Yesterday was World Food Day, and NPR has a good piece about the role of speculation in food prices:
The economists argue that increased trading is a significant part of the reason grocery prices are higher this year.
And grocery prices are indeed up this year. For example, in August, the average price of bread in U.S. cities was up 17.4 percent over last year, while milk was up 12.4 percent, according to the latest report from the Bureau of Labor Statistics.
Brandon Kliethermes, an agriculture economist with the forecasting firm IHS Global Insight, agrees that speculators do increase volatility — exaggerating price moves up and down.
“These markets have been bouncing around quite a bit for the past year now,” Kliethermes said.
But not everyone agrees price speculation is the root of the problem. Economists have yet to find clear evidence that financial speculation can change food prices over time. Searching data for any meaningful price manipulation is very hard to quantify, Kliethermes said.
i think there’s definitely a case to be made for restricting food speculation, but I also think that trying to separate out market speculation from the role of energy prices or fundamentals in a tight market is somwhat hopeless – the reality is that investors will probably always be attracted to things people still need to buy in tight economies – oil and food are essential, and when other parts of the economy are unstable, good old food and energy are going to be draw.
My own proposal here would be not to outlaw commodity speculate, but simply to mandate that all buyers take delivery of what they purchase on commodity markets, and to determine that food commodity sales cannot take place until the previous purchaser physically holds the goods. My guess is that in many cases the problem would be obviated simply by requiring that speculators actually take delivery of, say, 100,000 tons of soybeans.