Financial speculation in food commodities has become one of the main drivers of food price volatility, with devastating impacts on small producers and the poor. Yet the disruptive influence of financial speculation on food markets is only a preview of future crises. International financial markets are now attempting to dominate many conventional markets as a long-term strategy to extract greater profits and accumulate capital. While governments have been discussing the issue in the context of the G20’s focus on food security,1 their responses have been insufficient and contradictory so far and do not begin to address speculation in other hard commodities, where prices are even more volatile and the impacts on energy-dependent countries are equally severe.
The systematic financial speculation on commodities (and its systemically influential increase in recent years) has been driven mainly by deregulation of derivative markets. Derivatives markets, which trade in futures contracts and options, among other financial instruments based on other assets, enable the price risks for an asset (wheat, oil, pork bellies) to be transferred from the producer to other parties, often speculators, through the sale of “derivative” financial instruments. Speculation has also soared as investment banks, hedge funds and other institutional investors have jumped into the derivative market, often introducing new financial instruments such as index funds and exchange-traded funds.
Being a maker society rather than a speculative one is the only true path to wealth. Photo credit: Library of Congress. Used under Creative Commons license.
Technological advances must keep pace with energy consumption. Photo credit: Future Challenges. Used under Creative Commons license.
Natural resources, including arable land, are a finite supply. Photo credit: a4gpa. Used under Creative Commons license.
Clean, fresh water should not be commodified. Photo credit: Diego Cambiaso. Used under Creative Commons license.
- Klare, Michael T. 2001. Resource Wars: The New Landscape of Global Conflict. New York, NY. Metropolitan Books.
- McKinsey Global Institute. 2011. “Mapping Global Capital Markets, available at:http://www.mckinsey.com/Insights/MGI/Research/Financial_Markets/Mapping_….
1.The Group of 20 is the self-proclaimed club of the 20 strongest economic nations, which collectively produce up to 85 percent of the worlds global GNP. These nations will decisively determine economic and political developments in the decades to come.
2.See essays by Lili Fuhr and Liz Alden Wily.
3.See the essay by Liz Alden Wily
4.Udayan Gupta. “The New Urgency of Emerging Markets,” Institutional Investor (June 16, 2011), available at http://www.institutionalinvestor.com/Popups/PrintArticle.aspx?ArticleID =2848080.
5.IFSL Research, Private Equity, August 2009. http://www.thecityuk.com/assets/Uploads/Private-Equity-2009.pdf
7.See the essay by Beatriz Busaniche on intellectual property rights and trade policy.
8.A detailed report about the dubious dealings of the Swiss company can be read here: http://www.zambianwatchdog.com/2011/05/04/detailed-report-on-glencore-mopani-mine-dubious-deals-in-zambia
9.Tracy Alloway, “Willem Buiter Thinks Water Will Be Bigger Than Oil,” Financial Times, July 21, 2001.
10.REDD (Reducing Emissions from Deforestation and Degradation) is a policy model that seeks to financialize the capacity of forests to serve as a carbon sink in the global metabolic cycle. The carbon that forests absorb is being given a monetary value, which can then be used to give different weightings to various economic decisions and to facilitate market trading of carbon credits. In this way REDD will advance the process of finanicalization.
11.Editors’ note: These ramifications of REDD are not considered by Shrikrishna Upadhyay’s essay.
12.See Joshua Bishop, “The Economics of Ecosystems and Biodiversity in Business and Enterprise” (Earthscan) at http://www.teebweb.org
13.See Andreas Weber’s essay.