Does the financialization of agricultural commodities impact food security? An empirical investigation

TL;DR

This study empirically examines how the financialization of agricultural commodities influences global food security, revealing negative impacts especially in developing countries and highlighting the mitigating role of monetary policy.

Contribution

It provides new empirical evidence on the adverse effects of financialization on food security across different countries and identifies policy measures to mitigate these impacts.

Findings

Financialization negatively affects food security, especially in developing countries.

Wheat and soybean are more impacted than maize.

Monetary policy can help mitigate negative effects.

Abstract

The financialization of agricultural commodities and its impact on food security has become an increasing concern. This study empirically investigates the role of financialization in global food markets and its policy implications for a stable and secure food system. Using panel data regression models, moderating effects models, and panel regression with a threshold variable, we analyze wheat, maize, and soybean futures traded on the Chicago Board of Trade. We incorporate data on annual trading volume, open interest contracts, and their ratio. The sample consists of five developed countries (United States, Australia, Canada, France, Germany) and seven developing countries (China, Russia, India, Indonesia, Brazil, Vietnam, Thailand), covering the period 2000 to 2021. The Human Development Index (HDI) serves as a threshold variable to differentiate the impact across countries. Our findings indicate that the financialization of agricultural commodities has negatively affected global food security, with wheat and soybean showing a greater adverse impact than maize. The effects are more pronounced in developing countries. Additionally, we find that monetary policy has the potential to mitigate these negative effects. These results provide insights for policymakers to design strategies that ensure a secure and accessible global food supply.