21 Jul 2011
In the past year or so, we have witnessed a massive increase in food prices, not all of it due to "supply and demand" economics, argues Jayati Ghosh from the University of Delhi in India, as she explains how the markets have speculated in commodities trading playing a significant role in fuelling the food crisis.
According to Ghosh, from the beginning of 2010 to February 2011, there was a very significant increase in food prices. For example, the wheat price doubled between June and December 2010. Prices peaked in February this year, but have been volatile since then.
How much did this food bubble have to do with supply and demand, drought or flooding -- and how much had to do with speculation?
The tragic story is that once again it was almost entirely driven by speculative activity - by the financialisation of the commodities market - says Ghosh.
A classic example is what happened in the wheat market.
Around June 2010, there were stories emerging about a possible drought in Russia and bad harvests in Ukraine and how this was going to diminish the global wheat supply. As a result, between June and December last year the wheat price doubled.
However, after the Food and Agricultural Organisation later released data about the supply of wheat during this period, it emerged that wheat production over that particular six month period actually increased globally. At the same time, wheat demand hardly increased at all. So there was no real "demand and supply" reason for those massive hikes in the wheat price, contends Ghosh.
Watch the clip above to hear more from Ghosh about how the markets affect food and commodity prices, and about the Dodd-Frank Bill aimed at Wall Street reform. The Bill, currently being debated in the US, is intended to reign in speculative behaviour.