Most Popular Choices
Share on Facebook 4 Printer Friendly Page More Sharing
OpEdNews Op Eds   

G20 and Food Security: Excess Speculation Should Stop

By       (Page 1 of 1 pages)   No comments
Message Sylvain Charlebois
Steps Toward The Regulation of Agricultural Futures Markets

The G20 met in Paris to deal with food price volatility and the regulation of agricultural futures markets. Rising commodity prices have allowed many farmers to be back in the black, but the pace of hikes though has hurt many citizens from around the world, creating havoc in the developing world.  In many impoverished regions of the world, riots were triggered by price hikes that exceeded 90% over only a few days. Thus, the time was ripe for the G20 to address this vital issue for the sake of low-income, food deficit countries.

Price volatility of agricultural commodities is certainly the right target for the G20, but the solution to mitigate its impact on our modern society is multifaceted. We first need to accept that price volatility is part of the normal course of the exchange process between supply and demand. In economics, the cure for high prices is high prices, simple. It is usual, structural and reflects the very nature of how weather and climate affects agricultural production and inventories around the world. At times, political interventions such as embargoes or taxes on imports can enhance market cycles and make matters worse for many.  Any regulations should take these potential negative effects into account.

Excess speculation has also played a role in commodity price hikes in recent years. The issue though is not pure speculation itself. Speculative strategies are an integral part of the ordinary course of business and trades. Indeed, farmers themselves are arguably the biggest speculators in the investment world. The problem with speculation has been with price manipulators. Markets have been invaded by operators who have adopted harmful behaviours to merely influence prices instead of taking customary risks like any other investor. New regulation would need to separate speculators from manipulators.  Although speculation may be difficult to distinguish from acts of hedging, at the very least, mandatory reporting of volumes and positions (long and short) by type of operator should be implemented. Any preventive measures which would not allow an operator to have a significant position on an open future contract are desirable. In this scenario, no operator would then have power over price. The United States and France have recently moved on this issue and other countries, like Canada, should follow suit.  

On the supply side, volatility has also been fueled by the lack of market information. Currently, there is little or no information about the quality of crops and possible quantities available at harvest around the world. Investors are left with little information to make decisions which often leads to excess speculation. Each country, including Canada, should be more responsible vis-Ã -vis the international investment community by providing clear, accurate information in a transparent fashion.

Finally, mostly due to emerging markets and new energy policies, the world has radically changed in recent years. Most industrialized countries, like Canada, are mature markets and the consumption of food has, if not dramatically, changed. Even so, the food for fuel agenda has affected the agricultural landscape. American-based policies, for example, have skewed prices of corn over the last few years. As such, demand for certain crops has increased due to the evolution of eating habits in emerging markets and national energy plans in certain developed countries. More research should be conducted in order to anticipate abrupt price fluctuations caused by a combination of economic and political factors. The functioning of modern agricultural futures markets is largely misunderstood, but because of how our country performed during the last global recession, Canada is poised to play a leadership in addressing market volatility related to agricultural commodities.

We are often astounded by sudden market fluctuations. To properly address the issue of global food security, these occurrences should be anything but unexpected. Almost one billion people on our planet who suffer from hunger count on it.
Dr. Sylvain Charlebois
Associate Dean - Research and Graduate Studies/
Vice Doyen - Recherches et Ã"degreestudes Supà rieures

Professor (Food distribution and policies)/
Professeur Titulaire (Distribution et politiques alimentaires)

College of Management and Economics/
Collà ge de Management et d'Ã"degreestudes Ã"degreesconomiques

University of Guelph/
Università de Guelph

MacKinnon 900
50 Stone Road East
Guelph, Ontario,
N1G 2W1 Canada

Ph. : 519-824-4120 ext. 56808
Cel.: 226-979-2841
Fax.: 519-763-0526
sylvain.Email address removed
Rate It | View Ratings

Sylvain Charlebois Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Dr. Sylvain Charlebois is Associate Dean and Professor in the College of Management and Economics at the University of Guelph in Ontario, Canada. From 2004 to 2010, he was a member of the Faculty of Business Administration of the University of (more...)
Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEd News Newsletter
   (Opens new browser window)

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Food risks in Japan: natural disasters and food safety

The Food Modernization Act is dead. Long live the Act!

G20 and Food Security: Excess Speculation Should Stop

To View Comments or Join the Conversation:

Tell A Friend