Does agricultural commodity speculation contribute to sustainable development?

• Published in: Corporate governance (Bradford) 2014-01, Vol.14 (5), p.685-698
• Main Authors: Kleinau, Christina, Lin-Hi, Nick
• Format: Article
• Language: English
• Subjects: Agricultural commodities; Agriculture; Commodity futures; Commodity prices; Cooperation; Corporate governance; Economic crisis; Ethics; Financial institutions; Food prices; Funds; Index funds; International business; Market economies; Price levels; Society; Speculation; Standard of living; Sustainability; Sustainable development; Theory; Volatility
• ISSN: 1472-0701; 1758-6054
• DOI: 10.1108/CG-07-2014-0083

Purpose – This paper aims to conceptually analyse the role of speculation in society to determine whether agricultural commodity index funds, a new form of speculation, contribute to sustainable development. Design/methodology/approach – The theoretical arguments justifying the value of the market economic system for generating sustainable development and the positive contribution speculators make too in this context are elaborated. It is then considered whether the arguments justifying traditional speculation hold for agricultural commodity index funds. Findings – Traditional forms of speculation contribute positively to sustainable development; primarily due to the information they uncover on demand and supply factors which affect prices. Agricultural index funds are a danger to sustainable development, as their transactions are not based on demand and supply factors but simply represent demand for the diversification effect which commodities generate when added to an investment portfolio. Originality/value – The article offers a new approach to assessing whether agricultural index funds contribute to sustainable development. Empirical research has been conducted on whether speculation via index funds has unjustifiably affected commodity prices. However, results of these investigations have been inconclusive due to stark limitations in data availability. By approaching the issue from a conceptual point of view, the article delivers theoretically sound arguments as to why agricultural commodity index funds are likely to have an unjustifiable effect on prices and, hence, are a danger to sustainable development. This has strong implications for finance practice and regulation.