As food prices continue to rise we could see a lot more riots, says Yaneer Bar-Yam
You have found a link between speculators and social unrest. How did you discover this?
We started by analysing the recent financial crisis. The crash in US house prices in 2007 was followed by a stock market crash, then a puzzling peak in the price of commodities such as wheat and metals. Why? Money from the mortgage markets had been moved to the commodity markets. When you pour a lot of money into a small market you are going to have peaks. This has nothing to do with supply and demand; it is simply due to speculators. With high food prices, we were not surprised that riots occurred in many parts of the developing world at the same time.
But it's not just speculators causing food prices to rise, is it?
There is another factor: the conversion of corn to ethanol for biofuel in the US. Forty per cent of US corn is now being converted to ethanol. That's over 15 per cent of global production from almost nothing 10 years ago. This has been a very large shock to the agricultural system.
When you plot food prices over the last 10 years, you see sharp peaks superimposed on a rising trend. The peaks are due to speculation and the rising trend due to corn-to-ethanol conversion.