The AP is running a story on food prices – and it is heavily focused on the problem of commodities speculation.  Actually, it is heavily focused on French President Nicholas Sarkozy’s comments on the causes of the food price increases.  While Sarkozy acknowledged the importance of issues like climate change, he quickly moved past these causes:

Sarkozy said the difficulties go far beyond the whims of nature. He said financial market specialists — instead of agricultural trading houses — had taken over the global farm market and called for change.

“Take the Chicago market,” said Sarkozy, listing how the derivatives exchange totals 46 times the annual U.S. wheat production and 24 times that of corn. He said 85 percent of the contracts on commodities futures markets are held by purely financial players “with no link to the commodity itself.”

“The example shows to what extent our world has lost a sense of value, a sense of reality, a sense of capitalism to serve the development and happiness of people,” Sarkozy said.

It is worth noting that Sarkozy is no leftist . . . though he will likely be painted as one for that last sentence.  Then again, anyone who notes that markets might have negative as well as positive effects will be painted as  anti-capitalist/naive/out-of-place ideologue (see the comments on Dot Earth’s mention of my concerns over climate change communication).

Let me note that Sarkozy is not demonizing all speculation – nor do I.  As I discussed in an earlier post, speculation plays an important economic role that can distribute the stresses that lead to future price spikes over time, thus ameliorating future crisis.  However, this is not to say that speculation should just run unregulated – basic regulation that keeps speculation within productive parameters would likely enhance its value in the food security arena.  (See this IFPRI forum for more on the role of speculation in world food markets)

However, more information for these markets would probably help as well.  While the USDA and other organizations offer estimates of global and sometimes national-level agricultural production, it would be good to have concrete, sub-national datasets on ag production updated in real time – this would remove some of the uncertainty in commodities markets that can then be leveraged into arbitragable price instability . . . and that alone might start to clean out the more problematic players in agricultural commodities markets.