Archive | March 14, 2013

More on Financialization of Food Commodities

I’ve written at length on the issue of the issue of financialization of food and price volatilities. Yet, when I bark about the subject, few around me seem convinced (and that’s ok, I’m never very convincing).

I found a cool video that sort of lays the issue out and explains the mechanics behind the world food trade system, and why the increased role of speculators is wreaking havoc on the world’s food prices. The common narrative is that issues of supply (droughts) and demand (bio-fuels, China) are the culprits.

Intuition might confirm this, and it is logical to assume that pressures on a limited supply of goods would lead to increases in price, but intuition is only as good as the amount of information possessed. The trouble with narratives that involved financial markets is that some knowledge of finance is required. Finance usually bores people to tears. Videos like this are a great step.

Supply and demand factors can explain gradual increases but can’t explain volatility in food prices. Rich people like us have no problem absorbing even a 200% increase in food prices. People living on a dollar a day have to make some pretty dire choices, and children end up malnourished.

The video gets a few things wrong. Namely, it states that speculators began seeking new investment areas and sources of growth after the bursting of the property bubble in the late 00’s. This is untrue. Speculators began trading in food commodities after a relaxing of rules during Clinton and the bursting of the tech equity bubble of 2000.

To me, this and the commoditization of water is the most important issue of our time and will have grave implications for the world’s future security.

Anyway, check out the video:

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