The world could see a repeat of the 2008 price crisis that spawned deadly riots on three continents, the UN's top food security expert warned.
David Nabarro, the UN special representative on food security and nutrition, said that shortages of food, water and power are bound to create social anxiety and political instability in the future.
"Anybody who thinks that 2008 represented some kind of peak is dreaming," Nabarro said on the sidelines of an international conference on food security.
At the meeting, French President Nicolas Sarkozy called on the world's 20 rich industrial nations and major emerging markets to contain farm price volatility sparked by commodity speculators.
Sarkozy said controlling excessive market speculation through tougher regulation, supervision and transparency would go a long way to avoid the price instability seen over the past years.
Nabarro said financial speculation had acerbated problems for farmers around the world.
Factors influencing prices
"Speculators and people who are taking positions on future food prices in order to get some sort of financial gain certainly do amplify the price trends," he said. "That amplification can be quite extreme and quite damaging."
He said this year's price increases were mainly caused by droughts and fires, affecting wheat sales from China to Ukraine, and corn in the United States.
"There are several different factors that can come together. These lead to anxieties in world markets, particularly among traders, which in turn can fuel rises simply because people take positions on where prices are going to be in the future," Nabarro said.
Sarkozy said the difficulties go far beyond the whims of nature. He said financial market specialists - instead of agricultural trading houses -had taken over the global farm market and called for change.
"Take the Chicago market," said Sarkozy, listing how the derivatives exchange totals 46 times the annual US wheat production and 24 times that of corn. He said 85% of the contracts on commodities futures markets are held by purely financial players "with no link to the commodity itself."
"The example shows to what extent our world has lost a sense of value, a sense of reality, a sense of capitalism to serve the development and happiness of people," Sarkozy said.
Farmers at the market echoed the refrain that small farmers were having problems with financial planning since because of fluctuating prices.
Such price uncertainty, combined with drought and export bans during crises, has contributed to the food insecurity seen across much of the world over the past years.
"If food insecurity goes on for a long time, this can lead to big anxiety among people and the kind of political instability that is perhaps particularly difficult to handle because it is people who are very worried about their personal future," said Nabarro.
Sarkozy currently holds the presidency of the G-20 group and wants to use a November summit in Cannes to push through some farm measures. He says the same lack of regulation now visible in the commodities and raw materials markets drove the financial markets toward the 2008 global financial crisis.
To improve transparency and oversight, Sarkozy again called for a centralised register for data transactions in derivatives. He wants trading data to be better available to boost food security and stable markets by cutting out excessive speculation
(Sapa, June 2011)