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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About Pete Larson

Assistant Professor of Epidemiology at the Nagasaki University Institute for Tropical Medicine

4 responses to “More on Financialization of Food Commodities”

  1. Jason Voss says :

    Is this stuff extra-curricular for you, or is it connected with UM? I am really interested in learning more about this sort of thing.

  2. Pete Larson says :

    It’s totally outside my official program, if that’s what you mean, though malnutrition is totally a public health problem. A prof of mine here (Howard Stein) at the UM got me interested in the issue. I can certainly send you some stuff on this subject, if you’re interested. Let me know.

  3. stumpwater says :

    Great video — clear and to the point. And don’t discount your own expositiry abilities — I was convinced the first time you brought this up on FB (Freewheel Burning, not that other nasty thing). I’m just wary any time someone posits a single cause for anything. I see now that you weren’t really doing that. We all need to become more skilled at incorporating data and models from outside our own fields and developing models that more accurately reflect real world systems.

    I’m also glad you brought up water. Commoditization of was already becoming a huge but hidden problem in the 80s and 90s with aquifer pumping (wherein Nestle and Big Ag “drink your milkshake”). Now that horizontal gas drilling tech has come online, we’re about to see some real havoc wreaked.

  4. Pete Larson says :

    No, I was never attempting to say that price increases are exclusively the result of speculation on food commodities. I would say, however, that it is a major cause of rapid, more-than-would-be-otherwise-expected increases and totally unexpected volatility, given the constants of the other contributing factors.

    I am interested in this water thing, as it’s something I don’t know much about,

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