The global food crisis : supply and demand revisited

Abstract

This study aims to show that the volatility in food prices between 2008 and 2011 cannot be explained merely by the market fundamentals of demand and supply. While global changes in demand and supply are bringing about radical changes to the food equation, evidence shows that market failure in the world grain market aggravated the problem. Excess liquidity, brought about by monetary growth policies after the subprime crises and financial meltdown in 2008, has stimulated speculation and hoarding. Strong incentives for financial operators to find better returns in places like the commodities market is attested by the six-fold increase in the number of ‘derivatives’ contracts made between 2002 and 2008. Furthermore, agriculture is one of the most heavily subsidized, protected, and distorted markets in the world. This is a key reason behind a decade long lack of progress in the Doha Round of the World Trade Organization (WTO). This study investigates the hypothesis that speculative activities are a major source of volatility in the agricultural commodities market and that this has significantly contributed to price inflation. It also explores Malta’s possible involvement in food commodity speculation, albeit on a small scale.