In early 2007 food prices started to increase dramatically, creating more hunger, social unrest, political protests, and a debate on causes and cures. According to the FAO, the number of people getting less food than necessary reached 1 billion. After a century of declining food prices, increased productivity and relative stability several curves started to shift. Due to production growth levelling out and a steady increase in the global demand for food, in addition to policy changes in the food sector, public food stocks declined and the market situation became tighter. As a result, the global food market became more vulnerable to external shocks, like negative impact from climate-related changes, growing demand from the bio-fuel sector, and speculation in food commodities. By focusing on supply and demand forces in the food market, the growth of bio-fuel production, and financial speculation, we ask what caused food prices to peak in 2008, and which factors are the most important in explaining the events. In our view, deregulations within the financial sector led to extreme levels of financial capital entering the food commodity market, contributed to prices increasing more and faster than can be explained by supply and demand forces alone. Even if the growth in bio-fuel production by many is held as a climate change mitigation measure, and production short-falls over the last decade are caused by severe weather events, we do not believe that climate change directly or indirectly caused food prices to peak in 2008.
How to Cite
Oak Brook, IL: Farm Foundation.
Aulerich, N.M., Irwin, S.H. and Garcia, P. (2010) The Price Impact of Index Funds in Commodity Futures
Markets: Evidence From the CFTC’s Daily Large Trader Reporting System, Working Paper. Champaign, IL:
Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign.
Balat, M. and Balat, H. (2009) Recent trends in global production and utilization of bio-ethanol fuel, Applied
Energy, 86(11), pp. 2273–2282.
Banse, M., van Meijl, H., Tabeau, A. and Woltjer, G. (2008) Will EU biofuel policies affect global agricultural
markets?, European Review of Agricultural Economics, 35(2), pp. 117–141.
Blas, J. (2009) Commodities, Financial Times, 25 November.
Bonanno, A., Busch, L., Friedland, W.H., Gouveia, L. and Mingione, E. (eds) From Columbus to ConAgra: The
Globalization of Agriculture and Food. Lawrence, KS: University Press of Canada.
Borin, A. and Di Nino, V. (2009) The Role of Financial Investments in Agricultural Commodity Derivatives
Markets, Bank of Italy Research Report. Rome: Bank of Italy.
Burch, D. and Law rence, G. (2007) Understanding Supermarkets And Agri-Food Supply Chains, in: D.
Burch and G. Law rence (eds) Supermarkets and Agri-food Supply Chains: Transformations in the Production
and Consumption of Foods, Cheltenham: Edward Elgar Publishing, pp. 1–28.
Burch, D. and Law rence, G. (2009) Towards a third food regime: behind the transformation, Agriculture
and Human Values, 26(4), pp. 267–279.
Campiche, J.L., Bryant, H.L., Richardson, J.W. and Outlaw , J.L. (2007) Examining the Evolving Correspondence
Between Petroleum Prices and Agricultural Commodity Prices. Presented to American Agricultural
Economics Association Annual Meeting, Portland, OR, 29 August.
Childs, N. and Kiaw u, J. (2009) Factors Behind the Rise in Global Rice Prices in 2008. Washington, D.C.: United
States Department of Agriculture.
Clapp, J. (2009) Food price volatility and vulnerability in the global south: considering the global economic
context, Third World Quarterly, 30(6), pp. 1183–1196.
Clapp, J. and Helleiner, E. (2010) Troubled futures? The global food crisis and the politics of agricultural
derivatives regulation, Review of International Political Economy, DOI: 10.1080/09692290.2010.514528.
Clements, M.P. and Hendry, D.F. (1998) Forecasting Economic Time series: The Marshall Lectures on Economic
Forecasting. Cambridge : Cambridge University Press.
Cooke, B. and Robles, M. (2009) Recent Food Price Movements: A Time Series Analysis, IFPRI Discussion Paper
No. 00942. Washington, D.C.: International Food Policy Research Institute.
Curry, J.A. and Webster, P.J. (2010) Hurricanes, in: S.H. Schneider, A. Rosencranz, M.D. Mastrandrea
and K. Kuntz-Duriseti (eds) Climate Change Science and Policy, Washington, DC: Island Press, pp. 82–92.
Daviron, B., Dembele, N.N., Murphy, S. and Rashid, S. (2011) Report on Price Volatility. Rome: Committee on
World Food Security and High Level Panel of Experts on Food Security and Nutrition.
Daw e, D. (2009) The Unimportance of Low World Grain Stocks for Recent World Price Increases, ESA Working
Paper No. 09-07. Rome: FAO Agricultural Development Economics Division.
De Schutter, O. (2010) Food Commodities Speculation and Food Price Crises, Briefing Note 02. Louvain-la-
Neuve: Université de Louvain.
Domanski, D. and Heath, A. (2007) Financial investors and commodity markets, BIS Quarterly Review,
March, pp. 53–67.
Economist (2010) Field events, Economist, 11 September.
EIA (Energy Information Administration) (2008) Federal Financial Interventions and Subsidies in Energy Markets,
2007. Washington, DC: U.S. Department of Energy.
Elliot, K.A. (2008) Biofuels and the Food Price Crisis: A Survey of the Issues, Working Paper 151. Washington,
DC: Center for Global Development.
FAO (Food and Agriculture Organization of the United Nations) (2008a) The State of Food and Agriculture
2008. Rome: FAO.
FAO (Food and Agriculture Organization of the United Nations) (2008b) Number of Hungry People Rises
to 963 Million. Rome: FAO.
FAO (Food and Agriculture Organization of the United Nations) (2009a) The State of Agricultural Commodity
Markets: High Food Prices and the Food Crisis – Experiences and Lessons Learned. Rome: FAO.
FAO (Food and Agriculture Organization of the United Nations) (2009b) How to Feed the World in 2050.
Frank, J. and Garcia, P. (2010) How Strong are the Linkages among Agricultural, Oil, and Exchange Rate Markets?,
Paper presented at the NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting,
and Market Risk Management, St. Louis, MS, 19–20 April.
Gardner, B. and Tyner, W. (2007) Explorations in biofuels economics, policy, and history, Journal of Agricultural
and Food Industrial Organization, 5(2), Article 1.
Gerber, N., van Eckert, M. and Breuer, T. (2009) Biofuels and food prices: a review of recent and projected
impacts, in: S. Krauter, F. Baranowski, N.R. Blandon and E. Kempf (eds) RIO 9 – World Climate and Energy
Event, Rio de Janeiro, Brazil, 17–19 March, Rio de Janeiro: Rio Solar, pp. 139–146.
Ghosh, J. (2010) The unnatural coupling: food and global finance, Journal of Agrarian Change, 10(1), pp.
Gilbert, C.L. (2010) Speculative Influences on Commodity Futures Prices 2006–2008, UNCTAD Discussion
Paper No. 197. New York: United Nations.
Gomiero, T., Paoletti, M.G. and Pimentel, D. (2009) Biofuels: efficiency, ethics and limits to human appropriation
of ecosystem services, Journal of Environmental Ethics, 23(5), pp. 404–434.
Gregory, P.J. and Ingram, S.I. (2008) Climate change and the current ‘food crisis’, Perspectives in Agriculture,
Veterinary Science, Nutrition and Natural Resources, 99(3), pp. 1–10.
Harri, A., Nalley, L. and Hudson, D. (2009) The relationship between oil, exchange rates, and commodity
prices, Journal of Agricultural and Applied Economics, 41(2), pp. 201–510.
Harvey, M. and Pilgrim, S. (2011) The new competition for land: food, energy, and climate change, Food
Policy, 36(1), pp. 40–51.
Headey, D. (2010) Rethinking the global food crisis: the role of trade shocks, Food Policy, 36(1), pp. 136–146.
Headey, D. and Fan, S. (2008) Anatomy of a crisis: the cause and consequences of surging food prices,
Agricultural Economics, 39(s1), pp. 375–391.
Headey, D. and Fan, S. (2010) Reflections on the Global Food Crisis. How Did It Happen? How Has It Hurt?
And How Can We Prevent the Next One?, IFPRI Research Monograph 165. Washington DC: International
Food Policy Research Institute.
Headey, D., Malaiyandi, S. and Fan, S. (2009) Navigating the Perfect Storm: Reflections on the Food, Energy,
and Financial Crisis. Presented at International Association of Agricultural Economists’ Conference, Beijing,
China, 16–22 August.
Henn, M. (2011) The speculator’s bread: what is behind rising food prices?, EMBO Reports, 12(4), pp.
Hill, J., Nelson, E., Tilman, D., Polasky, S. and Tiffa ny, D. (2006) Environmental, economic, and energetic
costs and benefits of biodiesel and ethanol biofuels, Proceedings of the National Academy of Sciences, 103,
Hoekman, S.K. (2009) Biofuels in the U.S.: challenges and opportunities, Renewable Energy, 34(1), pp. 14–22.
IMF (International Monetary Fund) (2007) Biofuel demand is pushing up food prices, IMF Survey Magazine,
IMF (International Monetary Fund) (2008) Riding a wave: soaring commodity prices may have a lasting
impact, Finance and Development, 45(1), pp. 10–15.
Irwin, S.H. and Sanders, D.R. (2011) Index funds, financialization, and commodity futures markets, Applied
Economic Perspectives and Policy, 33(1), pp. 1–31.
Jarosz, L. (2009) Energy, climate change, meat, and markets: mapping the coordinates of the current world
food crisis, Geography Compass, 3(6), pp. 2065–2083.
Jones, T. (2010) Massive bank and hedge fund speculation causes food prices to soar, Third World Resurgence,
240/241, pp. 20–23.
Koning, N. and Mol, A.P.J. (2009) Wanted: institutions for balancing global food and energy markets, Food
Security, 1(3), pp. 291–303.
Lang, T. (2010) Crisis? What crisis? The normality of the current food crisis, Journal of Agrarian Change,
10(1), pp. 87–97.
Lehrer, N. (2010) (Bio)fueling farm policy: the biofuels boom and the 2008 farm bill, Agriculture and Human
Values, 27(4), pp. 427–444.
Markham, J.W. (1991) Federal regulation of margin in the commodity futures industry: history and theory,
Temple Law Review, 64, pp. 60–143.
Matisoff, D.C. (2008) The adoption of state climate change policies and renewable portfolio standards:
regional diffusion or internal determinants?, Review of Policy Research, 25(6), pp. 527–546.
McMichael, P. (2000) The power of food, Agriculture and Human Values, 17(1), pp. 21–33.
McMichael, P. (2009) A food regime analysis of the ‘world food crisis’, Agriculture and Human Values,
26(4), pp. 281–295.
Mitchell, D. (2008) A Note on Rising Food Prices, Policy Research Working Paper 4682. Washington, DC:
World Bank Development Prospects Group.
Mittal, A. (2008) The 2008 Food Price Crisis: Rethinking Food Security Policies, UNCTAD G-24 Discussion
Paper no. 56. New York: United Nations.
Mondi, A., Koo, C.M. and Kim, W.J. (2010) Oil Shocks and the World Rice Market Puzzle: A Structural VAR
Analysis. Kangwon: Department of Economics, Kangwon National University.
Mueller, S.A., Anderson, J.E. and Wallington, T.J. (2011) Impact of biofuel production and other supply
and demand factors on food price increases in 2008, Biomass and Bioenergy, 35(5), pp. 1623–1632.
Munier, B. (2009) Does Liberalization Increase Price Volatility on Financialized Markets? Paper presented
at the South Centre Session at WTO , 30 September.
Nyong, A.O. (2008) Climate Change, Agriculture and Trade: Implications for Sustainable Development. Paper
presented at ‘The Future of Agriculture: A Global Dialogue amongst Stakeholders – Agriculture, Climate
Change and Sustainable Development’ session, Barcelona, 30–31 May.
OECD (Organisation for Economic Co-operation and Development) (2008) Rising Agricultural Prices: Causes,
Consequences and Responses. Paris: OECD Publishing.
OECD (Organisation for Economic Co-operation and Development) and FAO (Food and Agriculture Organization
of the United Nations) (2010) OECD-FAO Agricultural Outlook 2010-2019. Paris: OECD Publishing.
Palley, T.I. (2007) Financialization: What It Is and Why It Matters. Paper presented at ‘Finance-led capitalism?
Macroeconomic Effects of Changes in the Financial Sector’, Berlin, 26–27 October.
Perrin, R.K. (2008a) Ethanol and Food Prices: Preliminary Assessment. Lincoln, NE: University of Nebraska,
Faculty Publications Agricultural Economics.
Perrin, R.K. (2008b) Ethanol and Low Carbon Fuel Standards. Lincoln, NE: University of Nebraska, Faculty
Publications Agricultural Economics.
Perrin, R.K. (2008c) Grain Ethanol: Why Consider Food for Fuel? Lincoln, NE: University of Nebraska, Faculty
Publications Agricultural Economics.
Pimentel, D. and Patzek, T.W. (2005) Ethanol production using corn, switchgrass, and wood; biodiesel
production using soybean and sun?ower, Natural Resources Research, 14(1), pp. 65–76.
Rathmann, R., Szklo, A. and Schaeffer, R. (2010) Land use competition for production of food and liquid
biofuels: an analysis of the arguments in the current debate, Renewable Energy, 35(1), pp. 14–22.
Regmi, A., Takeshima, H. and Unnevehr, L. (2008) Convergence in Global Food Demand and Delivery, USDA
Research Report 33. Washington, DC: United States Department of Agriculture.
Rivera-Ferre, M.G. (2009) Supply vs. demand of agri-industrial meat and fish products: a chicken and egg
paradigm?, International Journal of Sociology of Agriculture and Food, 16(2), pp. 90–105.
Robles, M., Torrero, M. and Braun, J. von (2009) When Speculation Matters, IFPRI Issue Brief 57. Washington,
DC: International Food Policy Research Institute.
Rosegrant, M.W., Zhu, T., Msangi, S. and Sulser, T. (2008) The Impact of Biofuel Production on World Cereal
Prices. Washington, DC: International Food Policy Research Institute.
Rosset, P. (2009) Agrofuels, food sovereignty, and the contemporary food crisis, Bulletin of Science, Technology
and Society, 29(3), pp. 189–193.
Sanders, D.R. and Irwin, S.H. (2010) A speculative bubble in commodity futures prices? Cross-sectional
evidence, Agricultural Economics, 41(1), pp. 25–32.
Sanders, D.R., Irwin, S.H. and Merrin, R.P. (2010) The adequacy of speculation in agricultural futures
markets: too much of a good thing?, Applied Economic Perspectives, 32(1), pp. 77–94.
Slater, R., Peskett, L., Ludi, E. and Brown, D. (2007) Climate Change, Agricultural Policy and Poverty
Reduction: How Much Do We Know?, Report no. 109. London: Overseas Development Institute.
Solomon, B.D., Barnes, J.R. and Halvorsen, K.E. (2007) Grain and cellulosic ethanol: history, economics,
and energy policy, Biomass and Bioenergy, 31(6), pp. 416–425.
Tang, K. and Xiong, W. (2010) Index Investment and Financialization of Commodities, Working Paper no.
16385. Cambridge, MA: National Bureau of Economic Research.
Thornton, E. ( 2006) Inside Wall Street’s culture of risk, Bloomberg Business Week, 12 June.
Timmer, C.P. (2008) Causes of High Food Prices, Economics Working Paper Series No. 128. Mandaluyong
City: Asian Development Bank
Timmer, C.P. (2009) Did Speculation Affect World Rice Prices?, ESA Working Paper No. 09–07. Rome: FAO
Agricultural Development Economics Division.
Torero, M. and Braun, J. von (2010) Alternative Mechanisms to Reduce Food Price Volatility and Price Spikes.
Paper presented at IPC Seminar on ‘Agricultural Price Volatility: Prospects, Challenges and Possible
Solutions’, Barcelona, Spain, 26–27 May.
Toye, J. (2009) Development with dearer food: can the invisible hand guide us?, Journal of International
Development, 21, pp. 757–764.
Trostle, R. (2008) Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food
Commodity Prices. Washington, DC: United States Department of Agriculture.
Tyner, W.E. (2009) The Integration of Energy and Agricultural Markets. Presented at 27th International Association
of Agricultural Economists Conference, Beijing, China, 16–22 August.
UNCTAD (United Nations Conference on Trade and Development) (2011) Price Formation in Financialized
Commodity Markets: The Role of Information. New York: United Nations.
U.S. Government (2003) State of the Union Address 2003: Complete Text of Address. Published online
U.S. Senate (2009) Excessive Speculation in the Wheat Market – Majority and Minority Staff Report. Washington,
DC: U.S. Senate Permanent Subcommittee on Investigations, Committee on Homeland Security
and Governmental Affairs.
van der Ploeg, J.D. (2010) The food crisis, industrialized farming and the imperial regime, Journal of Agrarian
Change, 10(1), pp. 98–106.
Wahl, P. (2009) Food Speculation the Main Factor of the Price Bubble in 2008. Berlin: World Economy, Ecology
Wiggins, S., Keats, S. and Compton, J. (2010) What Caused the Food Price Spike of 2007/08? Lessons for World
Cereals Markets. London: Overseas Development Institute.
World Bank (2009) Global Economic Prospects 2009. Washington DC: World Bank.
Zhang, Z., Lohr, L., Escalante, C. and Wetzstein, M. (2010) Food versus fuel: what do prices tell us?,
Energy Policy, 38(2), pp.445–451.