Financial speculation on food drives up and distorts prices
“Without any real supply or demand issues we are witness to the fact that most agricultural food commodities are at record highs at once, and coffee is at a 34-year high. Through financial speculation …the commodities market is in a very unfortunate position.”
Howard Schultz, Chief Executive, Starbucks Coffee Company
‘‘It is deeply alarming that the greatest proportion of activity in the futures markets no longer involves those in the supply chain but is, instead, taken up by speculators. Food commodities are too important to be played about with by day traders and speculators.”
Nigel Miller, President, National Farmers Union, Scotland
‘‘Financial flows (including index funds) can, over brief periods, exert a noticeable destabilizing effect […] Trying to use inventory levels to measure how far the market is out of whack may not work that well. As a result, “multiple equilibriums” of plausible market prices can persist over a surprisingly long period before supply-and-demand fundamentals finally exert themselves.”
Peter Orszag, Vice Chairman, Citigroup
“Our analysis suggests that the rise in commodity prices during this period [toward summer 2008] was driven mainly by an inflow of investment funds to commodity markets (a flight to simplicity).”
Kawamoto, Takuji et al, Bank of Japan: PDF