Hungry for profits

The Secret Financial Life of Food: From commodities markets to supermarkets

By Kara Newman

Published by Columbia University Press, 2012, £18.95

Reviewed by Iain Dalton

DESPITE THE subtitle, this book concentrates mainly on the history of trading and futures markets in foodstuffs. Along the way there are some sideways looks at the economic forces which lead to increased trade and utilisation of certain foodstuffs over others. It does not really explain the route food takes from trading to supermarket shelf. Nonetheless, with a wave of speculation on the back of last year’s droughts, especially in the US, the publication of this book is timely. The current scandals sweeping Europe about horsemeat being traded as beef further emphasise the importance of this subject.

Kara Newman details how financial markets in foodstuffs grew out of physical markets. When Chicago became a convergence point for the sale of cattle it originally had nine stockyards on different railway lines into the city. For practical reasons, these became centralised – moving animals between the stockyards in search of purchasers meant driving them through already crowded streets – with traders needing to be able to guarantee a supply of cattle for their slaughterhouses.

Futures market traders were among the gamblers whose speculation led to the current economic crisis. What Newman shows, however, is how such trading has also had practical purposes. Futures markets allow producers and purchasers to ‘hedge’ their products, setting a specific price now for a contracted delivery of goods in the future. This allows the possibility of offsetting the risk that prices dramatically change in the period between fixing the price and purchase.

For futures trading in general you require a commodity of a specific quality which can be produced in bulk at a specific time. With regards to food, this only came about as larger purchasers and suppliers began to emerge, along with the development of improved storage and transportation techniques. Some foodstuffs, such as spices, lend themselves to this more easily and were traded back in the 1600s. Beef, on the other hand, required refrigeration to make this viable.

As the markets got bigger, professional speculative traders appeared and Newman chronicles their story, too. Indeed, you sense her excitement at recounting stories of speculators cornering the market. These tales expose how devastatingly self-destructive the market can be as wealth accumulates in the hands of a few who attempt to manipulate prices.

On some occasions, the food industry has been affected so badly that the government had to step in to suspend or ban futures trading. In 1955, for example, two traders cornered the onion futures market accounting for 20% of the Chicago Mercantile Exchange’s trade. Onions were hoarded then sold en masse, forcing the price to drop so low that the 50-pound bags they were held in were worth more than the onions.

Newman is equally revealing when discussing the socio-economic forces which have led to certain foodstuffs becoming more prevalent. US cultivation of soybean, the second most traded crop after corn, grew massively after cotton crops were ravaged by a boll weevil epidemic in the early 20th century. Cottonseed oil was used widely in the paint industry and cottonseed cake was used widely as an animal feed. Both were replaced by soybean products which turned out to have much higher yields if farmed intensively.

A by-product of this was the need to find further uses for soybeans, to sustain the increased production: as a meat substitute, for glue, chicken feed and much more. In the 1940s, Ford built a car with exterior panelling made from soy. This is similar to how the increased cultivation of corn led to the development of high fructose corn syrup as an alternative to sugar.

The weak point of the book is its limited analysis of the present day. Despite mentioning the decision of the Commodities Futures Trading Commission to impose a cap on the volume of futures contracts that can be traded, Newman has very little to say about this. Likewise, Newman puts rising food prices down to increased demand from the neo-colonial world without pointing out the chasm between the food needs of many around the world and what they can actually afford. This book has a lot to offer, but for the answers to such pressing problems you have to look elsewhere.