Food speculation

Ironically, global stockpiles of wheat are higher than they have been in years, despite the fact that the price has hit a record of more than £200 per tonne in London, having risen 90pc during last year.

Err, why ironically?

Why not thankfully? Or even \”OMG isn\’t that friggin\’ fabulous\”?

This is straight Adam Smith stuff folks, 235 years old.

We can see that, as a result of various bits of weather around the world, wheat is going to be in shorter supply than we had hoped some months back. If we all kept on consuming wheat as we had expected to some months back there\’s a chance (a risk, a chance, not a certainty) that we\’d run out before the next harvest(s) came in.

And we really would rather not face that medieval problem of the hungry time, when the barns are empty but the crop not yet ripe in the fields.

So, how would we avoid this? Well, the speculators are doing this for us. They can see that wheat is going to be more expensive in the future than it is now. So, they buy and store it. This reduces consumption now (people really do respond to incentives. A higher price for wheat now means less wheat eaten now and more corn, potatoes, polenta instead of pasta, rye, porridge etc) and also suggests to farmers that they want to maximise their production both of the next crop but also of this one. That last achieved at the margin of course: they can\’t go and plant more now but they can add a little more fertiliser, check the weeds a little more, scare off a few more birds etc.

So the speculators, by acting entirely in their own very selfish self interest, desiring only to fill up their wallets with pelf, achieve our goal. They move the future high prices into the present and thus curtail the shortage, lower the chances of a hungry time. The rise in stocks being the proof that this is happening.

Me, I think this is a great system. Just point human greed at the problem and it gets solved.

There are those who disagree, I know, but what\’s their solution? Bureaucrats?


14 comments on “Food speculation

  1. As you say, Adam Smith hit on this insight 235 years ago. 235 years – you might imagine that even a Toynbee, Murphy, Hutton or Monbiot might be able to grasp a concept that has been around for that long.

    But then again…..

  2. Rye and porridge are not made of wheat. Rye is a completely different grain and porridge is made of oats.

    Tim adds: Err, yes, that’s why more expensive wheat would lead to people substituting by eating the now cheaper (comparatively) rye and oats……

  3. But you say:

    higher price for wheat now means less wheat eaten now and more corn, potatoes, polenta instead of pasta, rye, porridge etc

    Tim adds: Just bad phrasing on my part then. The polenta and pasta are substitutes for each other, the rye and porridge for wheat as well.

    “less wheat eaten now and more corn, potatoes, (polenta instead of pasta), rye, porridge etc”

    Makes it clearer.

  4. I think history (or is it just anecdote) requires us to at least consider calling them the “Bread Commissar”. Given how well it is likely to work, “Marie Antoinette” would seem a reasonable stab as well. We wouldn’t be lucky enough for it to be “the Accused”.

  5. I predict a National Food Service is not far around the corner if food prices continue to rise……………. be afraid, be very afraid!!!

  6. Tim – on a semantic aside, you ask: “Err, why ironically?”

    Twenty-odd years at the sharp end of editing has led me to the conclusion that 99% of the time journalists use “ironically”, they misuse or abuse it: either they mean something else – usually “coincidentally” – or they use it in a way that suggests they haven’t really got a grip on the subject.

    The latter applies in the Rowena Mason article you quote. In this case, she used “ironically” to mean “paradoxically” and as your fine exposition on Adam Smith’s examination of speculation shows, there is nothing paradoxical about it at all.

    Probably without meaning to, you have usefully highlighted a rule I suggest all readers adopt: whenever you come across “ironical” or any of its forms in a journalist’s report, it nearly always deserves closer examination. Either it’s been totally misused, or it betrays ignorance or bafflement on the part of the writer of their subject. Of course, 1% of the time, it’s used correctly. But more often than not it’s a good “indicator” word that the writer has not fully engaged the brain before writing.

  7. Morpork: I thoroughly agree. The catachrestic usage of the word famously reached its apotheosis in that song by Alanis Morrisette. In a similar vein, use of the word ‘literally’ should be scrutinised with care.

  8. It is not because of supply/demand anymore, those moves are rational and worked out by commercials, these are extreme moves made by investement fund that only look at the numbers in futures markets that are small enough to drive with relative small amounts of money (money they received from the state to avoid falling over). You can see that they play because since the new year prices come down in order to go up later so the funds clients see a nice return. Thanks to the excessive jumps in prices we get food price protests, which can lead to revolutions and before you know funds help extremists to take over countries. They must be stopped.

  9. Re:”Ironically” – the meanings of words are judged via usage not Mosiac tablets. The meaning is changing or being added to by society. If you want to restrict “ironically” to only the old meaning, fine, use it that way if you want, but there’s no reason why the rest of us should have to follow your usage too.

    “And we really would rather not face that medieval problem of the hungry time, when the barns are empty but the crop not yet ripe in the fields”

    “We” of course being those living in the developed world. Did you consider that perhaps the speculators haven’t been and won’t be so successful for many hundreds of millions of those across the planet who aren’t in that “we”?

  10. Snow and rain last spring have led to a shortage of lambs and ewes in New Zealand.

    Prices are high but some farmers are choosing to retain stock to breed for next season in the reasonable expectation that demand will still be high next year.

  11. Pingback: Greed isn’t always the problem it can lead to solution « Homepaddock

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