Hedge funds accused of gambling with lives of the poorest as food prices soar

• Commodity speculators push cocoa to 33-year high
• Bets 'risk the most vulnerable in the world starving'

Financial speculators have come under renewed fire from anti-poverty campaigners for their bets on food prices, blamed for raising the costs of goods such as coffee and chocolate and threatening the livelihoods of farmers in developing countries.

The World Development Movement (WDM) will issue a damning report today on the growing role of hedge funds and banks in the commodities markets in recent years, during which time cocoa prices have more than doubled, energy prices have soared and coffee has fluctuated dramatically.

The charity's demands for the British financial watchdog to follow the US in cracking down on such speculation comes against a backdrop of cocoa prices jumping to a 33-year high as it emerged that a London hedge fund had snapped up a large part of the world's stock of beans. On Friday, traders say, Armajaro took delivery of 240,100 tonnes of cocoa – the biggest from London's Liffe exchange in 14 years and equal to about 7% of annual global production, according to the Financial Times.

A 150% rise in cocoa prices over the past 18 months has forced many chocolate-makers to raise their prices and often to use less cocoa.

The WDM's Great Hunger Lottery report says "risky and secretive" financial bets on food prices have exacerbated the effect of poor harvests in recent years. It argues that volatility in food prices has made it harder for producers to plan what to grow, pushed up prices for British consumers and in poorer countries risks sparking civil unrest, like the food riots seen in Mexico and Haiti in 2008.

Deborah Doane, WDM director, said: "Investment banks, like Goldman Sachs, are making huge profits by gambling on the price of everyday foods. But this is leaving people in the UK out of pocket, and risks the poorest people in the world starving.

"Nobody benefits from this kind of reckless gambling except a few City wheeler-dealers. British consumers suffer because it pushes up inflation, because of unpredictable oil and raw material prices, and the world's poorest people suffer because basic foods become unaffordable."

The group used figures in Goldman Sachs' annual report to estimate that the bank made a profit of $1bn (£650m) through speculating on food last year. The bank, however, says the "overwhelming majority" of its activities in commodity markets are on behalf of clients and that the WDM's profit estimates are "ludicrously overstated".

The charity is urging the UK government to take the lead within the European Union in demanding more transparency and tighter controls in commodities markets. It says 800 people have pledged to call the Financial Services Authority watchdog this week to complain about speculators' growing influence on food prices and demand changes similar to those in the US.

A new financial reform law was approved in the US at the end of last week, which campaigners hope will help curb the kind of speculation that last month was blamed for a sudden 20% jump in coffee prices as hedge funds rushed to cover their positions taken in the hope that prices would fall. Banks for their part, argue that the bulk of food price rises are down to changing demands and that financial market derivatives are an important mechanism to allow farmers to hedge their risks.

Goldman Sachs dismissed the WDM report as "horribly misinformed on a number of fronts".

A bank spokesman, Michael DuVally, said: "Research by respected international bodies, like the OECD, demonstrates clearly that long-term trends, including increased meat consumption by the growing middle class in the emerging markets and the increased use of biofuels in the developed markets, have created a backdrop for global food shortages."

The investment bank also denied it was lobbying against changes to market rules. "We have repeatedly said that we support effective reform. Our lobbying effort is designed to achieve reform that will continue to allow producers to hedge their risks so that consumers get the benefit of greater price stability. To suggest otherwise is disingenuous and downright misleading," added DuVally.

The United Nations' Food and Agriculture Organisation recently cheered anti-poverty campaigners by stating that spikes in food markets "might have been amplified by speculation in organised futures markets" and that some regulation of commodities futures markets was desirable. But its report also said that any intervention should be "cautious and stop short of imposing tight limits or an outright ban on such trading".

Such a strong crackdown could hit liquidity in those markets used for hedging purposes, it warned.Instead, regulatory measures should focus on raising confidence in the "good functioning" of the market, including by increasing amount of available information on futures trading. Another would be to closely investigate any instances of suspicious behaviour by traders, as already practised by the US futures trading supervisory body, it said. But campaigners such as the Fairtrade Foundation argue that such markets do not allow smaller farmers to hedge. Rather, the price swings harm them because they are often net buyers of food yet cannot take advantage of short-term price spikes in products they are growing for sale.

Toby Quantrill, the foundation's head of public policy, said: "Fairtrade's experience is many consumers are willing to pay a little extra if they know that farmers in developing countries are benefiting, but will be less than impressed if they think they are simply helping city-boy profiteers to line their own pockets."