“Why can’t delicious, inexpensive, and healthy food be available to everyone on Earth?”
This question led journalist Frederick Kaufman on a journey from Domino’s Pizza headquarters through Walmart’s sustainability research center to university research labs nationwide, ultimately landing on Wall Street. Connecting global food and global markets, Kaufman forges a new way of thinking about food prices and food systems in his engaging, informative book Bet the Farm: How Food Stopped Being Food.
In it, Kaufman discusses how bankers monetized the world’s food supply via soft commodities (wheat, soy, corn, sugar) markets, amassing enormous wealth ($400 million for Goldman Sachs in 2012) while doing so. Thus, food became no different than mortgage securities, just another thing an investor could bet for – or against – to make money.
The thing is, food is different than every other commodity in one way. We can delay buying a new car or television for a few months, but we just can’t put off eating. Those who do, die. Annually, over 2.6 million children worldwide succumb to malnutrition. It certainly stands to reason that having a stable, predictable food supply is in our collective moral best interest. And by all accounts, the world’s farms are currently producing enough food to feed everyone. So why do we still have millions of hungry people? Kaufman explains our systemic problem like so:
The difficulty the world faced was no longer a logistical matter of shipping and handling the actual edible stuff but rather a matter once removed from food, a matter of money. Everyone could agree that when the price of your daily bread tops your daily salary, all the international food aid, sustainability numbers, and biochemical breakthroughs in the world will not make much of a difference.
But Kaufman doesn’t begin with the money; he begins by taking us through Domino’s Michigan headquarters, where he parses the process that ingredients, such as tomatoes, go through to create a Domino’s pizza. (As you know, we’re fond of the pizza-as-case-study method here at Ecocentric.) As tomatoes go from field to processing plants in California to processing plants in Kentucky and ultimately atop the Domino’s delivery pie, Kaufman reminds us that Unilever’s goal is to create the biggest price gap possible between the lowest price they have to pay for a tomato and the highest price at which they can sell the tomato sauce. That gap creates their profit margin. Yet that goal, in and of itself, is not enough to explain the explosion in food prices. By following the money, Kaufman arrives at his problem: how we value soft commodities.
Let’s hit pause for a second and talk futures markets, shall we? Kaufman does a great job telling this part of the story. Hundreds of years ago, farmers sold all of their crops at the same time of year, and super simply put, they were poor and food prices were seasonal and inherently unstable. The problem, then as now, was that everyone has to eat. Thus, everyone is always “in the market” for food. Our fancy economist pals like to say that the food market is one of low elasticity – no matter how much food (supply) farmers actually grow, our hunger (the demand) remains about the same.
But wait, you say, all of this trading is fine and good, except that the derivatives and money all represent real food. Which we all need, so perhaps should be thought of slightly differently than other kinds of derivatives.
To stabilize the market, nineteenth-century sellers began to make deals with farmers – they would set a price for wheat that while planted, had yet to be harvested and brought to market. This guaranteed future sale was usually priced slightly below that of the wheat that was physically on the market. Future wheat prices were derived from present ones. (Hence the term: derivatives). Grain futures helped stabilize and scale up the food market as trades were made by entities rather than individuals and helped birth Big Ag’s ancestor companies. So the grain futures market is built on trades of virtual grain – it doesn’t physically exist yet, remember? And as such, it behaves like any other derivative that speculators can buy and sell. Until the 1990s, commodity futures markets were strictly regulated, fairly sedate and the subject of little attention.
Cue our friends at Goldman Sachs, who took advantage of late 1990s deregulation fever and helped to reshape commodities futures into a much more volatile (therefore profitable – buy low, sell high, right?) market for investors. But wait, you say, all of this trading is fine and good, except that the derivatives and money all represent real food. Which we all need, so perhaps should be treated slightly differently than other kinds of derivatives. After all, if we didn’t, then the implications could be calamitous for those not able to keep up with the skyrocketing prices needed to make the market more profitable.
Which, Kaufman says, is just what happened in 2008 and 2010. Two massive food price spikes were partly responsible for tremendous civil unrest and political upheaval in Egypt and many other already politically destabilized countries. He argues that those high food prices couldn’t have been offset or changed one whit by donations from well-meaning hunger aid organizations or UN agencies.
Kaufman deftly maneuvers us through some of the intricacies of modern commodity markets and finance. For me, it’s a terrific example demonstrating that how one identifies The Problem inherently shapes solutions or possible interventions. To wit: if the money is the problem, then we’re not talking food quality. That doesn’t mean sustainable food as such is not important, just that this is a different approach and conversation one can have about our food systems and hunger.
While you and I may opt-out of the industrial food system as much as possible by shopping locally at the farmers’ market, the fact remains that the tremendous profits made in commodities drive up food prices at an astonishing rate. So those multinational food companies that have monopolized the food industry aren’t entirely to blame (or even mostly) for price spikes. For all their faults, the ultimate villain is actually Goldman Sachs.
I strongly recommend Bet the Farm – it’s an entertaining book about global finance that could prompt some new conversations about food and finance among audiences who, until now, haven’t necessarily been collaborating on food work. You may never look at a slice the same way again!