Commodities speculations' impact on food price swings eyed
July 6, 2012
ROME – A hard look should be taken throughout the world at speculation on the financial markets and the impact on food-price volatility, said José Graziano da Silva, Food and Agriculture Organization of the United Nations (FAO) director-general, on July 6 during a debate on the issue at FAO headquarters.
"While there has been much analysis of food price volatility, more understanding is still needed, especially concerning the impacts of speculation," Graziano da Silva said. "Let's make one thing clear: We are talking about excessive speculation in derivative markets, which can increase price swings and their speed.”
Excessive food price volatility, especially at the speed at which they have been occurring since 2007, has negatively impacted poor consumers and poor producers throughout the world, he added.
A debate on Food Price Volatility and the Role of Speculation featured Leonel Fernández Reyna, president of the Dominican Republic, as keynote speaker. The event featured a panel of international experts on commodities, trade and agriculture.
Food price swings were having a "tremendous human impact" and Fernández cautioned against using food commodities purely as financial instruments.
"Financial speculation is exacerbating market fluctuations and this exacerbation is generating uncertainty – this uncontrolled, unregulated exacerbation is provoking a dramatic impact on countries that are net food importers," he said. "We are talking about something that is having a devastating, dramatic and brutal impact on the lives of people," and also puts governments at risk of destabilization, he added.
The need to get more information was underscored in order to get a clearer picture on market transactions to better understand the role of speculation in agricultural commodities.
Fernández has been instrumental in getting the United Nations to increase the attention on excessive food price volatility. Since 2007, there has been a reversal of a four-decade-long downward tendency in prices of agricultural commodities. Between 2008 and 2011 has been characterized by a series of extreme peaks and valleys in food pricing, which made it particularly difficult for economically vulnerable consumers and agricultural producers to cope.
"Food price inflation has already been higher than overall inflation in almost every country. This has a greater impact on the poorer population, who can spend up to 75 percent of their income in food," Graziano da Silva said.