food crisis » TripleCrisis

Commodity Speculation: Krugman leaves questions unanswered

The debate on commodity speculation continues, generating lots of heat but not as much light as I was looking for in my last post. Paul Krugman has responded to those of us bewildered by his position, basically reiterating that because these are physical commodities speculation can only happen if there is evidence of inventory accumulation by, essentially, hoarders. He sees no evidence of that now, except maybe for cotton and copper but not for food commodities. Instead he points to real weather issues that have reduced supplies. Yves Smith, at Naked Capitalism, called his analysis flawed, but took issue not with dismissing financial speculation but rather by pointing to the many flaws in the available data on inventories.

Okay, sure, weather and imperfect information, but please: Are you two really saying that the influx of non-commercial speculative capital into futures markets has no impact on real prices, on the functioning of these markets? If it doesn’t, why bother re-regulating the commodity derivatives market, as Dodd-Frank mandated and the CFTC has proposed?

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High food prices cause for concern

Triple Crisis blogger Martin Khor published the following opinion article in The Star on the causes and implications of recent spikes in global food prices. Read more about this issue in recent posts from Triple Crisis bloggers Jayati Ghosh and Timothy Wise.

High food prices cause for concern

Food prices across the world have soared to their highest ever level, even exceeding the previous peak levels in mid-2008 before the recession caused by the global financial crisis dampened the prices.

The food price inflation is causing concern in many countries, as access to food is important for social stability.

The last time prices shot up to such high levels, in 2008, there were riots in many countries.

The soaring prices also contributed to the discontent that led to the current protests in Egypt and elsewhere in the Middle East, according to the World Food Programme.

“In many of the protests, demonstrators have brandished loaves of bread or displayed banners expressing anger about the rising cost of food staples such as lentils,” said its executive director Josette Sheeran.

Read the full article at The Star.

Food Price Volatility: Market fundamentals and commodity speculation

Timothy A. Wise

As Jayati Ghosh explained in her recent post on the “Frenzy in Food Markets,” high food prices are back and market fundamentals do not adequately explain the price rise. Still, a wide range of analysts and commentators, from Paul Krugman to the International Food Policy Research Institute, dismiss the argument that a significant part of the 2006-8 food price surge was due to speculation. They are more dismissive now, two years further removed from the bursting bubbles of the housing and financial crises.

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Frenzy in Food Markets

Jayati Ghosh

So now we are back in another phase of sharply rising global food prices, which is wreaking further devastation on populations in developing countries that have already been ravaged for several years of rising prices and falling employment chances. The food price index of the FAO in December 2010 surpassed its previous peak of June 2008, the month that is still thought of as the extreme peak of the world food crisis.

Some of the biggest increases have come in the prices of sugar and edible oils. The US import price of sugar doubled over the second half of 2010. Traded prices of edible oils like soya bean oil and palm oil increased by an average of 50 per cent over the same period. But even staple prices have shown sharp increases, with the biggest increase in wheat prices, which went up by 95 per cent between June and December 2010. Rice prices have been relatively stable in global trade over the past year in comparison, but in fact the FAO reports that domestic rice prices in major rice producing and consuming countries, especially in Asia, continued to increase and are now at their highest ever levels.

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Averting the Next Food Crisis: What role for food reserves?

Sophia Murphy, Guest Blogger

The 36^th meeting of the FAO’s Committee on Food Security (CFS) concluded in archetypal UN fashion: one and a half hours of apparently aimless milling about followed by a call to order, a ten minute exchange during which it becomes clear that the milling about was actually about last – very last – minute negotiations, and, finally, adoption of the report by acclamation. So ended the first meeting of a revamped piece of the UN system — a small but fascinating piece.

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Food Security and India: The unwelcome surprise

The National Advisory Council of India recently proposed a Food Security Bill. In an article published by Frontline, Triple Crisis blogger Jayati Ghosh examines the proposed Bill and argues that in pushing for a greatly truncated public distribution system (PDS), the Bill undermines the PDS itself.

“It seems that the obsessive desire to keep the price of subsidised foodgrain at the level that was promised – even if only for some chosen sections and at the cost of large-scale exclusion and possible diversion – has dominated over the goal of ensuring a viable and vibrant system of public procurement and distribution.”

“If any system of food procurement and distribution has to cope with varying situations, it has to allow for the possibility of some people moving in and out of the system, choosing to use the ration shops when market prices are high and opting out when market prices are low. Only when the food security of the entire population is secured in a coherent manner can we be sure that we are securing the food security of its most deprived sections.”

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Fighting Corporate Concentration in Agriculture

Timothy A. Wise

Today, the U.S. Departments of Justice and Agriculture convene their fourth public hearing on corporate concentration in U.S. agricultural markets, a process I described previously on this blog. Farmers and ranchers are expected to crowd Fort Collins, Colorado to air their long-standing grievances about the disproportionate power of multinational meat packers. To contribute to this unprecedented public policy process, research assistant Sarah E. Trist and I surveyed the evidence of buyer power in U.S. hog markets, which have undergone rapid structural transformation in the last 25 years.

We found that among the limited studies of the issue, several that had been widely interpreted to suggest that buyer power was not a problem in fact presented evidence of just the opposite. Two related points were particularly striking. First is the pattern of approving mergers on the basis of “efficiency gains” that offset market power losses to consumers, when some of those apparent gains can actually come from packers using their buyer power to force down producer prices. The second is the way that buyer power in food retail can intensify the exercise of buyer power by packers, with farmers at the bottom of the food chain losing out from this “compounded” market power.

You can read the executive summary and download our paper, “Buyer Power in U.S. Hog Markets,” or read our public comments to DOJ/USDA, which include the paper.

Speculation and the New Commodity Price Crisis: Separating the wheat from the chaff

Steve Suppan, Guest Blogger

Wheat prices had been climbing prior to the August 5 announcement of a Russian wheat export ban. Kansas Board of Trade wheat futures contracts had gone from $4.92 a bushel on June 10 to spike at $7.95 a bushel on August 5, prompting a reporter to ask, “How could a Russian drought in the age of instant information escape the world’s notice until the country’s wheat crop was devastated?” This excellent question does not yet have a clear answer.

The wheat price crisis has led the press and even policymakers to focus almost exclusively on the traditional supply-demand fundamentals that ostensibly set prices. It’s as if the press were relieved to point to that old standby, weather, as the culprit for a 50 percent increase in wheat futures prices in a few weeks. For a change from the last three years, excessive speculation in commodities by financial institutions would not be accused of driving price volatility. Furthermore, according to the U.S. Department of Agriculture, unlike 2007-2008, global grain stocks were high enough to supply countries that could afford them. Maybe the specter of speculators increasing hunger might be eluded.

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Thailand and Elsewhere

Guest bloggers, Chris Baker and Pasuk Phongpaichit

The recent turmoil in Bangkok has hogged the headlines across Asia. But Bangkok is not the only city in turmoil. A few weeks ago, demonstrators in Athens fought an hours-long battle with police ending with three dead and scores injured. In neighbouring Turkey, police with batons had clashed with protesters hurling bricks and fire bombs. Just across the Mediterranean, the dispossessed of Cairo decided to occupy the city centre, sleeping on the streets. Further afield, the Maoists staged a massive protest in Kathmandu, and in the capital of Kyrgyzstan, an urban mob attacked the residence of the president, tore up the plants in his garden, and drove him from power.

Bangkok’s red-shirt protesters are demanding a general election, return of their hero, former premier Thaksin Shinawatra, and an end to the “double standards” resulting from the concentration of wealth and power. It is easy to see all these struggles as unique. The Greek riots are an offshoot of the country’s financial collapse. The Kathmandu demo is just one more stage in the country’s transition from monarchy. The Kyrgystani president had been elected to power on a surge of popularity, and had then turned out to be spectacularly corrupt. And so on. But what is really striking about all these incidents are the similarities. Big urban mobs. Fierce defiance. Security forces overstretched. States rattled. Middle class urbanites wringing their hands.

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Stop Gambling on Hunger

Jayati Ghosh

The US Senate is currently debating an important financial reform bill that has the potential to rein in excessive speculation in commodities. That speculation drives up the price of food all around the world, and helped contribute to the food crisis in 2008. Some Wall Street lobbyists are working to weaken the bill, but its important for global food security that they aren’t successful. To learn more visit StopGamblingonHunger.com and watch my videos on the subject: