Experts eye speculation, food price swings

by World Grain Staff
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ROME, ITALY — The world needs to take a hard look at speculation on the financial markets and its potential impact on food price volatility, said United Nation’s Food and Agriculture Organization (FAO) Director-General José Graziano da Silva said on July 6 at a high-level debate on the issue at FAO headquarters in Rome.

"While there has been much analysis of food price volatility, including at FAO, more understanding is still needed, especially concerning the impacts of speculation," Graziano da Silva said as he opened the event. "Let's make one thing clear: We are not talking about speculation related to price discovery and the normal functioning of the futures markets. We are talking about excessive speculation in derivative markets, which can increase price swings and their speed.

"Excessive food price volatility, especially at the speed at which they have been occurring since 2007, has negative impacts on poor consumers and poor producers alike all over the world."

The high-level debate on the theme, "Food Price Volatility and the Role of Speculation," featured as keynote speaker Leonel Fernández Reyna, president of the Dominican Republic. The event drew a panel of international experts on commodities, trade and agriculture. 

President Fernández said food price swings were having a "tremendous human impact" and cautioned against using food commodities purely as financial instruments.

"Financial speculation is exacerbating market fluctuations and this exacerbation is generating uncertainty — this uncontrolled, unregulated exacerbation is provoking a dramatic impact on countries that are net food importers," Fernández said. "We are not talking about an abstract concept here, we are talking about something that is having a devastating, dramatic and brutal impact on the lives of people," and also puts governments at risk of destabilization.

“I think that this is one of the most serious problems, one of the most important challenges facing us, and which we will need to address with efficiency, transparency and a spirit of solidarity," he said.

Fernández underscored the need for more information to get a clearer picture on market transactions, in order to better understand the role of speculation in agricultural commodities.

President Fernández has been instrumental in getting the United Nations to heighten the attention on the issue of excessive food price volatility. In December 2011, the United Nations General Assembly adopted a resolution presented by the Dominican Republic on "Addressing Excessive Price Volatility in Food and Related Financial and Commodity Markets."

In 2011, FAO, together with OECD, coordinated the preparation of the inter-agency report to the G20 on this subject. At the request of the G20, FAO also hosts the Agricultural Market Information System (AMIS), aimed at promoting market transparency.

In addition, FAO conducts analytical work to help deepen the understanding of the nature, causes, impacts and responses to volatility. This includes looking into the increasingly complex inter-relationships between agricultural, financial and energy markets.

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