Farmers worldwide pre-settle food prices with buyers to avoid the risk of being saddled with their harvest with no one to sell it to.
This should remain the case, according to the JUSO (Young Swiss Socialists) party.
However, with their initiative: ‘Ban on Food Speculation’, the party aims to ban institutional investors from trading in financial products (derivatives) connected to the value of staple foods, such as rice, soya beans and maize.
JUSO argues that derivatives trading on food products increases volatility in commodity markets, which pushes up food prices and leads to hunger in developing countries.
Dr Christophe Golay, a research fellow at the Geneva Academy of International Humanitarian Law and Human Rights, said: “Speculation is not the first cause of a food crisis, but investors amplify the problem. We saw that in the food crisis of 2007-2008 as soon as there was a change in food prices investors – or their computers – used this as a chance to make money in the short-term. This increased volatility had a direct impact on the ground, leading to more food insecurity.”
Dr Golay went on to say: “In April 2008, the World Bank estimated that speculation accounted for nearly 30% of the spike in food commodity prices from March 2007 to March 2008.”
After the financial crisis of 2007, banks and pension funds increased their appetite for coffee, sugar and other soft commodities, as they searched for new investment products.
Trading companies headquartered in Switzerland and those opposed to the initiative including the Swiss government, say that if implemented, the initiative would harm the Swiss economy, forcing trading companies to move elsewhere.
In an interview on RTS info Mr Stéphane Graber, secretary general of the Swiss Trading and Shipping Association, said: “Speculation is not the cause of famine. Reasons for famine are war, political crisis and supply problems in developing countries, as well as import restrictions.”
Mr Graber continued: “Derivatives provide protection against price fluctuations. Investors bring liquidity to the market, which is necessary to bring together supply and demand and to stabilize prices. It is therefore extremely important for participants in the food chain to have partners to insure the risk against food price fluctuations.”
Those in favour of the initiative are convinced that financial players increase market volatility, whereas those against it state the opposite, i.e., that traders help stabilize the market.
The referendum vote is on Sunday 28 February 2016.
By Jade Cano
Jade is a freelance journalist and lives in Geneva. Originally from Colombia, she has lived in the UK and Germany.