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As promised: More on commodities traders and their alleged role in rising prices

A Washington Post piece today backs up yesterday’s inquiry here into the role of new investors played in the rise of the commodities bubble. For farmers wanting to sell winter wheat, when the market price today is the below the value of the same wheat in the futures markets, Steven Pearlstein argues, something is amiss.

Interesting factoid or smoking gun? One economist claimed that during 2006 and 2007, as much as $100 million in investments per day was entering commodities markets. By February and March of this year that number shot up to $1 billion. More numbers. The value of all derivative contracts traded in the Spring of 2005: $3 trillion. Today: $8 trillion.

From Pearlstein:

Speculators have always played a prominent role in commodities markets, but in the past year, they have literally overwhelmed them, causing a dramatic increase in trading volume, volatility and prices and disrupting many of the normal relationships between producers and end-users.

Many of these were the same hedge funds and hot-money investors who had gorged on sovereign debt of developing countries, tech and telecom stocks, subprime mortgages and commercial real estate and now needed a new thing to focus on. Others -- including, it is said, some sovereign wealth funds -- looked to commodities as a hedge against the falling dollar. But perhaps the biggest push came from pension funds, foundations and university endowments whose managers had all gone to the same conferences and read the same academic papers, suggesting that a basket of commodity futures would provide a good hedge against stock and bond market declines.

To meet the needs of these investors, Wall Street and Chicago's commodities houses came up with all sorts of new vehicles, including exchange traded funds, index funds and structured investment vehicles -- the commodities equivalent of mortgage pools and asset-backed securities.

Of course there’s the small question of what to do about this. The problem remains, as Pearlstein reports, nobody at the Commodities Futures Trading Commission, or its regulators, feel that these traders had much impact on commodities prices. (How responsible are traders for changing diets and tightening food supplies?) Pearlstein fears that if the CFTC says anything about the role of speculation, the U.S. Congress may want to take a look at regulatory reforms, something no trader could live with. It is an election year in the U.S., after all.

Senegal’s Wade bets local rice can make the country self-sufficient by 2015

As more than 1,000 people marched in Dakar to protest high cost of living, Senegal’s President Abdoulaye Wade claims he has created a plan to make the country self-sufficient in rice by 2015.

He calls for a massive crop expansion and irrigation program that will increase rice production six-fold to 600,000 metric tons. The government estimates that 250,000 hectares of land are currently free in northern part of the country and the Casamance River valley. Irrigation shouldn’t be as difficult because rice is presently grown near the edge of the Senegal, Saloum and Casamance rivers, and irrigated from recessional flooding.

IRIN admitted that most agriculture experts they spoke to gave their tepid support for Wade’s targets, but nobody came out and guaranteed they would be met. One expert claimed the biggest problem will be increasing yields, but the Minister of Agriculture argued that Senegal’s rice yield of six metric tons per hectare is better than Thailand’s. (The United Nation Food and Agriculture Organization isn’t too certain about the government’s numbers.)

Then there’s the issue of money: One estimate calls for $335 million in funding is necessary for infrastructure costs and leveling the land. That amount presently equals the country’s entire agriculture budget.

Mark supplying credit for rice producers and processors as another issue. Like most West African farmers, Senegal’s rice producers buy supplies on credit and then payback the loans when they sell their crop. However, those with bad credit have been denied anymore loans, basically kicking them out of future rice production. One way to break the credit log jam would be for investors and donors to establish cooperative banks to work with farmers of all credit histories, says the Council on Non-Governmental Organizations and Development Support.

The biggest obstacle facing this project is that few Senegalese eat local rice. That's because local rice is hard to find in the country’s markets because it carries a bigger price tag than imported rice from Thailand and Vietnam, who together control 75 percent of Senegal’s market. As world rice prices have hit record highs, people must shell out more to continue eating the grain.

Rice dependency remains a problem throughout the continent, says the Alliance for a Green Revolution in Africa. A little more than half of the rice produced in Africa is consumed by local people, the group says. In many countries, rice imports have increased lockstep with rice demand. The group says it is working with farmers from different countries to create stress-tolerant rice seeds that are palatable to local tastes.

Does Ghana need an affirmative action law for women?

In the Ghanaian Chronicle, I. K. Gyasi says no tokenism is necessary for Ghana’s women.

I admit that Ghanaian women still face obstacles and suffer injustices. Ideas of male physical and mental superiority, inhuman widowhood rites, unjust accusations of witchcraft against older women with consequent confinement and even torture of such women, attempts to deprive widows and their children of a portion of the deceased husband's property, female genital mutilation and other injustices still plague our women, whether educated or not.

However, those agitators who create the impression by implications that our women have achieved nothing and that there is a deliberate policy to keep women down ought to face two realities.

In the first place, there is no official national policy that deliberately sets out to keep our women down. Secondly, Ghanaian women, both the educated and uneducated, have demonstrated beyond all reasonable doubt that they have what it takes to make a success of their lives without affirmative action or tokenism.

A common charge brought up by women's advocates is lack of education or lack of educational advancement for our women.

…Of course, I am willing to admit that, perhaps, here and there, a female appointment may have been the result of political patronage or some other consideration. But can we honestly say that, if that is even true, some male appointments have also not been the result of political patronage or some other considerations?

In any case, did the women not have to be qualified first? Were they appointed because they had beautiful faces or could talk?

As I admitted above, there are still obstacles that slow down or prevent women's advancement in certain areas. But women's rights advocates should accentuate the positives by showing how far they have come instead of indulging in self-pity and self-denigration. They can make it if they want to.

Cherry tomatoes from the Gulf of Guinea?

From New York Times.

Italian researchers report that the nutritional content of tomatoes — cherry tomatoes, in this case — improves when the plants are irrigated with diluted seawater.

Cristina Sgherri and colleagues at the University of Pisa grew cherry tomatoes with normal irrigation water and with water diluted with 12 percent seawater. They found that the seawater tomatoes were about 60 percent smaller by weight, on average, than those grown with regular water. But the seawater tomatoes were tastier, with higher acidity and a higher concentration of sugars.

Where the seawater tomatoes really stood out, though, was in concentrations of antioxidants, including vitamins C and E and chlorogenic acid. The findings were reported in The Journal of Agricultural Chemistry.

Researchers are presently looking towards Sicily, but could the same thing be done in coastal West Africa?

The effect of globalization on world food prices

Mauritania, a country that only produces 30 percent of the food necessary to feed it’s people, is feeling attacked on all sides. Sure, it’s not news that global food prices have risen, some say by 45 percent this year alone. But for Mauritanians months away from the nearest harvest, the Washington Post reports, the situation on the ground is worsening. The story noted a sharp increase in the sale of livestock, meaning farmers are selling wealth – and milk producers – to pay for food.

While poor weather has hurt crop production and the U.S. government’s decision to set aside corn for biofuels has adversely affected food prices, the story ponders what role has been played by globalization. First, globalization has tied food markets together, a mostly positive thing in places like West Africa. On the other hand, it has failed because of the mostly one-sided relationship between rich and poor countries.

Drive the money changers out of the Co-op
For instance, in a recent Spiegel article, questions are being raised about the role being played by commodities speculators. Some say financial investors have crashed the party of the once cloistered world of commodities buyers. They’ve begun taking advantage – and hugely profiting – from commodity pricing mechanisms by temporarily purchasing many futures of say, wheat or rice, at very low prices, driving demand (and prices) up, guarantying the seller a profit, but wreaking havoc in the real world. Their victories have brought other investors on board. With more people now betting on staple foods, even the Commodity Trading Commission has begun to recognize its possible effect on world food prices by driving up demand and (possibly) leading to the hoarding of foodstuffs. In their defense, investors claim that they arrived at the market not to artificially drive up prices but because they saw that world food stocks were not going to meet demand, so they merely “bet” that prices would increase.

Subsidies, anyone?
Another sticky issue remains subsidies, where rich countries continue to protect their farmers through expensive and complicated financial assistance schemes while demanding poorer nations pry open their markets to rich-world manufacturers. In the U.S., the tentatively agreed new five-year farm bill – quick caveat: it is by no means complete or ratified – appears to be retaining the $5.2 billion subsidy program intact along with $1.8 billion in tax cuts at a time that U.S. farmers (or U.S. farm companies who earn most subsidies) are milking big profits from higher food prices. In defense of farmers: The amount of their new profits is debatable: labor, equipment and transportation costs have all risen along with the price of crops.

Trade, the Mauritanian example
Trading mechanisms are also fraught with issues. The Mauritanian government recently signed a fishing deal with the European Union, which agreed to reduce catches in Mauritanian waters by more than 40 percent while dropping its royalty fee 10 percent to €86 million per year for five years. In the meantime, few are asking what will happen to the the country’s fishing stocks – especially octopus and coastal shrimp – which are nearly fully exploited, the legacy of poor resource management in the 1990s when 125 boats trolled the waters for fish. The new agreement sets aside 43 licenses for international trawlers.

As local artisan fishing boats have long played David to international Goliaths, they create a tremendous amount of employment – one estimate has local fishers responsible for creating at 30,000 jobs – and provide nearly €80 million in foreign currency.

Thus, the government of Mauritania is in a wicked predicament: earn much needed cash today while gambling against tomorrow’s fish stocks. At least one environmental group claimed the best way to conserve numbers of octopus is to make them only available for the local fleet, which still employs inefficient methods, but will increase demand for the fish, create many new jobs and bring in boatloads of cash for Mauritanians. Some of the fish could be put aside to better feed the population, which is now under food emergency. Of course, all this will mean tearing up the fishing treaty with the European Union and potentially destabilizing the government’s most profitable foreign export, worth 15 percent of its GDP.

With these issues in mind, the European Union agreed to push out the boundary where its boats can fish; set aside monies to develop the Mauritanian fishing industry. One EU commissioner claimed the treaty will continue to look at fish numbers to insure European boats do not continue to over fish; strengthen monitoring of catches, and help police pirate fishing; Finally, EU ship captains will promise to increase the number of Mauritanian locals employed on their boats.

More aid = less trade?
One economist – Ghana’s George Ayittey, argues that for decades foreign donor schemes hard-headily ignored the importance of agriculture even though roughly seven out of ten Africans earn at least some of their living in this sector. If development actors dealt with farmers at all it was to push them to produce cash crops for sale on the international market, an even more questionable action because between 1972 and 2002 most commodity values fell by 70 percent. Ayittey claims that if farmers are free to grow what they want, and they are given support to upgrade transportation and food processing infrastructure, not only will farming become more profitable, but it will lead to development.

Will China be the donor who cares?

Interesting quick take on Chinese – African relations from Africa-Asia Confidential:

When China evacuated 400 construction workers from Mongomo in Equatorial Guinea in early April, it marked the culmination of a labour dispute with a difference. In several African countries, notably Zambia and Congo-Kinshasa, Chinese companies have been criticised for their treatment of local staff. In other African countries, like Sudan, Ethiopia and Nigeria, Chinese technical staff have been kidnapped by dissident groups. But in Equatorial Guinea the tension was generated by the local authorities clashing with labourers imported from China.