RIO DE JANEIRO - The old laws of the
marketplace are no longer working. Food prices
have been rising for six years because of surging
demand, and increased production is not restoring
the balance as it used to in the past. In fact,
prices have been going up even faster over the
last year.
The so-called
"financialization" of commodities markets, that
is, the influx of investment funds seeking safer
and more lucrative assets, has intensified the
trend and "at the moment impinges more than the
law of supply and demand," said analyst Fernando
Muraro of AgRural, a consultancy firm in Brazil.
There is no way to measure the influence
of speculative forces on "agflation", the term
coined to describe inflation provoked by the
agricultural sector, he
said.
The role of speculation is
undeniable, as commodities funds are involved in
40% of the futures and option contracts at the
Chicago Stock Exchange, the highest proportion
ever. Ten million tons of soybeans were bought in
March 2007, compared with 21 million tons last
month, Muraro pointed out to IPS.
There is
a global excess of US dollars, and holders are
transferring them to markets and products wherever
sustained price increases indicate good prospects
for making profits, he said.
José Graziano
da Silva, United Nations Food and Agriculture
Organisation (FAO) regional representative for
Latin America and the Caribbean, echoed Muraro's
views in a statement prior to the FAO regional
conference, held from April 14 to 18 in Brasilia.
The rising price of food, which
exacerbates hunger in the world, is the result of
"a speculative attack", he said.
Agricultural prices rose between 2002 and
2006 due to higher food consumption in developing
countries, and to crop losses over that period,
but since 2007 financial speculation has been
responsible for most of the price inflation,
according to Graziano da Silva.
In
contrast, Sergio Vale, a consultant with MB
Associados, said, "It's not true that a financial
bubble exists for agricultural commodities." The
price increases are "concretely based" on
sustained growth of demand in China, India and
other Asian countries, as well as in Latin
America, he told IPS.
This is a
"structural, long-term trend," due to greater
consumption as incomes have risen in several poor
populations, reduction of supply caused by climate
problems, and the diversion of several crops, like
maize and soybeans, to biofuel production, he
said.
Financial participation in the
commodities market creates "greater volatility",
making prices rise and fall more sharply, but "it
is not the decisive factor" in the price
increases, he said.
As an example, Vale
mentioned the temporary fall in prices of primary
products in mid-March because of investment
capital flight, caused by the banking crisis in
the United States, which nevertheless did not
affect the continuing upward trend this year.
To blame the price rises on speculation
"is foolish and unrealistic" because there are
"clear, fundamental causes that are keeping prices
high", said Ricardo Cota, technical manager for
the Brazilian Confederation of Agriculture and
Livestock (CNA), an association of large rural
producers.
As well as expansion in demand,
Cota said expensive oil-based fuels, the cost of
farm inputs, which is also rising, and biofuels
are among the fundamental causes of "the new
levels of agricultural prices which we will have
to learn to live with" given the problems of
increasing food supply.
Brazil is an
exception, in that it has plenty of land available
to expand its agricultural frontier, but its
inadequate logistical infrastructure, especially
the limited capacity of its ports, stands in the
way of a rapid increase in production and exports,
he said.
Other limitations are the growing
cost of fertilizers, soaring oil prices and red
tape. Ideological pressure is also blocking
progress in biotechnology aimed at boosting
productivity by using genetically modified seeds,
Cota said.
The cost of fertilizers has
doubled since early 2007 and may rise further this
year, but in spite of this the high prices of
grains, especially maize and soybeans which
account for 70% of Brazil's total grain
production, still ensure healthy profits for
farmers, Muraro said.
In his view,
financialisation has accentuated the rise in
commodity prices to "unprecedented levels"
benefiting farmers but also giving them headaches
because of the difficulty of setting prices for
their produce.
"Prices are no longer set
by supply, demand and climate," as they have been
skewed by the mass entry of investment funds into
the markets, he said.
Market analysis has
become more complex, requiring "instruments that
are more technical, professional and modern" in
order to assess macroeconomic factors like
exchange rates, interests and capital flows,
Muraro added.
Environmental regulations
are the main obstacles preventing a rapid increase
in output to balance global demand and supply, he
argued.
Flavio Turra, technical manager of
the Organization of Cooperatives of the State of
Parana, said that financial speculation plays a
"relatively small part" in determining prices,
although "anyone following the market must always
take into account the participation of investment
funds."
Such flighty capital may
accelerate trends, but the underlying price
increases are basically due to shortages in world
stocks and to the imbalance created by the steep
increase in consumption in countries like China
and, more recently, India, he said.
The
swift rise in prices at present is also due to
countries banning or surtaxing exports in order to
control inflation and secure domestic food
supplies, as Argentina has done in the case of
wheat, he maintained.
Brazil has just
suspended exports of government-owned rice,
amounting to close to 1.5 million tons, although
it has not imposed any export restrictions on the
private sector. However, the quantity of rice that
could be sold by private farmers would barely make
a dent in the world shortage, he said.
Recovery of world food stocks may take
five or six years, even with prices well above the
historical average, Turra concluded.
One
exception to the general upward trend in food
prices is sugar. More than ample production is
bringing retail prices down, in spite of Brazil's
increased ethanol manufacturing and the fact that
the food and biofuel sectors compete in this
country for the same raw material, sugarcane.
This example contradicts the wave of
accusations that biofuel production is to blame
for sparking the food price crisis.
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