Financial speculation in basic food commodities played a key role in the 2007-2008 food price crisis which pushed millions of people deeper into hunger, says economic historian Peter Timmer.
Dr Timmer, a visiting professor at Stanford University with 40 years’ experience in food policy analysis, says that speculation in important food staples created a ‘bubble’ that disconnected market prices from underlying fundamentals and produced severe volatility.
Timmer believes there are major imbalances in developed economies that have to be solved if food crises are to be prevented in future and he says the road to readjustment could be a long one. He describes two very different scenarios: “We may be able to provide enough safety nets and keep economies moving enough for there not to be a terrible welfare fallout …if we can’t, then many people who are now above the poverty line will fall below it. For the poorest and most vulnerable, the financial crisis could prove to be a much bigger challenge than high food prices.”
Timmer does not expect to see a return to the downward trend in real prices that occurred between 1900 and the first few years of this century. The end of cheap fuel, along with the environmental need to find a replacement for carbon-based energy, with its cost implications, will reverse the trend to one that is upward, he says. While he believes there is little that can be done about food price increases, he would like to see more transparency – perhaps brought about by some light regulation – in financial markets that invest in food commodities, as well as a publicly-funded and administered global food reserve for use in times of crisis.
For more on how the global financial crisis is affecting the world's hungry, go to our Food Out Of Reach dossier.