Food price volatility has spiked to levels last seen in the 1970s. For low-income countries, food price hikes, such as have occurred recently, tend to significantly increase the incidence of intra-state conflicts, according to IMF research. Therefore, it was fitting and proper that the G20 meeting of agricultural ministers, which was hosted by France at the end of June, put food insecurity squarely at the top of the 2011 G20 agenda.
The June G20 agricultural meeting resulted in an action plan that will be carried forward at the Cannes Summit of G20 leaders in November.
In reviewing the evidence so far regarding the impact of commodity trading, speculation, and index investment on price volatility, this report finds that the evidence for the prosecution does not seem sufficiently compelling at this point. That said, given the disastrous performance of financial institutions in 2007 and especially, in 2008, it is fully appropriate to revisit one’s assumptions regarding the economic usefulness of all manner of financial instruments, including commodity derivatives contracts.
This paper’s conclusion is to agree with the World Bank president who has said, “the answer to food price volatility is not to prosecute or block markets, but to use them better.” And one sensible use of financial engineering is for hedging volatile food price risk with appropriate