Posts Tagged ‘Food’

Biofuels, Speculation Blamed for Global Food Market Weirdness

05 Oct

A new analysis of sudden rises in global food prices puts the blame on biofuel policy and mortgage-meltdown-style speculation, which may have fundamentally changed how food markets function.

Many other explanations have been proposed, and the latest analysis — a series of mathematical models and statistical evaluations that seem to match theory with real-world patterns — is not conclusive. But it does make a strong case.

“There’s a literature of a hundred-plus articles, saying this might be the cause, or that might be the cause,” said network theorist Yaneer Bar-Yam of the New England Complex Systems Institute. “We looked quantitatively, and found two important factors. Speculators cause the bubbles and crashes, and ethanol causes the background rise.”

Bar-Yam and the NECSI team, whose analysis was published Sept. 21 on arxiv, work at the intersection of social phenomena and network analysis. In earlier research, they’ve explored the global economy’s changing structure and early-warning signals that may precede crashes.

More recently, they’ve studied how social unrest may have been fueled by food price spikes in 2008 and again in 2011. It’s not only the rise in food prices that’s proved troubling, but the rapidity. Shifts have been big and sudden, in stark contrast to the generally slow fluctuation of food prices since the mid-20th century.

Among the possible causes put forward by economists are drought, meat-intensive dietary habits and market hypersensitivity to supply and demand. Another is corn-based biofuel: In less than a decade, some 15 percent of the world’s corn production has been converted from food to fuel. Perhaps most controversially, some economists have blamed a flood of speculators betting on the rise or fall of food prices.

The FAO Food Price Index (blue solid line) and the prices produced by Bar-Yam's model (dotted red line). Image: Bar-Yam et al./arxiv

Speculating on food isn’t new, but it was long restricted to farmers and companies involved in food production. For them, speculation was a classic form of hedging: A farmer could, for example, make a bet that crop prices would fall. If they didn’t, he’d benefit from his harvest’s high prices; but if they did fall, winning his bet would offset the losses. Speculation was, on the whole, a stabilizing force.

In the late 1990s, however, a financial industry-led push for deregulation — which would later result in the Enron debacle and the California energy crisis, and the 2008 mortgage meltdown — changed how food speculation worked. Anyone could participate. Bets on food were suddenly made by investment companies who could package and repackage their bets into the sorts of derivatives made famous by the mortgage crisis.

According to some economists, this disconnected food prices from basic laws of supply and demand, and made them prone to wild swings. But others disagreed, saying the mathematical signs of cause-and-effect were hazy or absent.

“In the last three to four years, many things have happened in the economy that weren’t anticipated by most folks, and are not explained even today. I don’t know if that means the basic laws of supply and demand aren’t operating, but the way supply and demand is manifested is not understood,” said Jeffrey Fuhrer, research director at the Federal Reserve Bank of Boston. “We don’t have an understanding of the role of speculative markets.”

Bar-Yam and colleagues approached this morass with a series of mathematical models designed to simulate the trend-following investment behavior of speculators and food producers. Key to their models was a link between food prices among speculators and the so-called spot price of food at markets where actual commodities, not their hypothetical future values, are traded.

Some critics of the proposed speculation-food bubble link say spot prices are established independently, from moment to moment, in isolation from any speculative influence. But when Bar-Yam’s team phoned people in the business, at granaries and the U.S. Department of Agriculture, they were told that spot prices are set in reference to the futures market at the Chicago Board Options Exchange.

With the link to speculation established, the researchers let their model run. What resulted was a pattern of month-to-month prices similar to the peaks and valleys seen in real-world food price fluctuations since 2007. However, speculation didn’t replicate the observed long-term, year-to-year rise in food prices.

Those only appeared when Bar-Yam’s team added the shift of corn from use as food to use in ethanol biofuels. With both speculation and biofuels included, the model produced a series of food prices uncannily similar to recent history (see graphic above.)

Overlay their model’s simulated market graph on a graph of the U.N. Food and Agriculture Price Index between 2004 and 2011, and “it fits amazingly well,” said Bar-Yam. “It reproduces the peaks. It reproduces the intermediate blip. The quality of the fit is astoundingly good.”

Models are necessarily pale, oversimplified representations of complex reality, of course, and retrospectively replicating a dataset doesn’t prove the researchers’ model right. But it seems to fit better than other proposed explanations for rising, volatile food prices.

'You had trillions of dollars go into commodities from the housing and stock markets, and it blew away the pricing mechanisms.'
When Bar-Yam’s group looked for a statistical connection between the 2008 spike and drought in Australia, none could be found. Neither could a link be found to rising grain demand, which has come primarily from China and India, both of which met their needs by increasing grain production internally rather than buying abroad. Another plausible explanation, rising oil and energy prices, didn’t hold up to rigorous statistical analysis.

Finally, the researchers found no evidence that global food markets have simply become extra-sensitive to tiny changes in supply and demand. If anything, the basic laws of supply and demand appear temporarily suspended: Supplies increase but prices don’t fall, and demand goes unmet.

While slowly rising prices are a problem, however, the rapid short-term bursts are more troubling. In the last decade, those bursts occurred only after 2007, a time when investors moved money en masse into commodities. That timing fits with another finding of Bar-Yam’s model: Some speculation is fine, even beneficial, but too much makes a market prone to instability.

“Under circumstances where speculators are fairly limited in their engagement, there’s nothing wrong. But when they’re a large fraction of the market, you’re in trouble,” said Bar-Yam. “You had trillions of dollars go into commodities from the housing and stock markets, and it blew away the pricing mechanisms.”

Brookings Institution economist Homi Kharas called Bar-Yam’s model “carefully done,” and said it “provided solid empirical analysis” that diagnoses of speculative influence are correct. However, he warned against attaching too much weight to a model. Food price bubbles also aren’t new, Kharas said.

“Prices today are roughly at what they were in the mid-1970s,” Kharas said. “At that time, nobody had heard of these futures, these index-traded funds. How do we know these are new changes, and not a return to things in the past?” But Richard Cooper, a Harvard University economist who in the mid-1970s studied that bubble, said speculation by Russian grain buyers probably contributed to that bubble.

Bar-Yam’s new analysis will surely be challenged, Cooper said. “Somebody will come along and say the fundamentals weren’t characterized properly. There will be technical arguments. But it’s up to the challengers to show where their analysis has gone wrong.”

Image: Sign in a cafe. (Cory Doctorow/Flickr)

Citation: “The Food Crises: A quantitative model of food prices including speculators and ethanol conversion.” By Marco Lagi, Yavni Bar-Yam, Karla Z. Bertrand, Yaneer Bar-Yam. arXiv, Sept. 21, 2011

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Potato chips — the other natural way to get stoned [Food Science]

05 Jul
Scientists have found out why people can put the brakes on eating sugar, but will go through an entire bag of potato chips, followed by a plate of fries. It turns out that fats get us stoned. More »

Open thread: Is the Food Plate better than the Pyramid?

14 Jun

My Plate

In an effort to decrease obesity and improve general health, the US government announced their newest guide to food proportions: the food plate. This of course is a departure from the food pyramid that has been around in one form or another since the 1990s. Instead of slivers or sections on a pyramid, we now have a pie chart type of thing. Well, more like a Simon.

So here's the question: Does the plate work better than the pyramid?

Or how about better than designs past, from the 1970s?


Wonderfully Creepy Sculptures Carved From Bananas

12 Apr

Banana sculpture by y_yamaden

Banana sculpture by y_yamaden

Banana sculpture by y_yamaden

Banana sculpture by y_yamaden

Maybe it’s their gooeyness or their unsettling curvature, but these sculptures carved from ripe bananas by Japanese artist y_yamaden are wonderfully creepy.

via Geekologie

photos by y_yamaden


Whiskey Now Comes in a Can [Bad Ideas]

17 Jan
A Latin American booze distributor now sells "dram in a can," 12 ounces of whiskey in one vessel. That's eight shots, so they're marketing it as "the perfect size to be shared between three people." Scottish whiskey makers are outraged. More »

We’re Running Out of Chocolate [Chocolate]

09 Nov
At the rate we're going, chocolate is going to be a rare—and extremely pricey—commodity within the next twenty years. Somebody needs to light a fire under those Oompa-Loompas, stat. More »


Airplane food tastes bad because your brain can’t handle the noise [Mad Science]

15 Oct
For as long as there have been hack comedians, humanity has pondered the question: "What's the deal with airline food?" Well, science has figured it out: airplanes are just too damn loud for food to taste good. More »

How to turn carrots into bacon

09 Aug

Via the BB Submitterator, reader kentbrew says,

Here is an instructional Flickr set that shows you exactly how to turn the carrots you allowed to grow way beyond the point where they were edible by human beings into something verrrry close to bacon.
As an herbivore, I heartily approve!

How to Turn Carrots into Bacon! (Flickr)


Brain Slug Cupcakes at Final Futurama Script Reading

15 Jul

Glenn Fleishman shares a treat with us:

I was lucky enough to attend the last scheduled table reading (where a script is read by the voice actors) for Futurama, the animated cartoon show revived twice now after Fox's broadcast network failed to kill the show. Featured at the reading were piles of delicious brain slug cupcakes. I LOVE THE BRAIN SLUG CUPCAKES, TRY ONE.

The final script is quite hilarious, naturally, and it was a pleasure not just to hear it read in person by the actors, but to watch how much of a family the show is, cast, crew, and their friends and families. That feeling comes through in the show, which was created by Matt Groening and David "X" Cohen, through whose good offices (and my dear friend, his sister) I garnered an invite.

It was especially neat to watch Billy West talk to himself, cycling through Fry, the Professor, Zoidberg, and Zap Branigan, sometimes one right after the other. Also, John DiMaggio, who voices Bender, is 100-feet tall, and breathes fire.

Futurama is one of the only TV shows ever to feature real math and science, as well as multiple alien language alphabets (one a substitution, the other a code), and other supergeekery.

The show hasn't been canceled. This was the last of the current order of episodes by Cartoon Network, but Futurama has rebirthed itself before.

Brain Slug Cupcakes on Flickr

And here's a really cute photo of Glenn with pals on the set, including the aforementioned Messrs. Cohen and Groening.

You can pick up DVDs of past seasons here: Amazon link.
(Thanks, Glenn!)