participants cannot bet against themselves and add to the speculative pressure that NGOs want curbed."

So I sent the article to my someone who knows a lot about these things and here's his answer:

"Complete crap in regards to food security; it proves that world bank is only a tool in the hands of financial institutions .

- products essential to livelihood are no traded in secondary markets (ex:rice) so non hedgeable by this product

- prime benefit will go to intermediaries (banks)

-farmers in this case (medium sized)would be agents of traders or head of state owned, which are in any case immune to price change

- inventing a speculative product to hedge against speculation is really kinky; my guess is that it will actually increase the price volatility.

There you go. 

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