Speculation a Major Contributor to Global Food Crisis, New Report (PDF; 155 KB)
Source: Institute for Agriculture and Trade Policy

Excessive speculation in agriculture commodity markets has played a major role in the rapid rise and fall in global food prices, contributing to a massive increase in undernourished people and commodity market instability, concludes a new report by the Institute for Agriculture and Trade Policy.
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The IATP report, “Commodities Market Speculation: the Risk to Food Security and Agriculture,” concludes that U.S. government deregulatory steps opened the door for large financial services speculators to make huge “bets” that destabilized the structure of agriculture commodity markets. According to the United Nations, global food prices rose an estimated 85 percent between April 2007 and April 2008. Prices rose for wheat (60 percent), corn (30 percent) and soybeans (40 percent) beyond what could be explained by supply, demand and other fundamental factors, the report found.

Commercial speculation in agriculture has traditionally been used by traders and processors to protect against short-term price volatility, acting as a sort of price insurance while helping to set a benchmark price in the cash market. But the elimination of speculative position limits for financial speculators and the rise of commodity index funds undermined traditional price risk management. These funds create a constant upward pressure on commodity prices, alleviated abruptly only when fund contracts are “rolled over” to take profits.

+ Full Report (PDF; 390 KB)

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