Tuesday, February 19, 2013

Food price volatility and financial speculation

Global price of many foods shot to historic highs in 2008. Following a sharp fall thereafter, prices began to rise in 2009, spiking again in 2010. After another decline, prices have again risen sharply in 2012. Price volatility has been unusually high. Many have pointed to major changes in supply and demand conditions as the primary cause. Others identify financial speculators as the culprits. Establishing cause and effect has proven to be impossible. Opinion has become polarised and oppositional.
What is not in dispute is the huge increase in financial investments of various forms in futures markets, including food. Some point to the correlation between these flows and price movements, arguing that some financial speculators (i.e. index funds) increase net demand and therefore prices, while others (i.e. hedge funds) increase volatility. While the correlations are not disputed, the direction of causality is: opponents counter that rising prices have attracted investors, and that food markets have always been characterised by price volatility, and that hedge funds are attracted to volatile markets

This article is available at: http://www.future-agricultures.org/publications/research-and-analysis/working-papers/doc_download/16...

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