NOW that the food prices are likely to stay high for at least another three years, (World Bank and White House concur on that) the West is over-reacting to the crisis situation and has started attacking the developing countries for taking measures to shield their populations against any eventualities or famine-like conditions. They are behaving “irrationally,” the Washington Post says, which can only “worsen” the food crisis.

The World Food Programme has accused Pakistan of refusing to sell wheat to it which it needs badly to help the needy states. The WFP says it had sought to buy food from countries with surpluses, such as Pakistan, to ship to desperate neighbours such as Afghanistan.

“But Pakistan drags its feet about selling.” Pakistan maintains a buffer stock of around 0.5 million tonnes. Any changing consumption pattern or increased demand would call for an increase in this buffer stock to the tune of around two million tonnes for ensuring the food security.

The Washington Post has, in a biased gesture, gone to the extent of calling the timely act of stockpiling food for future security by more than 40 countries a “nationalised hoarding.” An editorial in the newspaper on May 11 delivered a neo-liberal sermon to these countries urging them to ‘free their food’ by ending bans or curbs on the export of their staple food commodities. But the poor countries know what a havoc the free market can play with their economies at this difficult hour.

The blame game against the developing world took an amusing turn when President Bush accused India of being responsible for the food shortages and high prices across the globe. According to him, the ever-growing 300 million Indian middle class is consuming too much food, meat and poultry because it, along with its counterpart in China, has now more money to spend and is, therefore, causing shortages of grain elsewhere.

In a rebuttal, India blamed the IMF-World Bank duo for creating the crisis situation by their faulty policies. The problem is not per capita consumption in the developing countries but excessive consumption in the developed countries. It is strange, it said, during the last two years, the demand for oil rose by one per cent only but its price in dollar shot up by 90 per cent. It meant the world is actually suffering from food crisis because of the weak dollar.

Now a consensus is emerging among economic analysts about the causes of the current food crisis. New Statesman, the prestigious British magazine, in a recent report said, increases in global population and the switch to bio-fuels are important factors in the rise of food prices.

“But they are not the real reasons. It is the credit crisis.” It argues: “the reason for food shortages is speculation in commodity futures which expedited following the collapse of the financial derivatives markets. Desperate for quick returns, dealers have been taking trillions of dollars out of equities and mortgage bonds and putting them into food and raw materials. It is called the ‘commodities super-cycle’ on Wall Street, and it is likely to cause starvation on an epic scale.”

World prices for basic commodities such as cereals, cooking oil and milk have risen steadily since 2000, but have escalated dramatically since the financial crisis in the US began to bite in 2006. Since then, the average world price for rice has risen by 217 per cent, wheat by 136 per cent, corn by 125 per cent and soybeans by 107 per cent.

Under conditions of growing debt defaults arising from the US sub-prime crisis, the magazine says, speculators and hedge fund groups have increasingly switched their investments from high-risk “bundled” securities into so-called “stores of value,” which include gold and oil at one end of the spectrum and “soft commodities” such as corn, cocoa and cattle at the other.

The speculators are even placing bets on water prices. It concludes: “Just like the boom in house prices, commodity price inflation feeds on itself. The more prices rise, and big profits are made, the more others invest, hoping for big returns ... The trouble is that if you are one of the 2.8 billion people who live on less than $2 a day, you may pay for these profits with your life.”

According to Bloomberg, Wall Street’s commodity-index funds control a record 4.51 billion bushels of corn, wheat and soybeans through Chicago Board of Trade futures, equal to half the amount held in US silos on March 1. The holdings jumped 29 per cent in the past year as investors bought grain contracts seeking better returns than stocks or bonds. The buying sent crop prices to record high and boosted the cost for growers and processors to manage risk. As an American farmer put it, “It’s the best of times for somebody speculating on grain prices, but it’s not the best of times for farmers.”

So, commodity investors now control more US crops than ever before, competing with governments and consumers for dwindling food supplies. In Chicago market, the Index-fund investment in corn, soybeans and wheat has increased by 66 per cent to the equivalent of 902,105 futures contracts, a record, since January 2006. Each contract represents 5,000 bushels.

Investments in grain and livestock futures have more than doubled to about $65 billion from $25 billion in November. The purchase of crop futures alone is about half the combined value of the corn, soybeans and wheat grown in the US, which happens to be the world’s largest exporter of all three commodities.

Crops and raw materials have “become an asset class that institutions use to an increasing extent,” billionaire George Soros said on April 17. “On top of that, you have specific factors that create the relative shortage of oil and, now, also food.” 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. The commission is trying to determine if supply and demand factors justify current prices, and if not, what other factors may be in play.

Meanwhile, India, which suspended trading in futures of rice, wheat and two pulses a year ago, plans to bring under suspension more commodities as many believe that commodities’ futures trading is contributing to a speculation-driven rise in prices. Communist allies of the ruling Congress coalition want a ban on futures trading in cooking oil, sugar and other commodities, saying speculators are driving up prices and fanning inflation. But trade and industry have not taken kindly to the restrictions imposed by the government.

However, wheat prices at Chicago market are likely to rise on speculation that importers will increase purchases of US supplies that are 42 per cent cheaper than the record high reached in February. Importers including India and Pakistan will buy grain when prices are low this year to avoid shortages. Wheat for July delivery rose 3.25 cents, or 0.4 per cent, to $7.8125 a bushel on May 22. Still, wheat has dropped 12 per cent this year as farmers worldwide seeded more of the grain to capitalise on higher prices.