Analysts Divided Over Cause of Food Price Increases

AGRICULTURE: What is Really Causing ‘Agflation’?

By Mario Osava

RIO DE JANEIRO, Apr 25 (IPS) - The old laws of the marketplace are no longer working. Food prices have been rising for six years because of surging demand, and increased production is not restoring the balance as it used to in the past. In fact, prices have been going up even faster over the last year.

The so-called "financialisation" of commodities markets, that is, the influx of investment funds seeking safer and more lucrative assets, has intensified the trend and "at the moment impinges more than the law of supply and demand," said analyst Fernando Muraro of AgRural, a consultancy firm in Brazil.

There is no way to measure the influence of speculative forces on "agflation," the new term coined to describe inflation provoked by the agricultural sector, he said.

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There is a global excess of dollars, and holders are transferring them to markets and products wherever sustained price increases indicate good prospects for making profits, he said.

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In contrast, Sergio Vale, a consultant with MB Asociados, said "it’s not true that a financial bubble exists for agricultural commodities." The price increases are "concretely based" on sustained growth of demand in China, India and other Asian countries, as well as in Latin America, he told IPS.

Click on title block for whole article. I'm not certain either; they both may be partly correct.