Between April 2007 and April 2008, the global food price index increased by 85 percent, according to a UN agency. Many reasons for the rise in food prices have been cited, including: the increase in oil prices, growing demand from countries like India and China, climate-related weather events and biofuel expansion. But as agriculture prices have plunged recently, mirroring drops in financial markets, it's becoming clear that the extreme volatility in agriculture commodities is following the volatility in financial markets.
A new report we released yesterday, Commodities Market Speculation: the Risk to Food Security and Agriculture, makes the case that speculation in commodity markets drove agriculture prices up over the last year—way beyond what was justified under supply and demand fundamentals. The report pointed to the speculative role of huge commodity index funds, led by Goldman Sachs and American Insurance Group, who bundled contracts of agriculture and non-agriculture commodities (like oil and metals) in an attempt to drive up prices and gain a profit. The report found that a series of U.S. deregulatory policies opened the door for these giant index speculators to enter and essentially destabilize traditional agriculture commodity markets.
The report draws ever stronger ties between the food and financial crises. Tomorrow, heads of state from the G-20 will meet with President Bush to discuss responses to the financial crisis. IATP's Steve Suppan offers some thoughts for the participants in our press release: “As President Bush and the G-20 meet this weekend, it is important to recognize that many of the deregulatory measures that brought on the Wall Street collapse also contributed to the food security and agricultural market crises. Only prudential regulation and tough enforcement will repair the damage caused by crony capitalism to these markets and the people markets are supposed to serve.”
