At the recent G20 Agriculture summit in Paris, protesters outside the venue chanted “Markets – leave our food alone” as high prices put millions at risk of hunger. They are angry over the role of traders in agricultural commodities – rice, grain, even cocoa beans – who they blame for pushing up prices.
Some among the G20 ministerial delegations voiced the same sentiment and insisted that speculation must be regulated and so reduced.
The French leader, Nicholas Sarkozy, whose country this year holds the presidency of the G20, is particularly keen to curb the speculators.
His agriculture minister, Bruno Le Maire, told euronews: “The president has said repeatedly that speculation involving agricultural markets is totally unacceptable because it is a speculation based on world hunger. When you have some unscrupulous financial investors that buy a significant portion of the world’s cocoa stocks just to sell them on later and pocket the profits, that is just not acceptable.”
Our reporter at the summit Antoine Juillard wanted answers to key questions. First, how much of a role does speculation play on the agricultural commodities market? And second, is the price volatility of commodities due to speculation or not?
He put that question to Economic History Professor Philippe Chalmin at Paris-Dauphine University, a leading expert on agricultural commodity markets, and an adviser to the French government.
Professor Chalmin said we are all speculators – sometimes without knowing it – but there are different levels of speculation. “At any time that prices are volatile, anyone who is a producer, anyone who is a consumer, or a middle-man, anyone who has to anticipate what the price will be in the near future, that person is – by definition – a speculator. Then we have a second level which is what I call financial speculation: that is people who are gamblers; I mean gambling on what happens with the market, but without ever taking physical possession – that is delivery – of the particular product.
“I’m thinking here of all the investors who play the markets: but actually lots of people who are watching this programme are taking part in this through pension funds and through insurance companies which they have a policy, which – in a small way – trade in these markets.
“You have to realise that you actually trade physical items in these markets, [There is supply and demand – unlike in a lot of financial markets where what is being traded is intangible] so, that regulates prices, makes them real and right.
“And experience shows that prices also change and are unstable just as much in many markets which are not subject to financial speculation. There is no speculation on the market for rice, unlike the wheat market. But in 2008, the fluctuation in the cost of rice was much greater than that of wheat.
“When prices rise there is not point shouting: “Kill the speculators”! Rather, you should ask ‘What are the factors that are effecting the market?’ When prices soar right now, what the market is telling us is that the world is hungry!”