MercoPress. South Atlantic News Agency

UN blames surging food prices on large-scale speculation

Both the surging food prices from 2007 to 2008 and their subsequent drop in some areas are a result of large-scale speculation by financial investors, according to a new report by the United Nations trade body, which called for greater regulation to protect millions of poor people worldwide.

Increased transparency is needed in futures markets for vital commodities such as food, said the report by the UN Conference on Trade and Development, UNCTAD which also stressed the importance of regulators having greater power to step in when speculation in futures drives up the price of food.

There have been speculative bubbles for certain commodities on some occasions, the publication, entitled “The Global Economic Crisis: Systemic Failures and Multilateral Remedies,” found.

It also said that speculation in housing, currencies and commodities led to a disconnection from the ‘real’ economy because appropriate prices could not be determined.

By the time these bubbles had burst, the current global economic crisis was inevitable, UNCTAD said.

The “herd” behaviour behind this kind of speculation went unregulated, the report stated, appealing for reforms of the international financial and monetary systems to allow for government intervention and international oversight.

It pegged greed as the reason for the severity of the current crisis, and said there should have been regulations and practical policies in place to anticipate short-sightedness.

Also to blame for the financial turmoil is the de-regulation, both within and between countries, the new publication said.

The “markets know best” approach failed to consider the possibility that markets can, in fact, fail, according to the report, which pointed out that existing economic risk indicators show low risk at the peak of the credit cycle, when risk levels are high.