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Is Financial Speculation with Agricultural Commodities Harmful or Helpful?
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Is Financial Speculation with Agricultural Commodities Harmful or Helpful?

A Literature Review of Current Empirical Research

Matthias Georg Will, Sören Prehn, Ingo Pies and Thomas Glauben
Uni Halle-Wittenberg, 2012
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Editorial Rating

6

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Recommendation

Is speculation in agricultural commodities bad for society? Matthias Georg Will and Ingo Pies from Martin-Luther-University Halle-Wittenberg, and Sören Prehn and Thomas Glauben from the Leibniz Institute for Agricultural Development in Central and Eastern Europe illuminate this general question as they examine a more specific one: What, if any, impact does financial speculation have on agricultural markets? The scholars review current empirical research to cut through stormy controversies about speculation, regulation and food shortages. Their article epitomizes academic writing: On the downside, the authors use repetitive, often stilted language and neglect to define arcane terms and concepts. On the upside, the researchers are thorough and focused, a necessary approach when dealing with a topic that can engender passionate opinions that both agree and disagree with this review’s conclusions. The researchers see no connection between commodities trading and food shortages, but they acknowledge the need for further assessments. While always politically neutral, getAbstract recommends this article to those interested in the economic and social impact of commodities trading and speculation on the world’s food supply.

Summary

A Change, a Problem and the Questions

Market trading in agricultural commodities has existed for decades, but “Commodity Index Traders” (CITs) – that is, entities that take positions in various commodities over a period of time – are increasingly active. Several dramatic events affecting agricultural markets have unfolded since 2007, roughly coinciding with CITs’ expanding market presence. At certain points in time since then, agricultural prices have risen so sharply that some regions have experienced food shortages and even civil unrest or riots related to the food supply.

Several critical public policy questions arise: What is the relationship between this new wave of commodity speculation and agricultural prices? Is speculation good for commodities, or does it contribute to – or even cause – serious price increases? Does speculation make food prices more volatile? And if so, should regulators intervene? To answer these points, consider three aspects:

  1. The “public debate” – Advocacy groups have linked the emergence of CITs and their speculation in agricultural commodities to disruptions in food availability and price. Advocates...

About the Authors

Matthias Georg Will and Ingo Pies serve on the economics faculty at Martin-Luther-University Halle-Wittenberg. Sören Prehn and Thomas Glauben are researchers at the Leibniz Institute for Agricultural Development in Central and Eastern Europe.

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