Food Markets, Price, and Speculation

I think many governments from around the world lose sight of the valuable role that speculators play in making a market for commodities.

This is a common rant:

"Excess speculation from 'investment tourists' aggravates instability, sending signals that aren't substantiated by fundamentals, said Abdolreza Abbassian, secretary for the Intergovernmental Group on Foodgrains at the United Nations Food and Agriculture Organization."

Mohindru, Sameer, 2011. Food-price rise puts focus on speculators. The Wall Street Journal, Jan. 26.

However, the article goes on to state that "Parsing out the impact of speculators can be difficult."

I stand with this opinion, and the following statement:

"Others are skeptical of the claims. 'I've seen some sort of studies [suggesting] speculation has added 20% to 30% to market prices, but they are never substantiated. What you can say is the futures markets at times trade at substantial premia to the underlying cash market,' said Ann Berg, a consultant to the U.N.'s food and agriculture agency."

While this type of debate always happens when commodity prices are rising, there are essentially no comments about price movements in smaller, less standardized markets that have no financial futures activity and include perishable products such as fruits and vegetables. My view is that these markets could benefit from the entry of speculators and a new approach to exchanging information.

This is why the idea of market efficiency in relation to the classic treatment of spatial and temporal utility for fruit and vegetable markets is so essential.

Technology exists to improve information flows in various local fruit and vegetable markets to unprecedented levels. Yet getting this technology into practice is far too slow in agriculture.

I am passionate about companies such as Eden's Bowl, Inc. where the combination of standardized technology along with some of my ideas from past research have the potential to change the marketing structure for fruits and vegetables for the better.

The problem in commodity and other agricultural markets is not an excess of speculators but a lack of information transparency, mathematical models for trade-offs and decision-making, and short (or uncertain) supply.

These are a few posts that might be of interest to readers:

Why I believe that Market Efficiency is so Important for Fruits and Vegetables

Specialty Crops - Variety

The Organic Foods Supply Chain

Marketing Services

Marketing Efficiency

Update - EB Project II

Update - EB Project

Eden's Bowl, Inc. (III)

Eden's Bowl, Inc. II

Eden's Bowl, Inc.

I hope to write a paper on this general topic for potential publication by the Cutter IT Journal and perhaps CSCMP.