Bank Profits From Food Speculation
27 September , 2012
Banks are as major speculators in the global food market while millions face starvation. In the backdrop of global food crisis, banks are speculating with food. Barclays has made half a billion pounds in two years from speculating on food staples.
Citing research from the World Development Movement The Independent 's report “Barclays makes £500m betting on food crisis” ( http://www.independent.co.uk/news/business/news/barclays-makes-500m-betting-on-food-crisis-8100011.html ) on September 1, 2012 said:
Barclays is the UK bank with the greatest involvement in food commodity trading and is one of the three biggest global players, along with the US banking giants Goldman Sachs and Morgan Stanley.
In the last week of August 2012, the trading giant Glencore was strongly criticized for describing the global food crisis and price rises as a "good" business opportunity.
The extent of just one bank's involvement in agricultural markets will add to concerns that food speculation could help push basic prices so high that they trigger a wave of riots in the world's poorest countries, as staples drift out of their populations' reach.
The UK has not escaped rising food costs. Shop food prices have risen, on average, by 37.9 percent in the past seven years, according to the Office for National Statistics, as the demands of an increasingly affluent and growing world population strain supply. Oils and fats have soared by 63 percent in the UK during that period, fish prices by 50.9 percent, bread and cereals by 36.7 percent, meat 34.5 percent and vegetables 41.3 percent. In April, average UK food prices were 4.2 percent higher than a year earlier.
Oxfam's private sector adviser, Rob Nash, said: "The food market is becoming a playground for investors rather than a market place for farmers. The trend of big investors betting on food prices is transforming food into a financial asset while exacerbating the risk of price spikes that hit the poor hardest."
The WDM report estimates that Barclays made £529m from its "food speculative activities" in 2010 and 2011. Barclays made up to £340m from food speculation in 2010. The following year, the bank made a smaller sum – of up to £189m – as prices fell.
The revenues that Barclays and other banks make from trading in everything from wheat and corn to coffee and cocoa, are expected to increase this year, with prices once again on the rise. Corn prices have risen by 45 percent since the start of June, with wheat jumping by 30 percent.
Barclays makes most of its "food-speculation" revenues by setting up and managing commodity funds that invest money from pension funds, insurance companies and wealthy individuals in a variety of agricultural products in return for fees and commissions. The bank claims not to invest its own money in such commodities.
Since deregulation allowed the creation of such funds in 2000, institutions such as Barclays have collectively channeled an astonishing $200bn (£126bn) of investment cash into agricultural commodities, according to the US Commodity Futures Trading Commission.
Barclays' dominance in commodities trading is thanks to its former chief executive Bob Diamond, who was Britain 's best-paid banking boss until he was forced to resign last month following a £290m fine for attempting to manipulate the Liborinterest rate. As boss of Barclays Capital he boosted trading in agricultural products.
Christine Haigh, policy and campaigns officer at the WDM and one of the analysts behind the research, said: "No doubt the UK 's biggest player in the commodities markets is hoping it will do better this year by cashing in on rising food prices. Its behavior risks fuelling a speculative bubble and contributing to hunger and poverty for millions of the world's poorest people."
Barclays declined to comment on the amount of money it makes from trading in agricultural commodities yesterday.
The bank defended its actions, pointing out that trading in so-called futures contracts – an agreement to buy or sell a certain quantity of a product, at a given price on an agreed date – helped parties such as farmers and bakers to hedge against the risk of rising or falling prices.
Barclays also declined to comment on whether it thought large amounts of speculation pushed up prices and volatility. A spokesman said: "We recognize there is a perception held by some stakeholders that participation in agricultural futures markets by some participants can unduly influence the prices of commodities. As a result, we continue to carefully monitor market trends and any research produced on this subject," a spokesman said.
Barclays Capital analysts admitted in a note to clients in February that speculation did push up prices. Barclays said: "The second key driver is that commodity investors have begun allocating to commodities again after beginning 2012 heavily underexposed to the sector." The other drivers were the "health of the global economy" and "weather and geopolitics".
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