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This book provides fresh insights into concepts, methods and new research findings on the causes of excessive food price volatility. It also discusses the implications for food security and policy responses to mitigate excessive volatility. The approaches applied by the contributors range from on-the-ground surveys, to panel econometrics and innovative high-frequency time series analysis as well as computational economics methods. It offers policy analysts and decision-makers guidance on dealing with extreme volatility.
This thesis employs monthly data over 1995-2012 which identify measures of speculation in the corn futures market to test whether speculative activity and excessive speculation, as measured by Working's T index, cause spot price changes. Additionally, data over 2006-2011 analyse whether speculators like hedge funds and swap dealers have a negative impact. Little evidence is found that speculators destabilize the corn spot market. The empirical analysis employs Granger causality tests and Impulse response functions. The results suggest that only excessive speculation has very small effect, which reduces the changes in corn spot prices, and the close investigation into the role of different futures traders is consistent with the traditional theory, according to which speculators provide liquidity to the market rather than destabilize it. It is further argued that the diversion of corn for the production of biofuels significantly contributes to the increasing price changes in the corn market in the long term. A case study is developed to study the import-export corn relationship between Mexico and the United States. It is found that it is not financialization but rather increasing demand for biofuels that causes increasing prices and brings food insecurity in import-depending developing countries such as Mexico.
After declining for almost three decades, the food price index of the Food and Agricultural Organization (FAO) rose by 90 percent between January 2002 and June 2008. Besides the magnitude, the rise in prices was remarkable for its breadth, affecting a broad range of commodities including agricultural (wheat, corn, soybeans, cocoa, coffee), energy (crude oil, gasoline), and metals (copper, aluminum). According to the US Department of Agriculture, this price spike was responsible for increasing the number of malnourished people by 80 million. These dramatic developments in prices coincided with a rapid inflow of investment into the commodities futures market -- the number of open contracts between 2001 and June 2008 increased by more than six-fold, from around 6 million to 37 million. The new investment was primarily driven by portfolio diversification motives of a new class of traders who were neither producers nor direct consumers of the underlying commodities. This dissertation examines the potential causal links between this financialization of the commodities futures market and the 2008 global spike in food prices and other commodities. The dissertation consists of three major chapters. The second chapter analyses the relationship between spot and futures markets for a range of commodities. The third and fourth chapters seek to understand the role of financialization in causing the 2008 price developments. Chapter 3 explores commodity markets individually, studying the correlation between the inflow of liquidity and price changes. Chapter 4 studies the issue at a more macro level by investigating if the inflow of investment can explain the increase in comovement of prices between unrelated commodities. My results show that i) for many commodities, prices are determined in the futures markets, and ii) financialization of the futures market was an important factor in causing the 2008 price rises for a range of commodities. These results underscore the increasingly important role of financial motive, financial markets, and financial instruments in the operation of the commodities market. The findings are especially relevant with respect to debates as to the relative efficiency of financial markets and the need to regulate them.
"The conference was organized by the three editors of this book and took place on August 15-16, 2012 in Seattle."--Preface.
The recent global financial crisis exposed the serious limitations of existing economic and financial models. Not only did macro models fail to predict the crisis, they seemed incapable of explaining what was happening to the economy. Policymakers felt abandoned by the conventional tools of the now obsolete Washington consensus and the World Trade Organization’s oversimplified faith in free markets.The traditional models for agricultural commodities have so far failed to take into account the uncertain character of the global agricultural economy and its ferocious consequences in food price volatility, the worst in 300 years, yielding hunger riots throughout the world. This book explores the elements which could help to close this fundamental modeling gap. To what extent should traditional models be questioned regarding agricultural commodities? Are prices on these markets foreseeable? Can their evolution be either predicted or convincingly simulated, and if so, by which methods and models? Presenting contributions from acknowledged experts from several countries and backgrounds – professors at major international universities or researchers within specialized international organizations – the book concentrates on four issues: the role of expectations and capacity of prediction; policy issues related to development strategies and food security; the role of hoarding and speculation and finally, global modeling methods. The book offers a renewed wisdom on some of the core issues in the world economy today and puts forward important innovations in analyzing these core issues, among which the modular modeling design, the Momagri model being a seminal example of it. Reading this book should inspire fruitful revisions in policy-making to improve the welfare of populations worldwide.
The subject of this article is whether the financialisation of agricultural commodity futures trading contributed to the sudden price rises in 2006-2008. It also discusses the effect of financialisation on the functioning and usefulness of futures markets, and considers whether speculation could exacerbate price volatility again. The article is not intended to be an overly technical analysis of the topic and therefore does not include detailed economic analyses or econometric modelling. Rather, it seeks to provide an objective and straightforward discussion for those generally interested in agricultural commodity markets and their impact on food security and developing countries more generally.
From the scientific and industrial revolution to the present day, food – an essential element of life – has been progressively transformed into a private, transnational, mono-dimensional commodity of mass consumption for a global market. But over the last decade there has been an increased recognition that this can be challenged and reconceptualized if food is regarded and enacted as a commons. This Handbook provides the first comprehensive review and synthesis of knowledge and new thinking on how food and food systems can be thought, interpreted and practiced around the old/new paradigms of commons and commoning. The overall aim is to investigate the multiple constraints that occur within and sustain the dominant food and nutrition regime and to explore how it can change when different elements of the current food systems are explored and re-imagined from a commons perspective. Chapters do not define the notion of commons but engage with different schools of thought: the economic approach, based on rivalry and excludability; the political approach, recognizing the plurality of social constructions and incorporating epistemologies from the South; the legal approach that describes three types of proprietary regimes (private, public and collective) and different layers of entitlement (bundles of rights); and the radical-activist approach that considers the commons as the most subversive, coherent and history-rooted alternative to the dominant neoliberal narrative. These schools have different and rather diverging epistemologies, vocabularies, ideological stances and policy proposals to deal with the construction of food systems, their governance, the distributive implications and the socio-ecological impact on Nature and Society. The book sparks the debate on food as a commons between and within disciplines, with particular attention to spaces of resistance (food sovereignty, de-growth, open knowledge, transition town, occupations, bottom-up social innovations) and organizational scales (local food, national policies, South–South collaborations, international governance and multi-national agreements). Overall, it shows the consequences of a shift to the alternative paradigm of food as a commons in terms of food, the planet and living beings.
A timely publication as world leaders deliberate the causes of the latest bouts of food price volatility and search for solutions that address the recent velocity of financial, economic, political, demographic, and climatic change. As a collection compiled from a diverse group of economists, analysts, traders, institutions and policy formulators - comprising multiple methodologies and viewpoints - the book exposes the impact of volatility on global food security, with particular focus on the world's most vulnerable.
The authors highlight the importance of confronting the financialization of food and agriculture, identify the challenges of conventional approaches to reform and consider innovative alternatives. Speculative Harvests is essential for those who not only seek a better understanding of the problems but are also in search of effective interventions.