UN food and agriculture agency warns about negative impact of food speculation

The world needs to take a hard look at speculation on the financial markets and its potential impact on food price volatility, the head of the United Nations Food and Agriculture Organization (FAO) said today.

“Excessive food price volatility, especially at the speed at which price swings have been occurring since 2007, has negative impacts on poor consumers and poor producers alike all over the world,” FAO’s Director-General, José Graziano da Silva, said as the opening of a high-level debate on the issue at the agency’s headquarters in Rome, Italy.

“While there has been much analysis of food price volatility, including at FAO, more understanding is still needed, especially concerning the impacts of speculation,” he added.

The high-level debate on the theme ‘Food Price Volatility and the Role of Speculation’ drew a panel of international experts on commodities, trade and agriculture, and featured as its keynote speaker the President of the Dominican Republic, Leonel Fernández Reyna.

In his remarks to the event’s opening, Mr. Graziano da Silva said that food price volatility was related to “excessive speculation in derivative markets, which can increase price swings and their speed,” and not to “speculation related to price discovery and the normal functioning of the futures markets.”

According to FAO, President Fernández has been instrumental in getting the United Nations to increase attention on the issue of excessive food price volatility, through a resolution presented by his country and adopted in December 2011 by the General Assembly.

Addressing the debate, President Fernández reiterated that food price swings were having a “tremendous human impact” and cautioned against using food commodities purely as financial instruments.

“Financial speculation is exacerbating market fluctuations and this exacerbation is generating uncertainty - this uncontrolled, unregulated exacerbation is provoking a dramatic impact on countries that are net food importers,” he said, adding that, “we are not talking about an abstract concept here, we are talking about something that is having a devastating, dramatic and brutal impact on the lives of people” and also puts governments at risk of destabilization.

FAO has noted that in recent years, especially since 2007, the world has experienced the reversal of a four-decade-long downward tendency in the prices of agricultural commodities. The period between 2008 and 2011 was characterized by a series of extreme peaks and valleys in food pricing, which made it especially difficult for economically vulnerable consumers and agricultural producers to cope.

“Food price inflation has already been higher than overall inflation in almost every country. This has a greater impact on the poorer population, who can spend up to 75 percent of their income in food,” Mr. Graziano da Silva said.

In 2011, FAO, together with the Organisation for Economic Cooperation and Development, coordinated the preparation of the inter-agency report to the Group of 20 (G20) major economies on this subject. At the request of the G20, FAO also hosts the Agricultural Market Information System, aimed at promoting market transparency.

In addition, FAO conducts analytical work to help deepen the understanding of the nature, causes, impacts and responses to volatility. This includes looking into the increasingly complex inter-relationships between agricultural, financial and energy markets.