On 2011-02-09, at 9:41 AM, Doug Henwood wrote:
>
> On Feb 9, 2011, at 9:13 AM, Wojtek S wrote:
>
>> I am not an expert in this area, but your explanation blaming the
>> speculators does not sound very convincing. How on earth can a narrow group
>> of people manipulate the prices of products whose production and
>> distribution is so decentralized. Food is not oil or credit, for chrissake.
>
> There are real issues around food - on the supply side, climate change, and on the demand, increasing affluence in Asia - but as with a lot of things, the fundamentals have been magnified by speculation. In the case of commodities, a lot of hedge funds and such have poured tons of money into basic commodities - and some of these markets, unlike oil, are pretty thin. In more normal trading, there'd be speculative interests on both sides, but in this case, as in the 2006-7 runup, all the money was betting on higher prices.
We've had this discussion before - in connection with the run up in oil prices in 2008. Speculation by big institutional investors has clearly magnified the effect on commodity prices resulting from demand, especially Chinese demand, and a falling USD, although by how much has been a matter of debate among researchers. But not many share Woj's incredulity that a "narrow group of people (can) manipulate the prices of products" - both today and historically.
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The men who ate the world: why foodstuffs have shot up in price Simon English London Evening Standard 9 Feb 2011
[…]
Last month even Paul Polman, the chief executive of Unilever, warned that the situation is getting out of hand. "One of the main things in food inflation is that it has attracted speculators for short-term profit…", he said.
[…]
In the Nineties, the giant investment banks such as Goldman Sachs successfully lobbied to get commodity markets freed up. Now anyone - people with no link to or even interest in farming - could take a bet on what would happen to the price of orange juice or pork bellies or wheat.
For a while, not much changed. Then around 2006, as the first signs emerged that the Western housing market was heading for trouble and the cleverest investors started looking for some-where else to put their money, food funds suddenly saw massive inflows of cash.
They expanded to such an extent that in many cases the financial markets are now bigger than the real markets. So there's more money being bet on the price of cocoa than the actual value of all the cocoa. About 80 per cent of the trading in certain foods is now speculative rather than agricultural. The bankers would say the markets they create put risk in the hands of those who are most able to bear it and in the long term they result in food being cheaper than it would otherwise be.
In the short term, however, it seems clear that speculation - some say it is downright manipulation - is the cause of pain and possibly death.
In 2006, the price of rice more than trebled. There were riots in many countries and an estimated 200 million people went hungry. Jean Ziegler, the UN Special Rapporteur on the Right to Food, called it "a silent mass-murder", entirely due to "man-made actions".
The commodities markets are so opaque that it's difficult to say for sure if he's right. What we do know is that in 2008, almost as if someone had pressed a magic button, rice prices went back to normal.
[…]