Food Crises and Financial Speculation

Food Riots in Mozambique

Food Riots in Mozambique

There’s been much ado in the press recently about the emerging global food crisis. As global food commodity prices have increased over the past several months, governments have taken steps to address the price increasing, fueling greater response. The decision of the Russian government to limit wheat exports and the food riots in Mozambique garnered the greatest attention, leading the Financial Times last week to lead its online edition with an article entitled “Fears grow over global food supply.” 

Several of my favorite bloggers, including Chris BlattmanDuncan Green,  the Global Dashboard, and Raj Patel, have already chimed in on the topic. Perhaps the most interesting discussion was between Chris Blattman and Duncan Green, who offer competing perspectives on the two most important questions, namely: 1) Is there a food crisis today? and (2) What caused it?
 
 According to Blattman,

Globalization and growth should reduce price spikes in future. More countries are producing crops. Climate shocks in Argentina are not that tied to climate shocks in Russia or China, and so price volatility from supply shocks should be going down. Falling transport costs also mean that more substitutes are available, further reducing price volatility. So things should be getting better over time, not worse, especially if trade allows countries to diversify their diet. Envision a future of diminishing instability…

Are bread prices the proximate cause of the riots? Probably. Are they the root cause? Unlikely. Are global grain markets to blame? Unclear. How about bad domestic policy? Almost certainly. How about shallow and alarmist journalism about those poor, violent, unwashed nations? There are some things you can bet your life on.

Green counters, “This reminds me of the apocryphal French diplomat arguing in a Brussels punch-up ‘I can see it works in practice, but does it work in theory?’ Here’s the practice – you can clearly see food prices pretty smooth up til 2007, then going haywire.” Green offers the FAO Food Price Indices to support his position (see below).  

FAO Food Price Indices (2002-2004=100)

FAO Food Price Indices

But the real take away is that instability in global food prices is increasing. There’s also good reason to believe that speculative investment rather than real changes in demand is fueling the instability. Indeed, the dramatic price increases seen during the 2007 food crisis had very little to do with declining supply or increasing real demand.  Here, I think Blattman is fundamentally mistaken, price volatility will continue to increase not fall over time. Not a rosy picture.

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One response to “Food Crises and Financial Speculation

  1. Pingback: El planeta produce el doble de alimentos que los 7,000 millones de personas necesitamos « malcolmallison

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