Blog: Chris Brook-CarterFood inflation - can we blame the banks for that too?

Chris Brook-Carter | 25 June 2010

It's an easy - and satisfying - exercise to blame the world's financial industry for all the economic woes we have been faced with in the last 18 months. Pay freezes, rising taxes, VAT hikes are easy to pin at their doors. But food inflation? Well there is a link, but we shouldn't be too quick to judge, apparently. I thought you would be interested in this missive, on my desk this morning, from our EU correspondent Keith Nuthall.

"It may come as a surprise to food manufacturers worldwide that the price bubble in commodities that caused such trouble in 2007 to 2008 was NOT the fault of financial speculators.

But that is the conclusion of a study released yesterday (24 June) by two academics tasked by the Organisation for Economic Cooperation & Development (OECD) to probe the boom in food ingredient prices.

Professors Scott Irwin, of the University of Illinois, and Dwight Sanders, of the University of Southern Illinois agreed that money flowing into commodity markets from 2006 to 2008 "increased substantially".

This happened, they agree, because investors decided food ingredients were in demand and so investing in commodities made sense. But according to Irwin and Sanders, the fact that these investments were made did not inflate prices in itself: "It has not increased price volatility", according to the study.

In other words, the prices would have gone up anyway - a simple matter of supply and demand. Emerging from a recession fuelled by financial speculation, food industry executives can - perhaps - be forgiven for being sceptical."


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