Rising food commodity prices pose a severe threat to vulnerable populations globally. While market fundamentals contribute to this increase, excessive speculation by financial investors is believed to play a significant role. This study aims to examine the relationship between financial speculation and agricultural commodity prices between 2000 and 2023, focusing on eight commodities: cacao, coffee, corn, rice, wheat, soybean meal, and soybeans. Additionally, the research reviews regulatory measures to mitigate the impact of financial speculators in food markets through expert interviews.

The first part of this research examines the relationship between spot and futures prices and between speculation and prices quantitatively by means of econometric statistical analyses. The econometric analyses consist of descriptive statistics, correlations, and linear Granger causality tests. Monthly data are gathered from the Food and Agricultural Organization (FOA), the International Monetary Fund (IMF), and the Commodity Futures Trading Commission (CFTC). The Granger causality tests are performed both over the whole period of research (2000-2023) and over a period with a certain price peak (2020-2023), as speculation comes often in peaks.

The findings reveal a strong relationship between spot and futures prices, except for rice, specifically futures markets seem to dominate spot markets. Granger causality tests demonstrate that futures prices can be utilized to forecast spot prices the commodities.

Regarding the relationship between prices and speculation, the descriptive statistics and correlations show weak evidence. The analysis reveals that prices and price volatility Granger cause speculation rather than the opposite, except for coffee, which exhibits bi-directional linkages. The research does not provide definitive evidence that speculation causes higher prices. However, there are issues with the "measurement" and classification (non-commercial vs. commercial traders) of the speculation variables. That ’flawed’ data could be a reason why this research cannot support the hypothesis.

Despite the inconclusive findings, the study supports the notion that market fundamentals alone do not determine prices. Excessive liquidity and the presence of more speculators than hedgers contribute to rising prices in commodity food markets, disrupting their functioning. Expert interviews highlight the need for effective regulation to address speculation. Policy recommendations include enhancing market transparency, stronger regulation of futures markets, limiting market access to actors with genuine commodity interests, and implementing global windfall taxation and a "food speculation tax" to combat financialization.

The detrimental effects of speculation in food-importing developing countries are not temporary and exacerbate existing challenges, including increased import bills, trade balance deterioration, currency depreciation, and inflation. Banning open capital accounts is recommended to mitigate the destabilizing impact of global capital flows on these economies.

The study acknowledges limitations with the use of a statistical approach. Especially since time series models, like Granger causality, cannot claim causality. This research is based on monthly data, so a lot of information within weeks (or even days) is lost. In the case of Granger causality testing, the external validity is limited because the findings only pertain to the data obtained from a particular exchange, for a particular period, and also of a particular form. Moreover, this research does not capture non-linear effects (since it uses linear Granger causality tests). Future research therefore should adopt a multi-method approach, preferably using daily data, to capture non-linear effects and enhance external validity.