'Better Prices for Farmers Leads to Greater Production'

Commodities: Structural Imbalances in the Existing ‘Softs’ Market

New physical P2P ‘softs’ commodity markets, building on the foundation layer of a ‘devolved’ Foreign Exchange market, to target poverty alleviation for the poorest segments of society. 'Softs' commodity markets, at the hub of global food allocation, are structurally acutely imbalanced and inefficient.

Of equal importance to society is food production, the market and supply chain though which farmers produce, mostly developing world, ultimately finds its way to retailers, mostly developed world.

Whereas the accusation in the Forex market is that institutions take a disproportionately large slice of society’s wealth, in commodities it might be argued that ‘speculatively’ driven financial exchanges are simply failing in their primary role as pricing strutures for the global food market.
 

Regulated Exchanges: Losing Sight of their Physical Purpose

Global food prices, generated by ‘speculators‘ on Regulated Exchanges in London and New York, are inherently dislocated and removed from the ‘physical’ market, where actual commercial buying and selling of food occurs.

Whilst, Regulated Exchanges at the turn of the 20th century started out as ‘physical’ marketplaces, today they almost exclusively serve speculator interests and risk hedging for dominant trading houses.

The commercial food market, in keeping with globalisation, has changed radically in composition, yet Regulated Exchanges have not adapted to the new ‘physical’ landscape. In fact, losing greater sight of their ‘physical’ purpose, they have veered increasingly down the speculative path, so much so, as for commodities to now be regarded as ‘asset classes’. Smallholder producers in the global physical market are even more marginalised than ever.

Unequal Terms of Trade within the Physical Market

Further compounding the issue, highly unequal terms of trade exist within the physical market itself, where producers (sellers) in the developing and developed world are increasingly subservient to vastly more powerful conglomerate buyers and trading houses.

The net effect: price discovery is inefficient, producers get poor prices, speculator induced volatility adversely impacts on production, producers are unable to invest in better farming techniques and the cost of living to society as a whole increases, as food becomes scarce.

To read more about ‘Levelling The Market and Aligning Price Discovery’click here.