PARAMVEER SINGH has been doing a lot of interesting writing on food prices worldwide. For the interested, these three pieces (1 , 2 and 3) are highly recommended. When an economist of that stature analyses such an issue in about a hundred words there’s not much that an amateur like me can really add to it. And no, I am not switching loyalties here. I still don’t like the way Paul Krugman imposes himself and often shies away from good intellectual debates with his contemporaries, at least on public forums. However, that hardly takes away anything from the fact that he often makes interesting points and is one of the most intelligent economists of our times.
Lately, with the food prices hitting mount Everest there has been a huge hue and cry about capitalism and commodities trading being largely responsible for this surge. The proponents of this theory often make ludicrous claims with a brilliant appeal to emotion saying things like, “capitalism’s tendency to foster greed encourages speculative behaviour of greedy individuals” and other such tripe. For them, those three articles are a must-read. To quote him,
Many people on the “speculators did it” side like to point to financial data, especially large purchases of futures by various players. But food is a physical commodity, and plays in the financial markets can only move the price to the extent that they affect physical flows and stocks.To make it further clear,
But remember, every purchase of a futures contract is also a sale — there’s someone on the other side. And neither the purchase nor the sale changes the physical quantity of the commodity available to the market.And while that should suffice for those interested in logical understanding of speculation and it’s impact on real-world, one of the linked posts above also talks about how bad-harvest has resulted in a deficit of about 4-5% per-capita food production.
So, the next time if you come across some local “experts” (interestingly they talk on a wide range of topics from food security to recessions to everything) like P.Sainath blaming speculators and forward trading as the main culprit behind food price rise, take it as a part of the “Entertainment” section of a newspaper. Let’s not confuse it for some serious thought as we already are neck-deep in the putrid trash created by various pseudo-experts with little IQ purporting to have a nuanced understanding of issues.