Soft commodities and the global financial crisis: Implications for the economy, resources and institutions

Over the past decade, soft commodities have been subjected to increasing speculative price fluctuations. Following the 2008 financial crisis, most studies have highlighted causal relationships between price volatility, derivative and future markets for underlying financial assets as well as agricultural and mineral commodities. This article investigates the multifaceted effects of unrestrained financialization of the resources and goods markets and its implications for agricultural markets and soft commodities for purposes other than direct human consumption. We place a particular emphasis on the process of commodification of food and non-food crops and their use as green source of liquid fuels (i.e. soy, sugar cane, palm oil, jatropha, and canola). It is argued that speculation in financial markets has led to spillover effects across commodity and resource markets. More importantly, speculation and price volatility in the commodity markets has had a direct bearing on the resource markets and organization and appropriation of common-pool resources. The article sheds further light on the causal relationship between derivative markets, hedging techniques, financial yields and price volatility and spillover effects in the market for food and soft commodities.