It hasn’t gone unnoticed that the Financial Times’ fund management supplement – the aptly named FTfm – has given significant air-time to the topic of food price speculation.
Last week’s piece, entitled “Food price speculation taken off the menu” was a rather balanced story on the effect the food price speculation argument is having on the exchange-traded fund market.
While reporting on the increasing number of European banks either scaling back or exiting funds tracking agricultural prices, largely as a result of a targeted campaign by the international charity Oxfam, the story stated:
“A question emerges in the frenzy of Oxfam’s campaign, however. Does investment in ETFs or standard open-ended funds offering exposure to commodities actually push up food prices?”
At last, a refreshingly balanced piece that asks that all-important, yet often overlooked question and addresses both sides of the argument!
Unfortunately, it was soon followed by another article in the print edition (“Trio up for dangerous product award”, March 11) describing a newly-launched contest to find Europe’s most dangerous financial product for investors. As the article notes, “Four categories were identified as posing the greatest risk: food-speculation funds and funds involved in the extraction of uranium, silver and oil shale.”
It seems clear that the aim of the “competition” is more political than financial in nature. Which leads us to ask: does this contest merit such visibility and space in one of the world’s most important newspapers? Both add a lot of credibility to an awards program that is designed largely to stir up publicity.
Particularly given the fact that an overwhelming body of research exists on this subject… and that research contradicts the oft-voiced but shakily grounded assertions about commodity and food speculation. As the March 3 FT story notes, quoting from a research report published by Deutsche Bank:
“‘Little empirical evidence’ supports the idea that the growth of agricultural-based financial products provokes price increases or volatility in the food market…. ‘The vast majority of studies agree that the fundamental cause of rising food prices is sharply rising demand that is not yet matched by supply. Demand is surging because of population and income growth in developing countries while production is limited by water scarcity, climate change, lack of infrastructure and harvest waste.’”
To that end, as mentioned in last week’s story, Deutsche Bank predicts that more than $80 billion must be invested in the agricultural sector each year to increase farming productivity and meet increasing demand for food.
As we’ve said before, when there is a need for increased investment that is where the financial sector comes into play. Sustained investment and reduced price volatility is essential – not just nice, but by broad consensus essential – to meeting the increasing demand for food the world over. Again, as we’ve said before: we have the capability and the capacity to meet these needs; but we must allow financial markets play their crucial role.
After all, $80 billion isn’t exactly pocket change. Might we be so bold as to suggest a competition for ideas as to where this $80 billion could possibly come from without financial sector involvement?