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A Second Look at the 2007-08 Food Price Crisis: Considering the Impact of Endogenous Dynamics on Food Prices


  • Russi, L.


This paper offers an alternative to the conventional explanation of the 2007-08 food price crisis in terms of escalating demand or dwindling supply. Instead, its focus is on the legal-institutional structure of commodity futures markets, which has witnessed a drastic alteration in the role of speculators. These have transformed from “market makers” (that keep commodity futures markets liquid by arbitraging on price fluctuations) to "market breakers". Index speculation, in particular, has had the effect of muddling information about market "fundamentals" because of the need – brought about by commodity index swaps – for swap dealers to hedge the fluctuations of an index of commodity prices by opening and periodically rolling over long-only positions. This periodical rollover to comply with contractual obligations, rather than in response to anticipated fluctuations in the availability of a commodity in the future, can induce a "contango bias" in the commodity futures market that, in turn, might have given the wrong signals to market operators, leading to a condition of induced (rather than pre-existing) scarcity and to an increase in spot prices in the 2007-08 crisis.

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  • Russi, L., 2012. "A Second Look at the 2007-08 Food Price Crisis: Considering the Impact of Endogenous Dynamics on Food Prices," CITYPERC Working Paper Series 2012-01, Department of International Politics, City University London.
  • Handle: RePEc:dip:dpaper:2012-01

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    1. Irwin, Scott H. & Sanders, Dwight R. & Merrin, Robert P., 2009. "Devil or Angel? The Role of Speculation in the Recent Commodity Price Boom (and Bust)," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(2), August.
    2. Staritz, Cornelia, 2012. "Financial markets and the commodity price boom: Causes and implications for developing countries," Working Papers 30, Austrian Foundation for Development Research (ÖFSE).
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