In his disturbing but brilliant book Late Victorian Holocausts, Mike Davis documents the famine that spread through India during the late years of the British Raj.  Although granaries in many parts of the colony were overflowing, Britain had constructed a transportation network designed primarily to extract food from the rural hinterland.  Grain was transported across the sub-continent along the British-built railway lines, to urban command and control centers such as Calcutta, Bombay, and Madras, and then on cargo ships to Britain to support the government’s policy of cheap “corn” for the imperial homeland.  Just as Irish peasants had done during the potato famine, Indian peasants starved while their food was shipped off to their colonial masters.

Two years ago I wrote an article that was published in Counterpunch about the food crisis rippling across the world, leading to “tortilla” riots in Mexico City and bread riots in many other parts of the world.  At the time, I attributed the spiraling cost of basic foodstuffs around the world to the increasing costs of petroleum connected to speculation nd to the production of biofuels.  Large commercial farmers, I argued, would rather produce fuel than food when the former receives a higher price on global commodities markets.

It seems, however, that another factor was at work in the food riots of 2006-2008.  According to a recent article by Johann Hari in the British newspaper The Independent, the spike in food prices, which saw the price of wheat rise by 80%, the price of maize by 90%, and the price of rice by 320%, had another cause.  In order to explain this hitherto unacknowledged factor, we need to take a brief detour to understand how farmers around the world tend to use the market to try to protect themselves from the inevitable risks associated with raising crops.

To protect themselves from vagaries of weather, pests, etc., farmers in wealthy countries for over a century have sold their produce to traders at the end of the harvest season for a fixed price.  If they produce a bumper crop, they’ll make less than they might have if they’d sold their crops on the open market, but if they have a tough year, they’ll make more money than they would have independently and be insulated from the inherent risks of farming.

Such forms of trading in risk once used to be tightly regulated.  Throughout the 1990s, however, powerful speculators such as Goldman Sachs lobbied hard for deregulation.  Food suddenly became a fungible investment vehicle.  It was sliced and diced in the same way as risky mortgages were in the U.S.  Contracts between farmers and traders metamorphoses into “derivatives” that could be bought and sold by investors around the globe.

When the U.S. real estate market began to tank in 2006, speculators stampeded into the global food market.  The upshot was a huge spike in the price of basic foodstuff.  As Hari notes, food crops that were not traded on the open market remained stable while the cost of those that were shot through the roof.  The result was mass starvation and food riots.