Subscribe to this blog's feedThree interesting articles for the weekend, all more or less about the speculation issue.
First of all, this document published for the G8 summit in Tokyo. Key quote:
Prices have risen due to a number of individual factors, whose combined effect has led to an upward price spiral. Underlying structural factors contributing to rising food grain prices include high energy and fertilizer prices; the continuing depreciation of the US dollar; sharply increased use of both cereals and vegetable oils in bio-fuel production; and declining global stocks of food grains due to changes to buffer stock policies in the US and the European Union. Back-to back droughts in Australia, and growing global demand for grains (excluding for bio-fuel production) have been modest contributors and on their own would not have led to large price increases. Commodity investors and hedge fund activity also seem to have played a minor role. Although empirical evidence is scarce, the prevailing consensus among market analysts is that fundamentals and policy decisions are the key drivers of food price rises, rather than speculative activity.
But the Guardian says it has seen a far more specific and far more worrying World Bank report:
Biofuels have forced global food prices up by 75% - far more than previously estimated - according to a confidential World Bank report obtained by the Guardian.The damning unpublished assessment is based on the most detailed analysis of the crisis so far, carried out by an internationally-respected economist at global financial body.
The figure emphatically contradicts the US government's claims that plant-derived fuels contribute less than 3% to food-price rises...
Of the total rise of 140% in the price of a basket of foods, 75% is due to demand for biofuel feedstock, this report apparently says.
On the oil issue, here's an interesting post arguing that, in fact, there is a mechanism through which futures prices could affect the spot price.
It's only fair to point out that the CFTC disagrees, noting that in fact there is a much smaller net long speculative position in oil now than there was a year ago.
Nor is there any shortage of fundamentals-based explanations for the increase.
