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Commodity Market Deregulation and Food Prices

The 200 million person increase in global food insecurity since 2006 — over one billion according to UN Food and Agricultural Organization (FAO) — did not result from global production failure or a shortage of supply. Global food production increased on a per capita basis throughout the past decade and 2008 saw a record global cereal harvest.1 The trigger for food riots in at least 30 net food import dependent developing countries in 2008 was extreme spikes in food and energy prices. A major driver of these price spikes was rather the overwhelming market domination of financial firms over traditional traders in commodity futures markets.

In March 2008, US Commodity Futures Trading Commission (CFTC) rules limited commercial users of commodities to owning 11 million bushels of Chicago Board of Trade (CBOT) maize futures contracts, while Goldman Sachs and Morgan Stanley investors, exempted from contract limits, controlled 1.5 billion bushels. Futures contracts provide short term (generally 90 days for agricultural contracts) protection against abrupt prince increases for commodity users (such as bakeries or cereal manufacturers) and against abrupt price decreases for commodity producers (such as farmers). However, investment bank "weight of money" drove prices up and then down, as they "rolled out" of contracts and bought new ones.

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