Via Resilience Science:

International wheat prices are up 60-80% since July.  And according to the Food and Agriculture Organization of the United Nations (FAO), this price increase is not a standard market function – despite some crop failures, “Global cereal supply and demand still appears sufficiently in balance” to have much more stable prices.  So what, pray tell, is driving the increase?  Well, the FAO blames “national policy responses and speculative behaviour.”

Garry at Resilience Science does a great job of covering the obvious rebuttal: “Oh, the FAO is another organization out to demonize markets – this argument isn’t based on evidence.”  Um, not so fast . . . in a discussion paper for the International Food Policy Research Institute (IFPRI) – and by the way, the US is a major funder for IFPRI – Bryce Cooke and Miguel Robles appear to have demonstrated quantitatively that various proxies for speculation and activity on futures markets best explain the dramatic price rises for food in 2008.  To quote:

“Overall, we conclude from our time series analysis that when taking the four commodities analyzed here there is evidence that financial activity in futures markets and/or speculation in these markets can help explain the behavior of these prices in recent years. Other explanations are only partially supported for the particular case of one agricultural commodity or not supported at all. We do not claim, however, that these other explanations should be disregarded; all that we can say is that in using the variables considered in this study and the particular time series models herein, we do not find such evidence.”

Well, looks like Frederick Kaufman (see this earlier post) was at least partially right . . . in this case, the futures markets are causing more problems than they are solving.  Put another way, these studies demonstrate empirically that the manipulation of these markets is killing people – literally.  This is not market failure, people.  This is human moral failure.  But we wouldn’t want to regulate those markets, now would we?