Trading places - OJ, cocoa, coffee, potatoes & eggs

The losers (and winners) of food inflation

Trading Places is one of my all-time favourite films (especially at this time of the year). It is filled with cracking one-liners and a fantastic plot that is about as satisfying as it goes as Randolph and Mortimer Duke’s ‘bet’ goes badly wrong.

The plot lines centres on the futures market - where contracts are traded based on projections, estimates and speculation of where prices might go in the months and years ahead. Having inside information can make fortunes, as the Dukes realise all too well - which is why the hire Clarence Beeks (later to go Missing in Action) to get them a report in advance of market announcements about whether climate conditions have affected the orange harvest. ‘The Dukes are trying to corner the market’ shouts one trader as the film reaches its dénouement, just before Christmas.

The market they are trying to corner in the film is the market for orange juice futures. I’ve been following those carefully over the course of this year - because prices have been shooting up sharply.

There are a few reasons for this. One is that unusual weather conditions, most notably high temperatures, have pushed yields down in Brazil - one of the world’s biggest orange producers. Exteme weather events in Brazil as well as in Florida (another major centre of production) have also affected crops.

So too as has citrus greening, a disease that is spread by psyllid insects which suck te sap from orange trees, turning fruit bitter before killing the tree altogether. First detected in the US two decades ago, it has spread quickly in North and South America. Twenty years ago, Florida produced 240 million boxes of orange juice a year; today, because of climate change and citrus greening, it does not even produce 10% of that.

Photo by Erol Ahmed on Unsplash

The combination of citrus greening and global warming has been devastating in Brazil too, with harvests down this year by 25%; that is the worst for 30 years. That makes prices rise - as does something the Dukes understood well too: price speculation. As Amartya Sen and many others have shown, shortages on their own are not the only problem; so too do ways that farmers and traders try to take advantage of rising prices to make profits.