Food speculation refers to the buying and selling of futures contracts by traders with the aim of profiting from changes in food prices. Food speculation can be both positive and negative for food producers and buyers. is betting on
food price
Food prices refer to the average price level for food across countries, regions and on a global scale. Food prices have an impact on producers and consumers of food.
Price levels depend on the food production process, including food marketing and ...
s (
unregulated)
financial market
A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets ...
s. Food
speculation
In finance, speculation is the purchase of an asset (a commodity, good (economics), goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline i ...
by global players like
bank
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
s,
hedge fund
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
s or
pension fund
A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides retirement income.
Pension funds typically have large amounts of money to invest and are the major investors in listed and priva ...
s is alleged to cause price swings in
staple food
A staple food, food staple, or simply a staple, is a food that is eaten often and in such quantities that it constitutes a dominant portion of a standard diet for a given person or group of people, supplying a large fraction of energy needs and ...
s such as
wheat
Wheat is a grass widely cultivated for its seed, a cereal grain that is a worldwide staple food. The many species of wheat together make up the genus ''Triticum'' ; the most widely grown is common wheat (''T. aestivum''). The archaeologi ...
,
maize
Maize ( ; ''Zea mays'' subsp. ''mays'', from es, maíz after tnq, mahiz), also known as corn (North American and Australian English), is a cereal grain first domesticated by indigenous peoples in southern Mexico about 10,000 years ago. Th ...
and
soy – even though too large price swings in an idealized economy are theoretically ruled out:
Adam Smith
Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
in 1776 reasoned that the only way to make money from commodities trading is by buying low and selling high, which has the effect of smoothing out price swings and mitigating shortages. For the actors, the apparently random swings are predictable, which means potential huge
profits. For the global poor, food speculation and resulting price peaks may result in increased
poverty
Poverty is the state of having few material possessions or little income. Poverty can have diverse social, economic, and political causes and effects. When evaluating poverty in ...
or even
famine
A famine is a widespread scarcity of food, caused by several factors including war, natural disasters, crop failure, Demographic trap, population imbalance, widespread poverty, an Financial crisis, economic catastrophe or government policies. Th ...
.
In contrast to food
hoarding, speculation does not mean that real food shortages or
scarcity need to be evoked, the price changes are only due to
trading
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct exchan ...
activity.
Food speculation may be a reason for
agflation Agflation (or agrarian inflation) is an economic phenomenon of an advanced increase in the price for food and for industrial agricultural crops when compared with the general rise in prices or with the rise in prices in the non-agricultural sector. ...
.
The
2007–08 world food price crisis is thought to have been be partially caused by speculation.
Overview
Institutions such as
hedge funds
A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as shor ...
,
pension funds and
investment banks
Investment banking pertains to certain activities of a financial services company or a corporate division that consist in advisory-based financial transactions on behalf of individuals, corporations, and governments. Traditionally associated with ...
like
Barclays Capital,
Goldman Sachs
Goldman Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, H ...
and
Morgan Stanley
Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the fir ...
have been instrumental in pushing up prices in the last five years, with investment in food
commodities
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a comm ...
rising from $65bn to $126bn (£41bn to £79bn) between 2007 and 2012, contributing to 30-year highs. This has caused price fluctuations which are not strongly related to the actual supply of food, according to the United Nations.
Financial institutions now make up 61% of all investment in
wheat
Wheat is a grass widely cultivated for its seed, a cereal grain that is a worldwide staple food. The many species of wheat together make up the genus ''Triticum'' ; the most widely grown is common wheat (''T. aestivum''). The archaeologi ...
futures. According to
Olivier De Schutter, the UN special rapporteur on food, there was a rush by institutions to enter the food market following
George W. Bush
George Walker Bush (born July 6, 1946) is an American politician who served as the 43rd president of the United States from 2001 to 2009. A member of the Republican Party, Bush family, and son of the 41st president George H. W. Bush, he ...
's
Commodities Futures Modernization Act of 2000.
De Schutter told the Independent in March 2012: "What we are seeing now is that these financial markets have developed massively with the arrival of these new financial investors, who are purely interested in the short-term monetary gain and are not really interested in the physical thing – they never actually buy the ton of wheat or
maize
Maize ( ; ''Zea mays'' subsp. ''mays'', from es, maíz after tnq, mahiz), also known as corn (North American and Australian English), is a cereal grain first domesticated by indigenous peoples in southern Mexico about 10,000 years ago. Th ...
; they only buy a promise to buy or to sell. The result of this financialization of the commodities market is that the prices of the products respond increasingly to a purely speculative logic. This explains why in very short periods of time we see prices spiking or
bubbles
Bubble, Bubbles or The Bubble may refer to:
Common uses
* Bubble (physics), a globule of one substance in another, usually gas in a liquid
** Soap bubble
* Economic bubble, a situation where asset prices are much higher than underlying fundame ...
exploding because prices are less and less determined by the real match between supply and demand."
In 2011, 450 economists from around the world called on the
G20
The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigation, ...
to regulate the commodities market more.
Some experts have said that speculation has merely aggravated other factors, such as
climate change
In common usage, climate change describes global warming—the ongoing increase in global average temperature—and its effects on Earth's climate system. Climate change in a broader sense also includes previous long-term changes to E ...
, competition with
bio-fuels
Biofuel is a fuel that is produced over a short time span from biomass, rather than by the very slow natural processes involved in the formation of fossil fuels, such as oil. According to the United States Energy Information Administration ...
and overall rising demand.
However, some such as
Jayati Ghosh
Jayati Ghosh (born 16 September 1955) is an Indian development economics, development economist. She is the Chairperson of the Centre for Economic Studies and Planning at the Jawaharlal Nehru University, New Delhi and her core areas of study inc ...
, professor of economics at
Jawaharlal Nehru University
Jawaharlal Nehru University (JNU) is a public major research university located in New Delhi, India. It was established in 1969 and named after Jawaharlal Nehru, India's first Prime Minister. The university is known for leading faculties and r ...
in
New Delhi
New Delhi (, , ''Naī Dillī'') is the capital of India and a part of the National Capital Territory of Delhi (NCT). New Delhi is the seat of all three branches of the government of India, hosting the Rashtrapati Bhavan, Parliament House ...
, have pointed out that prices have increased irrespective of supply and demand issues: Ghosh points to world wheat prices, which doubled in the period from June to December 2010, despite there being no fall in global supply.
See also
*
Agflation Agflation (or agrarian inflation) is an economic phenomenon of an advanced increase in the price for food and for industrial agricultural crops when compared with the general rise in prices or with the rise in prices in the non-agricultural sector. ...
*
Food sovereignty
Food sovereignty is a food system in which the people who produce, distribute, and consume food also control the mechanisms and policies of food production and distribution. This stands in contrast to the present corporate food regime, in which ...
*
Geography of food
The geography of food is a field of human geography. It focuses on patterns of food production and consumption on the local to global scale. Tracing these complex patterns helps geographers understand the unequal relationships between developed an ...
*
Right to food
The right to food, and its variations, is a human right protecting the right of people to feed themselves in dignity, implying that sufficient food is available, that people have the means to access it, and that it adequately meets the individual ...
References
External links
*
Food politics
Financial markets
Commodity booms
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