A New Look at Food Crises & Prices

New paper on recent food price changes. It isn’t/wasn’t just supply & demand.

The Food Crises: A quantitative model of food prices including speculators and ethanol conversion

Recent increases in basic food prices are severely impacting vulnerable populations worldwide. Proposed causes such as shortages of grain due to adverse weather, increasing meat consumption in China and India, conversion of corn to ethanol in the US, and investor speculation on commodity markets lead to widely differing implications for policy. A lack of clarity about which factors are responsible reinforces policy inaction. Here, for the first time, we construct a dynamic model that quantitatively agrees with food prices. The results show that the dominant causes of price increases are investor speculation and ethanol conversion. Models that just treat supply and demand are not consistent with the actual price dynamics. The two sharp peaks in 2007/2008 and 2010/2011 are specifically due to investor speculation, while an underlying upward trend is due to increasing demand from ethanol conversion. The model includes investor trend following as well as shifting between commodities, equities and bonds to take advantage of increased expected returns. Claims that speculators cannot influence grain prices are shown to be invalid by direct analysis of price setting practices of granaries. Both causes of price increase, speculative investment and ethanol conversion, are promoted by recent regulatory changes—deregulation of the commodity markets, and policies promoting the conversion of corn to ethanol. Rapid action is needed to reduce the impacts of the price increases on global hunger.

via [1109.4859] The Food Crises: A quantitative model of food prices including speculators and ethanol conversion.


  1. This study is best used as an example of academic research that set out to prove a theory. Any study that does not consider the role of government currency debasement policies with commodity price increases reveals the authors as biased Keynesians. Ethanol is certainly a factor and now consumes 40% of corn production and one of the more better examples of why the government should not be engaged in central planning. We're burning food for fuel and printing money, which is having the effect of impoverishing people and violence against governments.

    • Paul Kedrosky says:

      While I agree with part of your argument, you go over-far in turning this into a purely political issue. Say instead that speculation played a big role, and it was fueled in part by government policies, which the paper does, and then I'd be more in agreement.

  2. Let's take oil for example. There have been over 80 government investigations attempting to blame higher oil prices on speculators. The government would so like to string up speculators, but not a single one of the 80 investigations has proved it. The markets are simply too big.

  3. Pretend for a second that it is pension funds and speculators pushing up commodities through ETFs and such. They are doing so because the Federal reserve consistently runs negative real interest rates, forcing investors to look speculation and hunt for inflation hedges to hide from currency debasement. ok, i'm done :)

  4. While we should not have policies favoring ethanol, food is just another energy source and higher real oil prices will increase ethanol demand even without them. It doesn't take inflation to increase oil prices, lower production growth and increased third world demand will do that on its own. Get used to paying more for food.

  5. Food prices have hovered near an all-time peak since late 2010 sending tens of millions of people into poverty. Oxfam’s new interactive map shows how poor communities across the world are being hurt by high and volatile food prices. This ‘food price pressure points map’ provides a global snapshot of the impacts of the global food price crisis.

  6. The role of speculators is to bring future price increases into the present. Consequently the blame for higher prices should be placed on this future increase not speculation.


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