A new analysis of the surge in global food prices put the blame on biofuels policy and mortgage collapse style speculation, which may have fundamentally changed the way food markets work.
Many other explanations have been proposed, and the recent analysis - a series of mathematical models and statistical evaluations seem to match the theory with the real world models - is not decisive. But it makes a strong case.
"Much has been written a hundred articles and over and that this could be the cause, or may cause," said the network theorist Yane Bar-Yam New England Complex Systems Institute. "We studied quantitatively, and found two important factors. Speculators cause bubbles and crashes, and ethanol causes an increase in background. "
Bar-Yam and NEC team, whose analysis was published on September 21 arXiv, work at the intersection of social phenomena and network analysis. In previous research, we explored the changing structure of world economy and the early warning signs that may precede accidents.
Recently, they examined how social unrest may have been fueled by soaring food prices in 2008 and again in 2011. This is not just rising food prices, which have proved troublesome, but the speed. The change was a large and sudden, in sharp contrast to the generally slow fluctuations in food prices since mid-20th century.
Among the possible reasons put forward by economists, there is drought, meat eating habits and the sensitivity of intensive market supply and demand. Another is a biofuel made from corn: Less than rotated by about 15 percent of maize production in the world, it is converted into fuel for cooking. Perhaps the most controversial, some economists have accused the tide of speculators betting increase or decrease in food prices.
The FAO food price index (solid blue line) and the price produced by the model of Bar-Yam (red dotted line). Image: Bar-Yam et al. / ArXiv
Speculate that the food is not new, but it was a long time just for farmers and businesses in food production. For them, the speculation was a classic form of protection: for example, the farmer can bet that prices will fall harvest. If they do, has had the benefit of his harvest, high prices, but if they fall, he won the bet to replace losses. Speculation has been all in all, a stabilization force.
At the end of 1990, however, are driving financial management regulation - which then lead to the collapse of Enron and the California energy crisis, mortgage crisis and 2008 - has changed as the food was speculation. Anyone can participate. I bet the food was unexpectedly investment, which could package and compress them into the kind of derivative bets made famous by the mortgage crisis.
Some economists argue that food prices disconnected from the fundamental laws of supply and demand, and are subject to sudden changes. However, others disagreed, saying the mathematical signs of cause and effect were unclear or absent.
"In the last three or four years, things have happened in the economy that were not anticipated by most people, and not explained, even today. Do not know if this means that the basic laws of supply and demand do not work, but how supply and demand occurs is not understood, "said Jeffrey Fuhrer, director of research at the Federal Reserve Bank of Boston. "We have no knowledge of the role of speculative markets."
Bar-Yam and his colleagues have dealt with this mess with a series of mathematical models to simulate the behavior of investment trend-following speculators and food producers. The key to their model of a relationship between food prices among speculators and the spot price is known as food in markets where real products, not future hypothetical values are negotiated.
Some critics of the bond bubble food offered that spot prices are set independently from one moment to another, in the isolation of speculative influence. But when the team called Bar-Yam, people in business, attics and the U.S. Department of Agriculture, said spot prices are determined by reference to the futures market at the Chicago Board Options Exchange.
When the speculation about the link up, the researchers gave the model-based. That result was a model of the month to month prices for the same peaks and valleys seen in the real fluctuations in food prices since 2007. However, speculation could not reach an observed long-term, one year of the annual increase in food prices.
Those who have appeared at Bar-Yam team added change the use of corn as a food for use in biofuel ethanol. With both speculation and biofuels included, the model produced a series of food prices eerily similar to the recent history (see chart above).
Graphic overlay their market model simulated on a graph of the United Nations Food and Agriculture Organization of the index price between 2004 and 2011, and "it fits incredibly well," said Bar-Yam. "It reproduces highs. It reproduces through the blip. The quality of the fit is surprisingly good."
Models necessarily light, simplistic representations of the complex reality, of course, and then copy a data set does not prove the model researchers to the right. But it seems to fit better than other proposed explanations for the increase, food prices fluctuating.
"You've got trillions of dollars to go to the house of raw materials and the stock market, and blow away the pricing mechanism."
When Bar-Yam group sought a statistical relationship between the peak in 2008 and drought in Australia, could not be found. Or a link can be found to the growing demand of cereals, mainly from China and India, which meet their needs by increasing grain production at home instead of buying abroad. Another plausible explanation, oil and energy prices, has not withstood rigorous statistical analysis.
Finally, the researchers found no evidence that global food markets have simply become extremely sensitive to small changes in supply and demand. In any case, the fundamental laws of supply and demand seem temporarily suspended: increase supply, but prices do not fall, and demand is not satisfied.
Even though prices have increased slightly an issue, a quick short-term bursts are of concern. During the past decade, it will break did not happen until 2007, when investors moved money into commodities in bulk. This timing is another discovery of Bar-Yam model: Some speculation is fine, even beneficial, but too much makes the market subject to instability.
"In circumstances where speculators are very limited in their participation, there is nothing wrong. But when they are a big part of the market you're in trouble," says Bar-Yam. "You had trillions of worth of goods ranging from housing markets and stocks, and it blew away the price mechanism. "
Brookings Institution economist Homi Kharas model named Bar-Yam "done carefully" and said they "always sound empirical analysis" that the influence of speculative diagnoses are correct. But he warned against setting too much weight to a model. Bubbles in the food prices are not new, Kharas said.
"Prices now are about what they were in the mid-1970s," said Khara. "At that time, nobody had heard of these futures, the exchange-traded index funds. How do we know these are new changes and not a return to things in the past? " But Richard Cooper, an economist at Harvard University, who in the mid-1970s studied the bubble, said speculative buyers of Russian grain probably contributed to the bubble.
Bar-Yam New analysis will certainly be challenged, Mr. Cooper. "Someone will come and say that the bases are not marked properly. There will be technical arguments. But it was the challengers to show where their analysis is wrong. "
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