OTTAWA, July 17 /CNW Telbec/ - There is little evidence that speculation
on food commodity prices is a primary cause of the explosive rise in global
food prices, the Conference Board concludes in a new briefing. Released today,
the briefing looks at the possible effect that the securitization of
food-commodity trading is having on actual prices that consumers must pay.
Traded agricultural commodities, mostly grains, have increased 80 per cent in
"In recent years, vast sums of money have been pouring into new forms of
financial speculation based on food-commodity prices. The process of
securitization already widely practiced in other markets has come to the food
sector," said Anne Golden, President and CEO of the Conference Board.
"The spread of securitization of food commodities can be seen as an
effect, rather than a cause, of the rise in world food prices. Only when
prices for underlying commodities are volatile does it become worthwhile for
speculators and investors to seek profit in betting on price changes."
The report, Is Food Commodity Securitization Worsening the World's Food
Problem?, recommends that governments address the fundamental causes. These
include the rising demand in developing countries for protein-based diets,
stagnating agricultural productivity, demand from bio-fuels producers, and
government controls that limit output and trading.
The study recommends that regulators and market participants explore the
best ways of structuring agricultural markets.
"Policymakers can best help markets, including suppliers and consumers,
not by barring these players from participation-but by adjusting the rules
that govern their activities," said Golden.
For nearly a hundred years, food-commodity markets have been organized
around "forward" contracts between producers and buyers. Over time, a
"futures" market has developed, where contracts can be bought and sold by
financial intermediaries, or "non-commercial" players.
Most of the non-commercial players trade in the long-term market that
reflects expectations of future commodity prices rather than today's prices on
the "spot" market. Two benefits of securitization are:
- Price discovery, which establishes a benchmark price as a point of
reference for quotations in the marketplace; and
- Risk hedging, which stabilizes farm income. Producers are protected
from falling prices purchasing futures. If prices fall, the loss on the
sale of the crop is offset by a gain on the futures. If prices rise,
the loss on futures is offset by increased profit on the crop.
The briefing is publicly available at www.e-library.ca.
For further information:
For further information: Brent Dowdall, Media Relations, (613) 526-3090
ext. 448, firstname.lastname@example.org; www.conferenceboard.ca