Demand, Supply, Sustainability and Security
Edited by Raghbendra Jha, Raghav Gaiha and Anil B. Deolalikar
Chapter 6: The financialization of food commodity markets
There is a widespread perception that financialization may have contributed to the 2008 food price spike. This perception has been stimulated by pronouncements by prominent politicians and leading market commentators. Here we cite three instances: _ French President Sarkozy asked in 2011, 'Speculation, panic and lack of transparency have seen prices soaring. Is that the world we want?' _ A 2009 US Senate Subcommittee report examined 'excessive speculation' in the wheat market (United States Senate Permanent Subcommittee on Investigations, 2009). The subcommittee report was particularly concerned by the growth of index-based investment which it termed 'index speculation'. _ Hedge fund manager Michael Masters (2008) argued in evidence before a second Senate subcommittee that index-based investment both raised the levels of commodity prices and, by consuming liquidity, increased volatilities. In the old days, it was widely believed, commodity futures markets in general and food commodity markets in particular, were populated by commodity market professionals. These professionals comprised three groups.
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