olivier de schutter food commodities speculation and food price crise

8/3/2019 Olivier de Schutter Food Commodities Speculation and Food Price Crise

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BRIEFING NOTE 02 -SEPTEMBER 2010OLIVIER DE SCHUTTERUNITED NATIONS SPECIAL RAPPORTEUR ON THE RIGHT TO FOOD

Food Commodities Speculation and Food Price Crises 1

Food Commodities Speculationand Food Price Crises

SUMMARY

In this brie ng note, the UN Special Rapporteur on the

right to ood examines the impact o speculation on thevolatility o the prices o basic ood commodities, andhe identi es possible solutions orward. The global

ood price crisis that occurred between 2007 and2008, and which a ects many developing countriesto this day, had a number o causes. The initial causesrelated to market undamentals, including the supplyand demand or ood commodities, transportationand storage costs, and an increase in the price oagricultural inputs. However, a signi cant portion othe increases in price and volatility o essential oodcommodities can only be explained by the emergenceo a speculative bubble.

In particular, there is a reason to believe that asigni cant role was played by the entry into markets

or derivatives based on ood commodities o large,power ul institutional investors such as hedge

unds, pension unds and investment banks, all owhich are generally unconcerned with agricultural

market undamentals. Such entry was made possible

because o deregulation in important commodityderivatives markets beginning in 2000. These actorshave yet to be comprehensively addressed, and tothat extent, are still capable o uelling price risesbeyond those levels which would be justi ed bymovements in supply and demand undamentals.There ore, undamental re orm o the broader global

nancial sector is urgently required in order to avertanother ood price crisis. Previously unregulatedOver the Counter (OTC) derivatives must be subjectto rules requiring registration and clearing on publicexchanges, and exemptions to these rules must behighly restricted. As regards commodity derivativestrading in particular, States should ensure that dealingwith ood commodity derivatives is restricted as aras possible to quali ed and knowledgeable investorswho deal with such instruments on the basis oexpectations regarding market undamentals, ratherthan mainly or only by speculative motives. Thesemeasures would enable States to ul ll their legal

obligations arising under the human right to ood.

Regulation to reduce the risks o price volatility


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THE FOOD PRICE CRISIS OF 2008As a result o the increases in prices o basic oodcommodities and oil in 2007-2008, the number o

people in extreme poverty rose by 130 to 150 million,according to an estimate o the World Bank 1 . At least 40million people around the world were driven into hungerand deprivation as a result o the 2008 ood price crisis,raising the total number o people living in hunger to963 million in 2008 2 . As is nearly always the case, thebrunt o the ood price spike was borne by people inthe Low Income Food De cit Countries (LIFDCs), or thepoorest developing countries 3 . In these countries, ospecial concern are the urban and rural poor who evenat the best o times must spend up to our- ths o theirincome on ood 4. The ood price crisis undermined this

already meagre ability to meet essential ood needs 5.This should not be allowed to recur. This note seeks toexplain the role that speculation on the commoditiesmarkets may play in increasing volatility o prices, andwhat can be done about it in order to better protect theright to adequate ood.

Beginning around 2005, markets or numerousagricultural commodities started to witness priceincreases and higher levels o volatility (see Figure 1 ).According to a document circulated under the auspices

o the UN Con erence on Trade and Development(UNCTAD), ood prices rose by 83% between 2005 and2008 6, with maize prices nearly tripling, wheat pricesincreasing by 127%, and rice prices by 170% between

January 2005 and June 20087

. Moreover, the June2010 issue o Food Outlook published by the UN Foodand Agriculture Organization (FAO) nds that impliedvolatility8 in wheat and soy rose steadily rom 2005 to2008, and that the rise in implied volatility or maizecontinued, albeit at a much lower rate, until 2009 9 .

At present, there is a lively debate as to whether thesedevelopments were the result o actors adverselya ecting ood supply, or whether they were caused byexcessive speculation in ood commodities derivatives(see page 9). Advocates o the rst position maintain

that the price spikes were attributable to actors suchas a decline in the rate o growth o ood production 10 ,climate change and water depletion 11 , and the growtho bio uels12 . For instance, Wright and Bobenrieth arguethat the roots o the ood price crisis lie in the act thatbetween 2007 and 2008, stocks o world wheat, maizeand rice were low 13 . Wheat production, they note, waslower than expected because o a severe drought inAustralia, and (according to the IMF 14 ) consumers inChina and India developed a taste or meat which droveup grain prices 15 .

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Figure 1 - Index numbers o world trade prices

Source: Jayati Ghosh, The unnatural coupling: Food and Global Finance (2010), at 76. Using data accessed on 29 March2009, rom: http:// aostat. ao.org/.


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developments, the UNCTAD Trade and Development Report2009 ound that the trend towards greater nancialisationo commodity trading is likely to have increased the numberand relative size o price changes that are unrelated to market

undamentals24

. In other words, the changes in ood pricesrefected not so much movements in the supply and/or demando ood, but were driven to a signi cant extent by speculationthat greatly exceeded the liquidity needs o commoditymarkets to execute the trades o commodity users, such as

ood processors and agricultural commodity importers.

In act, while the ood price crisis may have been sparked o theabovementioned developments a ecting demand and supply,its e ects were exacerbated by excessive and insu cientlyregulated speculation in commodity derivatives. Thepromotion o bio uels and other supply shocks were relatively

minor catalysts, but they set o a giant speculative bubblein a strained and desperate global nancial environment.These actors were then blown out o all proportion by largeinstitutional investors who, aced with the drying up o other

nancial markets, entered commodity utures markets on amassive scale. There ore, the policy solutions that are neededto avert another crisis must address both the problemsa ecting underlying nancial market undamentals, and theconditions under which speculation is allowed to take place inessential ood commodities, thereby exacerbating the e ectso those movements in market undamentals.

SPECULATION IN AGRICULTURESpeculation in agricultural derivatives has an ancient history.One o the earliest descriptions o derivatives is to be oundin Aristotles Politics 25 . Aristotle tells o Thales the Milesian,a pro essional philosopher who began to tire o being mocked

or his poverty. His meteorological expertise lead him toanticipate a bumper olive harvest that year, so he hired all theoil presses in Chios and Miletus or the relevant period. Theowners o the oil presses were glad to sell him those rightsin exchange or cash up ront. When the bumper harvestmaterialized as Thales correctly predicted, he exercised hisoption and became a very rich man, thus demonstratingthat philosophers might be rich i they pleased, but thatriches were not the object o their pursuit 26 .

Traditional speculation

Traditional speculation in agricultural commodities marketsis based on market undamentals above all on the demandand supply or any particular commodity. Thales purchasedhis option on the oil presses because he expected the supplyo olives to increase. The armers sold him the option becausethe were hedging against the risk o a poor olive harvest. This

orm o speculation is generally considered necessary anduse ul in the market: it acilitates commercial hedging againstrisk, and it allows or price discovery, assisting armers and

Insu fcient explanations

Certainly, supply and demand undamentals played animportant role in the creation o the ood crisis. However,closer examination reveals that the abovementionedarguments o supply and demand are insu cient to explainthe ull extent o the increases and volatility in ood prices.For instance, the price o rice rose by 165% between April2007 and April 2008 16 - a magnitude di cult to explainby re erence to market undamentals. In act, Wright andBobenrieth acknowledge that rice stocks were not unusuallylow in 2007/2008 and that even though maize stocks werelow, production remained high 17 . Nor, as Wahl observes, is itlikely that a group o people suddenly developed a taste orconsuming vast quantities o dairy products, driving its priceup by 157% between 2006 and November 2007, only to

lose it starting rom July 2008, allowing prices to start allingagain 18 .

It is also di cult to accept the IMFs thesis that the ood priceincreases were the result o per capita income growth in China,India, and other emerging economies which ed demand ormeat and related animal eeds such as grains, soybeans,and edible oils. That interpretation is not corroboratedby data collected by the FAO or the period concerned:that data shows variously, that the supply and utilizationo wheat and coarse grain increased at roughly uni ormrates, that end o season stocks or grains had generally

increased signi cantly, and that China and India exhibitedalling aggregate and per capita ood grain consumption 19 .

The speculative bubble e ect

Instead, a number o signs indicate that a signi cant portiono the price spike was due to the emergence o a speculativebubble. Prices or a number o commodities fuctuated toowildly within such limited time- rames or such price behaviourto have been a result o movements in supply and demand:wheat prices, or instance, rose by 46% between January 10and February 26, 2008, ell back almost completely by May19, increased again by 21% until early June, and began allingagain rom August 20 . The 2008 ood price crisis was uniquein that it was possibly the rst price crisis that occurred in aneconomic environment characterized by massive amounts onovel orms o speculation in commodity derivative markets.

The particular area o concern is speculation in derivativesbased on ood commodities. A study conducted by LehmanBrothers just be ore its bankruptcy revealed that the volume oindex und speculation increased by 1,900% between 2003and March 2008 21 . Morgan Stanley estimated that the numbero outstanding contracts in maize utures increased rom500,000 in 2003 to almost 2.5 million in 2008 22 . Holdingsin commodity index unds ballooned rom US$ 13 billion in2003 to US$ 317 billion by 2008 23 . In the light o such


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utures that comprise the basket o utures that make up anyparticular commodity index.

Even though they were advertised to institutional investorsas ideal mechanisms or hedging against adverse movementsin other nancial markets 36 , it could be said that theanimating principle behind the commodities index undswas momentum. The strategy evolved by the Goldman Sachsmanagers who ran the GSCI was to have nothing but longpositions, to keep on acquiring them, and to roll them overas they expired, no matter how high the price o those uturesclimbed. As Kau man puts it, the purpose was to accumulatean everlasting, ever-growing long position, unremittinglyregenerated 37 .

As mentioned above in the section on speculation based onmarket undamentals, speculation can be use ul becauseit helps armers and buyers determine prices. As such,ordinarily, utures prices are lower than spot prices, and thisordinary situation is known as normal backwardation 38 .However, the e ect o the commodities index unds appearsto have been to throw the commodities utures markets intocontango 39 , producing a vicious circle o prices spiralingupward: the increased prices or utures initially led to smallprice increases on spot markets; sellers delayed sales inanticipation o more price increases; and buyers increasedtheir purchases to put in stock or ear o even greater utureprice increases 40 . As is demonstrated by Figure 2 , when the

spot prices increased, this ed an increase in utures prices,which attracted even more speculation, thus setting the wholeprocess into motion once again. Indeed, the whole structureo commodity index speculation was premised upon contango.Commodity index speculation was the gi t that was designedto keep on giving.

It is di cult to imagine creatures more di erent rom Thalesthan the index speculator and the manager o a commoditiesindex und. The index speculator and the und manager,

ar rom being acquainted with crop production cycles andpatterns, will never see a grain o wheat in their pro essionallives. Nevertheless, the index speculator and the und managerhave one thing in common with the traditional speculator:whereas the traditional speculator may drive up the price oa commodity by hoarding the physical commodity, the indexspeculator and the und manager accomplish the same byhoarding utures contracts or those commodities 41 . However,the index speculator and und manager are spared the bothero maintaining a warehouse: their hoarding is entirely virtual.

It is important to note that di erent kinds o speculation indi erent markets combined to create the ood price crisis, andthat no one category o market conduct was singly responsible.For instance, market momentum-based speculation in oilcontributed to the ood price crisis, by a ecting undamentalconditions o supply o an essential agricultural input. Petrolis an integral component o modern ood supply chains,

buyers in discovering the reasonable price or a particularcommodity in individual trades and on spot markets 27 . I thebuyer is willing to o er a higher price or a uture than be ore,it means that she expects the eventual price o the commodity

to increase urther. As such, i the price o commodity uturesgoes up, it signals to sellers on spot markets to raise theirprices. Indeed, the grain utures prices quoted by the ChicagoMercantile Exchange 28 tend to be incorporated directlyinto grain trade contracts the world over. Moreover, it isconventionally thought that such speculation reduces pricevolatility, because speculators provide a market or hedgers,and because they buy when the price is low and sell when theprice is high, thus evening out extremes o prices 29 .

O course, such speculation is not an unalloyed blessing: itcan have signi cant price e ects without adding anything

o economic value30

. A speculator, unlike other investorsin agriculture, does not create new capital such as barns ortractors. I that speculator goes bankrupt, her creditors willhave nothing they may satis y their debts upon 31 . It canalso be extremely dangerous the terrible Bengal amineo 1943 in which 3 million people died, occurred to a largeextent because grain traders hoarded essential ood grainsin anticipation o uture higher prices 32 . Such hoardingexacerbated the price spike, thus denying the poorest sectionso society access to ood.

Momentum-based speculation

Another orm o speculation is based simply on market momentum . This has been described as herding behaviourin times o strong (usually upward) price trends, which indeveloped and easily accessible markets can result in theemergence o speculative bubbles 33 . Far rom providinga stabilizing hand, such speculation tends to increase pricevolatility34 . Such momentum-based speculation may havebeen the main cause o the ood price crisis in 2007-2008.

The particular derivative instruments that require our specialattention are the commodity indexes . A commodity index , putsimply, is a mathematical value largely based on the returns oa particular selection o commodity utures. The most amouso these is the S&P GSCI, ormerly known as the GoldmanSachs Commodities Index, which was set up by GoldmanSachs in 1991. Others include the Dow Jones-AIG Index andthe Rogers International Commodities Index. The compositiono the basket o commodity utures varies according to theindex, but agricultural commodities normally do not account

or the majority o the commodities included in the basket.For instance, agricultural commodities only make up 12.2%o the value o the S&P GSCI 35 . Commodities indexesthemselves orm the basis or a number o instruments suchas commodities index unds, commodity exchange traded

unds (ETFs), and commodity index swaps. For instance, acommodity index und is a large sum o money managed bya sophisticated manager, who uses that money to buy the


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or regulatory oversight 44 . Moreover, the Act permitted or therst time OTC derivatives contracts where neither party was

hedging against a pre-existing risk; i.e. where both partieswere speculating. Also, it enabled to hedge against those risksby taking positions on exchanges.

At this point, it is crucial to observe the di erence betweeninvestment in commodities utures and investment incommodity index unds. Commodities utures, being

standardized contracts, are traded on exchanges, soinvestment in them is not OTC. Participation in a commoditiesindex und, however, is mostly OTC 45 . Institutional investorssuch as pension unds, typically enter into agreements with

und managers whereby in addition to the investor paying anannual management ee to the manager, it also pays the undmanager the 3-month Treasury Bill rate. In exchange, the undmanager pays the total return on the utures included in thecommodities index. Such agreements to exchange streamso income, or swaps are almost always traded on an OTCbasis 46 . The lack o regulation o such derivatives greatly

acilitated the entry o institutional investors into commodities

index unds.

To summarise, deregulation in the US allowed purelyspeculative OTC derivatives to be hedged on exchanges, and

being used or ertilizers, ood processing and transportation,and the rise o bioenergy leads to an increased merger othe ood and energy markets 42 . Moreover, small changes inmarket undamentals such as oil price increases, the growtho agro uels, and underinvestment in agriculture can act asa catalyst or momentum-based speculation. The act thatmarket-momentum based speculation may have been themain contributing cause o the ood price increases is noreason to lower ones guard against other actors which also

cause ood prices to rise. Indeed, we should be ever morevigilant, because momentum-based speculation may magni ythe e ects o changes in market undamentals.

THE LARGER FINANCIAL MARKETThe sudden massive entry o index unds into commoditiesshould be placed against the background o developments inthe broader nancial markets. Following the passage o theU.S. Commodity Futures Modernization Act in 2000, Over TheCounter (OTC) 43 derivatives were exempted rom the oversighto the U.S. Commodity Futures Trading Commission (CFTC).As a result o the Commodity Futures Modernization Act andthe decisions o the CFTC, such trading was allowed to takeplace without any position limits, disclosure requirements,

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Figure 2 - Commodity index investment compared to S&P GSCI spot price commodity index

Source: Jan Kregel, The impact o changing nancial fows on trade and production in developing countries (August 67,2008) Presentation to Seminar on Estructura productiva y dinmica de precios: e ectos macro-micro y respuestas de poltica Escuela de Verano de Economas Latinoamericanas , CEPAL, Santiago, Chile.


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POLICY RESPONSESThe 2008 ood price crisis arose because a deeply fawedglobal nancial system exacerbated the impacts o supplyand demand movements in ood commodities. Re orming theglobal nancial system should there ore be seen as part o theagenda to achieve ood security, particularly within poor net

ood-importing countries.

US & EU initiatives

The recent Dodd-Frank Act 54 on nancial re orm passed bythe U.S. Congress is encouraging in this regard. With speci crelation to agricultural commodities, the Dodd-Frank Act setsout a new Section 4a(c) o the Commodity Exchange Act(CEA), which requires the CFTC to establish, within 270 dayso the passage o the Act, limits on the number o agriculturalcommodities that can be held by any one trader, as well ason energy related commodities and utures. It also requiresthe CFTC to establish limits on the aggregate number oramount o positions in certain contracts based upon the sameunderlying commodity that may be held by any one person,including any group or class o traders, or each month. It isto be hoped that the CFTC does not set those limits so highas to be meaningless. On the other hand, the Dodd-Frank Acthas not brought about the structural changes in the nancialmarkets many had hoped or; in particular, the Volcker ruleannounced by President Obama in January 2010, which was

intended to prevent banks rom using taxpayer-backed undsto speculate on nancial markets and give up their stakes inhedge unds and private equity unds 55 , has been severelywatered down in the Act 56 .

In the European Union, Michel Barnier, the EU Commissioneror the Internal Market and Services, announced on 15

September 2010 a Proposed Regulation on OTC derivatives,central counterparties and trade repositories 57 . This proposedregulation imposes mandatory reporting and clearing (wherepossible) o OTC derivatives, and stipulates that non-

nancial actors will be subject to the same rules as nancial

actors i they meet certain thresholds. More speci cally,an in ormation threshold is proposed, which will allownancial authorities to identi y non- nancial actors that have

accumulated signi cant positions in OTC derivatives, anda clearing threshold, which, i exceeded, will render a non-

nancial actor subject to the clearing obligation 58 . Moreover,the proposal draws a distinction between commercial and

nancial actors by stipulating that in calculating the positionsor the clearing threshold, derivatives contracts should not be

taken into account i they have been entered into to cover therisks rom an objectively measurable commercial activity. 59

The proposed regulation will place obstacles in the patho index speculators participation in commodity indexunds. However, these obstacles do not appear to be

insurmountable: the CME group, or instance, has already

institutional investors participated in commodity index undsby arranging OTC swaps. Understandably, the number o

utures and options traded globally on commodity exchangesincreased by more than ve times between 2002 and 2008 47 .

The value o outstanding OTC commodity derivatives grewrom 0.44 trillion in 1998, to 0.77 trillion in 2002, to morethan US$ 7.5 trillion in June 2007 48 .

Beginning at the end o 2001, ood commodities derivativesmarkets, and commodities indexes in particular began tosee an infux o non-traditional investors, such as pension

unds, hedge unds, sovereign wealth unds, and large banksthat packaged and dealt the commodity index instrumentsmentioned above 49 . The reason or this was simply becauseother markets dried up one by one: the dotcoms vanished atthe end o 2001, the stock market soon a ter, and the U.S.

housing market in August 2007. As each bubble burst, theselarge institutional investors moved into other markets, eachtraditionally considered more stable than the last. Strongsimilarities can be seen between the price behaviour o oodcommodities and other re uge values, such as gold. As theEuropean Commission notes, the prices o both had beenlargely stable, began to rise slowly in 2005, and acceleratedsharply in August 2007, when the subprime crisis hit 50 .Similar behaviour obtained in oil markets, which hit the $100per barrel mark in February 2008 and peaked in June 2008,only to all back subsequently.

In none o these markets was there any restriction o supplyor expansion in demand even remotely su cient to explainthe ull extent o price increases. The reasons or suchmovement were two old. First, because it was thought thatmarkets or ood and oil would be pro table because theycould not possibly dry up: people may lose interest in asset-backed securitization, but they will always have to eat 51 .Second, as mentioned earlier 52 , a port olio diversi cationpractice appears to have emerged o spreading out risk inany investment port olio by balancing out investments insecurities or bonds with investments in markets that displayunrelated or opposite behaviour, such as ood and oil. Indeed,total index- und investment in corn, soybeans, wheat, cattleand hogs increased rom US$ 10 billion in 2006 to more thanUS$ 47 billion in 2007 53 .

But these price increases in commodities utures werepossible only i the permanent long positions in them couldbe unded. Previously, this had been made possible by thelow margins that traders had to put up ront in order to tradeon commodities exchanges. The remainder o the unds couldbe invested in other nancial instruments. The ood price

bubble burst when the giant non-traditional speculators lostthe ability to carry on, as a result o their investments in othermarkets crashing. When they ell, the upward ood price spiralalso ended.


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view o the Special Rapporteur, the question o whether ornot the trader is nancial or commercial could at least beindicative o whether or not the transactions being carriedout are likely to be manipulative.

n Most importantly, regulators should recognize that there areundamental conceptual di erences between commodity

derivatives and nancial derivatives. They should not betreated as belonging to the same category o instruments.In order to ensure that such regulatory confation doesnot occur, it may be appropriate to assign the task ocommodity derivatives regulation to a separate institutionsta ed speci cally with experts in commodity markets.

n Once the distinction is made, access to commoditiesderivatives markets could be restricted to traders andspecialist brokers. A number o proposals could beconsidered, such as an outright ban on momentum-basedspeculation, and the compulsory registration o actorstrading on commodity utures markets, in order or suchexchanges to exclude nancial traders 69 .

n In addition, certain regulatory steps could be taken toreduce the incentives or nancial speculation. Amongsuch measures are the establishment o spot plat orms, asexperimented by the Ethiopia Commodity Exchange 70 ; theimposition o compulsory delivery, preventing traders romsettling their obligations in cash; and, as proposed earlierby the Special Rapporteur, the imposition o higher margins( or instance, rom 10 to 30 per cent as down payment),thus orcing speculators to make a larger down payment ortheir speculation 71 .

n Aside rom these regulatory changes, strengthening ospot markets may be brought about by investing in betterwarehousing acilities, communications services and intransport in rastructure 72 . Such steps will not only reducethe infuence o non-commercial commodity utures traders,and increase the participation o armers on such markets,but will also improve the ability o commodity utures to actas price signals.

This is to be desired even i one rejects the speculation-

based explanation or the ood crisis. It may be noted thatthe Abhijit Sen Committee Report to the Indian Ministryo Consumer A airs, Food & Public Distribution called orsuch strengthening o spot market 73 , even though it oundthat speculation in commodity utures did not uel infationin ood prices 74 .

n At the same time, spot market regulation would be necessaryin order to ensure that the delivery requirements do notresult in hoarding 75 . As illustrated by the cornering o thecocoa market by Armajaro described above, our concernshould encompass not just nancial traders, but also

speculation by commercial ones in the orm o hoarding.The Special Rapporteur believes that spot markets shouldbe made transparent, so that the holdings o any singletrader are known to all, and that there should be more

success ully developed cleared commodity index swaps 60 .Moreover, there may be a di erence between the positionlimits imposed by the Section 737 o the Dodd-Frank Act,and the concentration limits imposed by Article 44 o

the proposed regulation. The ormer provision sets out clearrestrictions, while the latter appears to set out more variable,individualized limits that could be subject to dispute 61 . Thegoal o commodity derivatives re orm is not to inconvenience

nancial speculation in commodities, but to limit, control,or even prohibit it outright. As such, it cannot be said thatthe proposed regulation tackles the subject o speculation incommodities directly.

In general, the EU has yet to act as boldly as the US withspeci c regard to speculation in ood commodities, althoughthe consequences o inaction are equally considerable:

London is the worlds largest agricultural commodities marketoutside the US 62 . Despite various calls denouncing the impacto speculation in oodstu s63 , such as the demarche by theFrench government to the European Commission 64 , Europeanregulation o commodities trading remains insu cient. InJuly 2010, Andrew Ward, the manager o Armajaro, a London-based hedge und, purchased US$ 1 billion (770 million)worth o utures contracts or 241,000 tons o cocoa. Thisrepresented about 7% o the worlds annual output o cocoa,and is enough to supply Germany or an entire year. Evenmore amazingly, the contracts were or delivery, which meansthat Armajaro owned almost all the cocoa beans sitting inwarehouses all over Europe. Although the announcement ogood harvests ensured that the spot prices did not rise asArmajaro had hoped, that such hoarding is permitted in thisday and age stretches belie .

Possible improvements

In general, certain steps could be taken to prevent improperspeculation in the commodities derivatives markets.

n Certain important regulatory bodies comprise too ewexperts in commodity markets 65 : a rst improvement could

be simply to begin remedying this imbalance.n Next, all regulators should distinguish between traders

hedging against genuine commercial risks rom non-traditional, market momentum-based speculatorsinterested simply in making gains on price changes.Whereas the U.S. CFTC does this 66 , others, such asthe U.K. Financial Services Authority (FSA), do not. Forinstance, the FSA does not consider activity by nancialparticipants to be de acto manipulative 67 . As such, itdoes not there ore consider that there should necessarilybe a distinction made between large speculative and largenon-speculative positions or the purposes o combatingmanipulation the ocus should be on combating largepositions that lead to manipulation irrespective o whether they are held by nancial participants or not 68 . Yet, in the


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Although the global stocks o grain are higher now than theywere previous to the 2007-2008 ood crisis, the nancialdrivers o that crisis remain largely unchanged. More stillneeds to be done to curb the negative e ects o speculation

on basic ood commodities. This is an important sourceo vulnerability, particularly, or poor net ood-importingcountries, whose dependency on ood imports has beenincreasing over the years, and who will in the uture su ermore balance o payments problems i they are con rontedwith a new peak in prices over the coming weeks and months.

Recommendations:1. Given the numerous linkages between agriculture, oil, and

other nancial markets demonstrated above, comprehensivere orm o all derivatives trading is necessary . The very rst

step would be to require registration, as well as clearingto the maximum extent possible o OTC derivatives, sothat there is real time reporting o all transactions made,without in ormation privileges or OTC traders, and in orderto allow or e ective supervision. The small minority oderivatives that cannot be cleared must nevertheless bereported without a time lag.

2. Regulatory bodies should care ully study and acquireexpertise in commodity markets , instead o regulatingcommodity derivatives and nancial derivatives as i theywere the same class o assets. It may be appropriate toassign the task o regulating commodity derivatives to aspeci c institution sta ed with experts in commodityregulation, rather than have a single body regulating both

nancial and commodity derivatives.

3. Access to commodities utures markets should berestricted as ar as possible to quali ed and knowledgeableinvestors and traders who are genuinely concerned aboutthe underlying agricultural commodities. A signifcantcontributory cause o the price spike was speculation byinstitutional investors who did not have any expertise orinterest in agricultural commodities, and who invested incommodities index unds because other fnancial markets

had dried up, or in order to hedge speculative bets madeon those markets.

4. Spot markets should be strengthened in order to reducethe uncertainty about uture prices that creates the need

or speculation. However, these markets must also beregulated in order to prevent hoarding. Spot markets mustbe transparent, and holdings should be subject to strictlimits in order to prevent market manipulation.

5. Physical grain reserves should be established or thepurpose o countering extreme fuctuations in ood price,managing risk in agricultural derivatives contracts, anddiscouraging excess speculation, as well as meetingemergency needs. Such measures and the abovementionedre orm o commodity derivatives markets should be seen ascomplementary.

transparency also about the strategic reserves held byStates. Second, strict position limits should be placed onindividual holdings, such that they are not manipulative.

INTERNATIONAL COOPERATIONThere is a role or international cooperation in this regard.The ability o individual countries to eed their populationscould be bolstered by setting up ood and grain reserves.The establishment o ood reserves would at least assist inaddressing the relatively small supply and demand movementsor the impact on supply o events such as droughts or foodsthat speculators latch upon, thus reducing levels o pricevolatility76 . The e cacy o such ood reserves would beenhanced i they were established at regional and not justat national level, or i countries exchanged in ormation abouttheir ood reserves and insured each other against pricevolatility by mutualizing such ood reserves 77 . But improvedregulation preventing large nancial actors rom infuencingthe commodity utures markets would also signi cantly limitvolatility78 .

Other initiatives presently extant at the international level arecompensatory nancing schemes such as the EUs STABEXand FLEX schemes 79 , the IMFs Compensatory FinancingFacility (CFF) and Exogenous Shock Facility (ESF) 80 , andthe Food Financing Facility (FFI) mooted in the MarrakechDecision and the WTO Ministerial Con erence at Doha. Theyaim simply to help countries avoid the adverse impact ongrowth as a result o ood price volatility, such as, or instance,by giving access to short-term loans. This however does notaddress the increased volatility itsel , when it is caused byspeculation. As such, the international community needs, asa matter o priority, to explore alternative methods by whichthe underlying speculation-based causes o ood price spikescan be addressed.

CONCLUSION

Action to address the dangers o speculation in basic oodstu sis needed. Although considerable progress appears to havebeen achieved in this regard with respect to nancial re ormin the US, most other regions in the world, including the EU,still lag behind. The undamental structure o global nancialmarkets appears to be little di erent rom be ore the oodprices crisis o 2007-8, the lessons o which we have ailedto learn. It is crucial that we do so, because we once again

nd ourselves in a situation where basic ood commoditiesare undergoing supply shocks. World wheat utures and spotprices climbed steadily until the beginning o August 2010,when Russia, aced with massive wild res that destroyed itswheat harvest, imposed an export ban on that commodity 81 .In addition, other markets such as sugar and oilseeds arewitnessing signi cant price increases 82 .


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DERIVATIVES AND THEIR USES

What are derivatives?

A derivative is a nancial instrument whose value depends on (or derives rom) the values o other, more basicunderlying variables 83 : it is there ore a nancial instrument which has a value determined by the price osomething else 84 . This something else can be almost anything: it can be assets or commodities such as oilor wheat, or nancial instruments such as securities or indices.

To illustrate, a potato armer and a buyer may enter into a contract or the sale and delivery o a quantity opotatoes well be ore a single potato comes into existence. The armer will enter into this contract i he thinksthat the price o ered by the trader at that point in time is greater than what he will get when he sells the actual

potatoes on the spot market. He has the security o a xed price, and has trans erred the risk o a all in potatoprices to the buyer. The buyer may enter into this contract perhaps because she expects the opposite behaviouron the spot market. Or, she may be under a contractual obligation to yet another person to produce a certainquantity o chips at a particular time, and there ore needs to be certain that she will have the necessary potatoesat hand. In any case, there is a di erence in expectations: the armer thinks prices may all as a result o anoversupply o potatoes, and the buyer thinks the prices may rise as a result o undersupply.

The variety o types derivatives is potentially in nite. However, most derivatives all under, or are variants o oneo the ollowing three categories:

1. Forward Contracts and Futures : The contractual arrangement described in the above paragraph is the kind

o derivative known as a orward contract. Forward contracts whose terms are standardized su ciently orthem to be bought and sold on exchanges are known as utures. The means by which transactions betweencountless armers and buyers is coordinated is by having all the armers sell to a clearing house, andall the buyers buy rom that same clearing house. That clearing house then owes corresponding obligationsto the armers and the buyers.

2. Options : Imagine the same scenario between the potato armer and the buyer, but with one di erence:instead o purchasing the potatoes, the contract gives the buyer the choice whether or not to purchase thepotatoes at a pre-determined price. I potato prices in the uture spot market are higher than the price thebuyer has negotiated with the armer (to which the ee the buyer pays the armer in exchange or the optionshould be added), the buyer will exercise the option. I the rise in prices does not materialize, then he willlet the option lapse and will incur a loss on the option ee. An option to buy an asset is known as a calloption, while an option to sell an asset is a put option.

3. Swaps : To demonstrate this category o derivatives, imagine that the counterparties hold an asset thatproduces a stream o income over time. For example, counterparty X may hold a bond which bears a xed rateo interest, while counterparty Y owns a similar security, but which pays a foating rate o interest pegged tothe per ormance o a certain index. X may think that the stream o income coming rom Y s asset will be worthmore in the uture, because a rising rate o infation will make the xed interest payments o X less valuable.Y may think that X s stream o income will be more valuable in uture, because Y has reason to think thatthe value o the particular index her security is pegged to will crash shortly. Thus, they will swap the cashfows deriving rom their assets with each other. It is possible to make a swap between two foating streamso income, because di erence actors have a di erent relationship to risk and, based on the in ormation

they possess, have di erent anticipations about the uture. The only swap that makes no sense, or obviousreasons, is one between two streams o income xed at a certain rate in the same currency.


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How are derivatives used?

As can be seen in the example o the potato armer and the buyer, derivatives can be used or two purposes.

The armer who enters into the orward contract in order to avert the risk o a all in uture potato prices, andthe buyer who does the same in order to ensure a uture supply o a quantity o potatoes or their moneys worthare hedging against risks: both pre er the security o a prede ned price to the risks o having to sell at a lowerprice (or o having to buy at a higher price). On the other hand, the buyer who enters into the orward contractsimply because she thinks the price o ered now is better than that which will obtain in uture, is speculating inthe hope o a pro t. She is making a bet, pure and simple. The ollowing suitable de nition is provided by theEuropean Commission: a speculator is an investor who purchases/sells (a derivative) in order to sell/purchaseit later (usually be ore expiry) or the purpose o pro ting rom the intervening price changes 85 .

However, it is extremely di cult in practice to know whether a particular trader is hedging or speculating, sincethe mediation o a clearing house, which, as mentioned above, is meant to standardize all contracts, necessarilyhas the e ect o making background in ormation about each individual trade opaque to public view. The bestregulators can do is to train their ocus upon the trader. One solution is to vet traders at the very outset: be orethey can trade on an exchange. The CFTC does this by separating commercial traders rom non-commercialtraders. Alternatively objective determination o the trader may be obtained by considering the size o thetrades, as well as their requency . Does she have su cient other assets relative to the size o the position inorder to give rise to the in erence that she is protecting her investment in those other assets thereby? Or, judgingby the traders pro le, does it look as i the contract is itsel the traders main interest? To illustrate, consider aman who buys an insurance policy on a house. I the house is worth $50,000, and the policy is or about thesame amount, then one can in er that he is hedging against the possibility that the house might burn down. Ithe policy is or $100,000, then one can in er that he is positively betting that it will burn down.

A third reason traders have or nding derivatives attractive arises rom the act that they are much more liquid

as investments than the underlying assets, commodities or instruments. For instance, taking the example ospeculative buyer, we can assume that she has no interest in actually taking delivery o the tonnes o potatoes.She will have evened up, i.e. negotiated a corresponding contract with another person who actually requirespotatoes or some reason. The armer will in practice deliver the potatoes to directly to this third person, butthe payment obligations will nevertheless remain triangular. The buyer thus enjoys greater trading e ciency ,because she merely makes (or loses) money without going through the trouble o receiving and storing anyquantity o potatoes. Derivatives thus acilitate the ree trading o risk components 86 . With regards to markets

or agricultural ood commodities markets, the FAO observes that only 2% o all utures contracts result in thedelivery o the underlying physical commodity. This makes trading such utures attractive to investors who haveno interest in the commodity, but only in making a speculative gain 87 .

Notes1. World Bank, Global Economic Prospects. Commodities at the Crossroads , 2009 (based on evidence available until 30 November 2008),

96. For an overview o the impacts o the crisis and o possible remedies, see Special Rapporteur on the right to ood, Report to the 12 th session o the Human Rights Council, Crisis into opportunity: rein orcing multilateralism , A/HRC/12/31 (21 July 2009)

2. FAO, Number o Hungry People Rises to 963 Million , (December 2008).3. See I. Maros and W. Martin, Implications o Higher Global Food Prices or Poverty in Low Income Countries (2008) World Bank Policy

Research Paper No. WPS 4594.4. See T. Hertel, P. Preckel, J. Cran eld and I. Maros, The Earnings E ects o Multilateral Trade Liberalization: Implications or Poverty

(2004) The World Economic Review , 18(2).5. See generally UNCTAD, The Least Developed Countries Report 2008 (2008).6. A. Mittal, The 2008 Food Price Crisis: Rethinking Food Security Policies, (June 2009) G-24 Discussion Paper Series No. 56 ,

UNCTAD, 1.7. Id.8. Implied volatility re ers to the markets expectations o the extent to which the price o a particular commodity will change in uture. It is

implied because such changes cannot be observed directly, being uture events, but are implied rom the prices o derivatives basedthose commodities.


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9. FAO, Food Outlook , (June 2010), 98.10. Trostle estimates that whereas the production o grains and oilseeds grew on average 2.2% p.a. between 1970 and 1990, the rate o

growth declined to 1.3% p.a. a ter 1990. Moreover, it is estimated that it will decline urther to 1.2% p.a. between 2009 and 2017. See R. Trostle, Global Agricultural Supply and Demand: Factors contributing to the Recent Increase in Food Commodity Prices, (2008)WRS-0801, Economic Research Service, USDA.

11. FAO, Crop Prospects and Food Situation, (February 2008); Mittal, supra note 6, 3.12. See D. Mitchell, A Note on Rising Food Prices (July 2008) World Bank, Development Prospects Group , Policy Research Working Paper

4682: arguing that the large increase in bio uel production in the U.S. and the E.U. was the most important actor behind the oodcrisis.

13. B.D. Wright & E. Bobenrieth, Special Feature: The Food Price Crisis o 2007/2008: Evidence and Implications (December 2010) FAO Food Outlook 59, 62.

14. IMF, World Economic Outlook (2008).15. Wright and Bobenrieth, supra note 13, 64.16. P. Wahl, Food Speculation as the Main Factor o the Price Bubble in 2008, (February 2009) Brie ng Paper, World Economy, Ecology

& Development, 6 7.17. Wright & Bobenrieth, supra note 13, 64.18. Wahl, supra note 16, 7.19. See FAO Crop Prices and Food Situation (2008), Table 2: Basic Facts o the World Cereal Situation, at: http://www. ao.org/docrep/011/

ai476e/ai476e04.htm; J. Ghosh, The Unnatural Coupling: Food and Global Finance (2010) Vol. 10 Journal o Agrarian Change , 72,at 72, 81; and S. Schulmeister, Asset Price Fluctuations, Financial Crises and the Stabilizing E ects o a General Transactions Taxin M. Balling, J.M. Berk, & M. Strauss-Kahn eds., The Quest or Stability: A View o Financial Institutions (2010) (SUERF, Vienna),99 130.

20. J. Ghosh, The Commodity Price Roller Coaster (2008), 4.21. Wahl, supra note 16, 11.22. T. Lines, Speculation in ood commodity markets, (April 2010) World Development Movement , 1.23. F. Kau man, The Food Bubble: How Wall Street starved millions and got away with it (July 2010) Harpers Magazine, 32.24. UNCTAD, Trade and Development Report (2009).25. Aristotle, Politics, Volume 2, Book I, trans. John Gillies, (London, 1813) 53 54.26. Id., 54.27. EU Commission, Is there a Speculative Bubble in Commodity Markets? , Commission Sta Working Document, Task orce on the role

o speculation in agricultural commodities price movements , SEC(2008)2971, 3, 1.28. In 2007, the Chicago Mercantile Exchange acquired the Chicago Board o Trade, which was the worlds rst major exchange or

derivatives trading.29. See e.g. J.S. Mill, Principles o Political Economy with Some o Their Applications to Social Philosophy (1848) Charles C. Little & James

Brown, Boston, Mass., 535.30. Wahl, supra note 16, 9.31. Id. , 1032. A.K. Sen, Development as Freedom , (1999) Ox ord, 167.33. EU Commission, Is there a Speculative Bubble in Commodity Markets? , supra note 27, 1.34. See S. Newman, The New Price makers: An investigation into the impact o nancial investment on co ee price behaviour (2009)

NCCR Trade Working Paper No. 2009/7. See also Report o the Expert Committee to Study the Impact o Futures Trading on Agricultural Commodity Prices (Abhijit Sen Committee Report), (2008) Ministry o Consumer A airs, Food & Public Distribution, Governmento India, 11.9: A study o the unctioning o existing utures markets and contracts suggests that although the volume o uturestrading in India has increased phenomenally in recent years, its ability to provide instruments o risk management has not growncorrespondingly, and has in act been quite poor.

35. See the Factsheet downloadable rom the S&P GSCI website at: http://www.standardandpoors.com/indices/sp-gsci/en/us/?indexId=spgscirg--usd----sp------.

36. F.S. Rose, Futures Markets, Port olio Diversi cation and Food Prices, (June 2010) FAO, Food Outlook , 52 56. A particularlyimportant paper in this regard was G. Gorton & K. G. Rouwenhorst, Fact and Fantasies about Commodity Futures, (2004) NBERWorking Papers 10595: arguing that the returns rom investment port olios based on commodities display were negatively correlated tothe returns rom stocks and bonds, thus making them suitable or diversi ying investments.

37. Kau man, supra note 23, 30.38. The CFTC de nes backwardation as being the (M)arket situation in which utures prices are progressively lower in the distant

delivery months. See the CFTCs glossary at: http://c tc.gov/ConsumerProtection/EducationCenter/CFTCGlossary/glossary_b.html#backwardation.

39. The CFTC de nes contango as being the market situation in which prices in succeeding delivery months are progressively higherthan in the nearest delivery month. See the CFTCs glossary at: http://c tc.gov/ConsumerProtection/EducationCenter/CFTCGlossary/glossary_co.html.

40. Wahl, supra note 16, 12.

41. M.W. Masters & A.K. White, How Institutional Investors Are Driving Up Food and Energy Prices (July 31, 2008), 10. Available at:http://accidentalhuntbrothers.com/index.php?s=%22How+institutional+investors+are+driving+up+ ood+and+energy+prices%22.

42. See Food and Energy Crisis: Time to Rethink Development Policy, South Centre, (2008) Geneva.


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43. OTC derivatives are those which are not traded on exchanges, but purely as bilateral contracts between private parties. For instance,contracts which are structures in a unique or particularly complicated ashion tend to be traded OTC. As a result, they can be completelyhidden rom outside view, and there ore unregulated.

44. Mittal, supra note 6, 21.45. In early 2008, 85% to 90% o institutional investors seeking to invest in commodities did so by entering into OTC swaps with commodity

index und managers at Wall Street Banks: G. Epstein, Commodities: Whos Behind the Boom? (31 March 2008) Barrons.46. Masters & White, supra note 41, 9.47. T. Kerckho s, R. van Os, M. Vander Stichele, Financing Food: Financialisation and Financial Actors in Agriculture Commodity Markets

(April 2010) SOMO paper , 7. UNCTAD, The Global Economic Crisis: systemic ailures and multilateral remedies (New York and Geneva,2009),.

48. Bank or International Settlements, Semiannual OTC Derivatives statistics at end-June 2007 (2007); Newman, supra note 34, 8.49. Kerckho s et al , supra note 47, 7. See also D. Domanski and A. Heath, Financial Investors and Commodity Markets (2007) BIS

Quarterly Review , 53 68.50. European Commission, Is there a Speculative Bubble in Commodity Markets? , supra note 27, 7. See also Report o the Special

Rapporteur on the Right to Food, Building resilience: a human rights ramework or world ood and nutrition security, (20 July 2009) A/HRC/12/31, ( Building resilience ) 41, 20 21.

51. A study commissioned by PIMCO, the bond giant, had this to say: we believe commodities o er an inherent or natural returnthat is not conditioned on skill. Coupling this with the act that commodities are the basic ingredients that build society , we believe

commodities are a unique asset class and should be treated as such. Ibbotson Associates (commissioned by PIMCO), Strategic AssetAllocation and Commodities (27 March 2006), 4.52. See supra note 36.53. D. Kesmodel, L. Etter and A.O. Patrick, Grain Companies Pro ts Soar As Global Food Crisis Mounts (30 April 2008) The Wall Street

Journal , A1 and A14.54. Dodd-Frank Wall Street Re orm and Consumer Protection Act , (Pub.L. 111-203, H.R. 4173). Signed into law by President B. Obama

on July 21, 2010.55. G. Meyer & J. Blas, Commodity trading houses set to slip under Volcker net (29 January 2010), Financial Times.56. S. Nasiripour, Financial Re orm Bill Passes: Banks Keep Derivatives Units, Volcker Rules So tened; House-Senate Con erence

Passes Financial Re orm Bill A ter Marathon Session, (25 June 2010) Hu ngton Post. Available at: http://www.hu ngtonpost.com/2010/06/25/ nancial-re orm-bill-pas_n_625191.html.

57. European Commission, Proposal or a Regulation o the European Parliament and o the Council on OTC derivatives, central counterparties and trade repositories, SEC(2010) 1058, SEC(2010) 1059.

58. Id., 8.

59. Id.60. J. Bunge, In OTC Battle, CME Sees Success in Commodity Index Swaps (16 April 2010) Dow Jones Newswires. Available at: http://

www.nasdaq.com/aspx/company-news-story.aspx?storyid=201004161603dowjonesdjonline000741.61. Whereas the new Section 4a(c) o the Commodities Exchange Act provides that the (CFTC) shall by rule, regulation, or order establish

limits on the amount o positions, as appropriate, Article 44(4) o the proposed Regulation provides that A CCP (Central Counterparty)shall take into account its overall credit risk exposures to individual obligors in making its investment decision and shall ensure that its overall risk exposure to any individual obligor remains within acceptable concentration limits.

62. S. Amann and A. Jung, Speculators Rediscover Agricultural Commodities (29 July 2010) Spiegel: Online. Available at: http://www.spiegel.de/international/business/0,1518,708765,00.html.

63. Michel Barnier, EU Commissioner or the Internal Market, made repeated statements to this e ect. See European Parliament, News,(12 January 2010): http://www.europarl.europa.eu/news/expert/in opress_page/008-67167-012-01-03-901-20100112IPR67166-12-01-2010-2010- alse/de ault_en.htm ; and Francine Lacqua and Helene Fouquet, EUs Barnier Pledges Derivatives and HedgeFund Regulations (04 July 2010) Bloomberg. Available at: http://www.businessweek.com/news/2010-07-04/eu-s-barnier-pledges-derivatives-and-hedge- und-regulations.html.

64. B. Hall, France steps up tougher rules campaign (31 August 2010) Financial Times.65. T. Lines, Regulating Speculation in Food Commodities, (April 2010) World Development Movement, 3.66. The CFTC distinguishes between traditional commercial traders who hedge against genuine trade risks, and non-commercial traders,

who are primarily interested in speculation or long-term investment.67. Financial Services Authority and H.M. Treasury, Re orming OTC Derivative Markets: A UK Perspective (2009), 9.19.68. Id. In 9.21, the paper states that the majority o commentators have concluded that commodity price movements cannot be solely

attributed to the activities o any one class o investor and are principally attributable to market wide actors. We agree with theseconclusions. This argument ails to take into account the possibility that one class o investor can magni y the e ects caused byothers. See also Lines, Regulating Speculation in Food Commodities, supra note 65, 2.

69. See Special Rapporteur on the right to ood, Crisis into Opportunity, supra note 1, para. 38, 21.70. The Ethiopia Commodity Exchange has designed a set o spot contracts that are structured just like utures contracts but with a 100%

margin or immediate delivery, with currently very little scope or speculation: Eleni Z. Gabre-Madhin, Structured Commodity tradeand Price Volatility: Are Commodity Exchanges the Solution, or the Problem? (15 June 2010) Presentation to FAO , Rome, 4.

71. Special Rapporteur on the right to ood, Crisis into Opportunity, supra note 1, 38, 21.72. Id. 14, 9.73. Abhijit Sen Committee Report, supra note 34, paras. 11.11 11.12.


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74. Id. , para. 11.8.75. Lines, Regulating Speculation in Food Commodities, supra note 65, 8: some hedge unds, and others, are now taking delivery o

physicals and not just in gold.76. Report o the Special Rapporteur on the Right to Food, Mission to the World Trade Organisation, (25 June 2008) A/HRC/10/5/Add.2,

para. 42, 20.

77. The Special Rapporteur has also proposed the establishment o an emergency reserve allowing the World Food Program (WFP) to meeturgent humanitarian needs by distributing grain purchased at pre-crisis levels: see Special Rapporteur on the right to ood, Crisis into Opportunity, supra note 1, para. 39, p. 22.

78. FAO, Management o Wide International Commodity Price Movements National and International Experiences and Policy Responses (April 2010) Committee on Commodity Problems, 68 th Session, 14 16 th June 2010, Rome, CCP/04, 20, 8. See also UNCTAD/GDS/2009/1, 38; Special Rapporteur on the right to ood, Crisis into Opportunity, supra note 1, 39, 21 22.

79. STABEX ( Systme de stabilisation des recettes dexportation, or Stabilization o Export Earnings Program) was introduced in 1975,and was open to A rican, Caribbean and Paci c countries. In order to be eligible or participation, there had to be a drop o 6.5% inexport revenues rom trade with the EU in the sector concerned, measured against a our-year average. Following the Cotonou Agreementin 2000, STABEX was replaced by FLEX (Fluctuations in Export Earnings Program), which imposed more onerous eligibility criteria andtook into account a broader range o economic indicators.

80. The CFF has allen into disuse since 2000 due to the stringent conditions it imposes or eligibility or nancing. On the other hand,a number o countries adversely a ected by the 2007-8 ood crisis resorted to the ESF in order to address balance o payments and

international reserve position issues. See FAO, Management o Wide International Commodity Price Movements, supra note 78, 8 9.81. See FAO media release, FAO cuts wheat production orecast but considers supplies adequate, (4 August 2010). Available at: http://www.ao.org/news/story/en/item/44570/icode/.

82. FAO, Global Cereal Supply and Demand Update (1 September 2010), FAO/GIEWS Global Watch, 3.83. J.C. Hull, Options, Futures, and Other Derivatives , (1999) Prentice Hall. Op. cit. G. Dhingra, An Understanding o Financial Derivatives

(2004) The Chartered Accountant 976, 977.84. R.L. McDonald, Derivatives Markets , (2003) Prentice Hall. Op. cit. Dhingra, supra note 83, 977.85. European Commission, Is there a speculative bubble in Commodity Markets, supra note 27, 3.86. Dhingra, supra note 83, 977.87. FAO, Price surges in ood markets: How should organized utures markets be regulated? Policy Brie No. 9, Economic and Social

Perspectives (June 2010), 1.


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AcknowledgmentsThe Special Rapporteur acknowledges the help o Aravind Ganesh in preparing this brie ng note. In addition,he would like to thank David Frenk, Jayati Ghosh, Tom Lines, George Rapsomanikis, Steve Suppan, and EricTollens or their help ul comments upon earlier dra ts o this note.

Olivier De Schutter was appointed the UN Special Rapporteur on theright to ood in March 2008 by the United Nations Human RightsCouncil. He is independent rom any government or organization, and hereports to the Human Rights Council and to the UN General Assembly.All reports are available on http://www2.ohchr.org/english/issues/ ood/annual.htm. See http://www.sr ood.org or a thematic classi cationo all reports and statements o the Special Rapporteur. The SpecialRapporteur can be contacted on sr [email protected]

olivier de schutter food commodities speculation and food price crise

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