It is wrong to blame speculators for the extent of the rally in food prices.

Sure, they are an attractive target. Hedge funds and the like are hardly famous for moral investment choices. It strikes an appealing chord to accuse them of stoking world hunger too.

And, at first sight, the case against them looks cut and dried. Speculative investments in pump extra money into food markets, which drives prices out of the reach of those who need it most, right? The unthinkable pursuing the edible, in fact.

It is not surprising that the campaign to divorce investors and agricultural commodities has gained traction, prompting retreats by the likes Commerzbank and Volksbanken, and a rethink by Deutsche Bank, and that the Vatican has renewed attacks on speculators.

Supply and demand rule

But while speculative money flows will, like any other, play some role in altering the day-to-day moves in the agricultural commodities market, to accuse them wholesale distortion is misplaced.

For a start, it is not clear that there is a case to answer that food prices are artificially high. For food prices to be more expensive that supply and demand fundamentals suggest would be to incentivise farmers to grow crops to excess, as in Europe in the days of butter mountains and wine lakes.

Excess is hardly the issue for crops such as corn and soybeans whose expense is causing such concern.

Indeed, it is a sufficient explanation for record high soybean prices in Chicago that US inventories of the oilseed are forecast to end 2012-13 at the equivalent of 15 days' use, the lowest in 48 years.

Lessons from onions

Nor have recent price rises been limited to crops in which speculators invest.

Sure, corn prices up 15.5% in the US cash market in July, and soybean values up 12.2%, as shown by US Department of Agriculture, are difficult for users to swallow.

But prices of onions rose even more sharply, by 24.0%, while celery values have soared 85.2%.

Onions have a special place in the debate over food speculation, being one of the few commodities in which speculators are just unable to trade in futures but banned, after unquestioned market manipulation led to the US outlawing trading in 1958.

The value and volatility of onion prices continued to rise after the ban was imposed. And volatility was greater than that of corn in the first decade of 2000s too.

'Not hugely culpable'

Indeed, speculators may in fact be allies in the battle to contain food price volatility, given their willingness to take short positions when they consider values as unduly high, and act as a force for stabilisation.

Christian Aid, a major agent in the battle against hunger, said so itself, in a report last year, which found that short-term investors "do not appear to be hugely culpable" of artificially inflating prices.

Through taking counterintuitive positions, buying on weakness and selling on strength, speculators can dampen market volatility, the briefing said.

Regulation needed

This is not so say that speculators have never been guilty of market manipulation. The onion market is not the only one to have witnessed questionable position taking.

It is not unreasonable that speculators should have their food investments subject to limits, and face obligations for reporting positions.

But while banning speculators may have political appeal, it is not clear it would have any impact on quelling food price spikes. It offers a big risk of making matters worse.

To have your say in this hugely important debate, write to newsdesk@agrimoney.com.