WASHINGTON, April 28: The greed of big players largely shares the blame for the recent price-hike which is pushing food beyond most people’s reach.

A US government commission is investigating claims that big investors who buy large quantities for future trading are largely responsible for the current unprecedented hike in food prices across the world.

“These are extraordinary times in the agricultural commodity markets,” says Walt Lukken, acting chairman of the US Commodity Futures Trading Commission. “We must ask probing questions regarding the causes of these unprecedented market conditions.”

The commission is trying to determine if supply and demand factors justify current prices, and if not, what other factors may be in play.

The commission is also studying the impact of financial players, such as speculators and index traders, on the functioning of the food markets. Market experts point out that wheat prices have almost doubled since last year but the increase is not proportionate to the rise in fuel prices and other similar factors that push the prices up.

Data released by the US Wheat Associates, which in turn sourced most of it to the US Department of Agriculture, contradicts some of the myths about the current unprecedented hike in food prices.

The first myth is that since the price of oil has doubled in a year, it also caused a similar hike in food prices.

The data shows that the price of oil doubled from April 2004 ($30) to April 2006 ($61). The wheat price, however, rose from $169 to $183, by 8.3 per cent. However, when oil prices doubled this year from what it was in 2007, corresponding increase was: $227 (2007) to $400 (2008), by 76 per cent. Furthermore, a sampling of freight rates from the US west coast to South Asia increased from $56 to $69, about 23 per cent. Corresponding increase from 2004 to 2006 was $33 to $34.

Freight rates only become a factor when export is involved. In surplus markets such as in the US, ground transportation is a factor, and has registered only 15-20 per cent increase.

The other myth is that Global demand has surged due to expanding economies, especially China and India.

According to US Department of Agriculture, the global demand for wheat has actually fallen from 621 million metric tons in the 2006-07 to 619 million metric tons in 2007-08. The other myth is that a decrease in global production led to shortage and caused the prices to go up. But the data shows that the global production of wheat has increased by 2.3 per cent. Although modest, the trend is positive and is points to increasing and not declining production.

Yet another myth is that wheat reserves are at a historic low.

There is some truth to this, but again the association is not direct. The imbalance between consumption and production is bridged by using reserves. It is true that these reserves have fallen. The drop from 2007 to 2008 was from 121 million metric tons to 112 million metric tons, about 7.4 per cent. More dramatic drops occurred in 2003-04, when reserves fell from 168 million metric tons to 132 million metric tons, by 22 per cent. Another dramatic fall was from 2006-07, from 148 million metric tons to 121 million metric tons, about 18.2 percent.

Based on such data, some markets experts blame commodity speculation or futures contracts for the hike. Although it developed as a mechanism to protect farmers from market fluctuations, commodity speculation is now in the hands of big investors. They are buying futures at unprecedented levels and driving up short-term prices.

Since last August, this mechanism has led to a doubling in the price of rice — including the 500,000 tons that the Philippine government plans to buy in early May to address its own shortage.

Greg Warner, a Chicago-based analyst, recently told Germany’s Der Spiegel magazine that what’s happening now in the wheat market is unprecedented.

“What we normally have is a predictable group of sellers and buyers — mainly farmers and silo operators,” he says. But the landscape has changed since the influx of large index funds. Fund managers seek to maximize their profits using futures contracts, and prices, says Mr Warner, “keep climbing up and up.”

He’s calculated that financial investors now hold the rights to two complete annual harvests of a type of grain traded in Chicago called “soft red winter wheat.”

Mr Warner is stunned by such developments. He sees them as evidence that capitalism is literally consuming itself.

“The enormous influx of capital has resulted in the futures markets no longer reflecting supply and demand,” says Todd Kemp of the US National Grain and Feed Association.

A commodities dealer named Christoph Eibl told Der Spiegel that financial managers just want to “benefit from the scarcity of these commodities.” Mr Eibl’s Stuttgart-based investment firm, Tiberius, manages $1.6 billion. His in-house experts estimate that hundreds of billions of dollars have flowed into the futures sector as a whole within the last five years, much of it for agricultural commodities. Mr Eibl admits the whole thing demands an “ethical discussion.”

He argues that buying futures in rice, for example, “eventually causes consumer prices to rise in developing countries like Haiti.”