Comments from a senior director at the world's largest commodities trader that the rapidly worsening global food crisis will be "good for Glencore" only add to the sense that there are those in the finance sector still dismayingly out of touch with the world in which most people live. Chris Mahoney's remarks also make the case for the closer regulation of agricultural futures markets stronger than ever.
The scale of the emergency now unfolding is deeply concerning. The severest droughts for decades in the US have pushed up prices for all manner of foodstuffs from wheat to soybeans, leaving as many as 53 million people around the world at risk of going hungry. Amid all the uncertainty, speculators such as Glencore stand to make a fortune gambling on the market's gyrations.
There are two issues here: the economic and the moral. First, the economics. Despite widespread criticism, there is little conclusive evidence that large-scale commodity traders play a significant role in pushing up food prices. After all, they deal in futures contracts only, and do not actually take delivery of bushels of corn. Nor do speculators create the volatility from which they profit: the current price spike is down to freak weather changing the fundamentals of supply and demand. In fact, as arch free-marketeers would argue, futures traders are on the side of the economic angels because their promise of an inflated return encourages extra production.
In another kind of market, such arguments would stand. Here, however, they do not. Given that even the slightest boost to food prices may mean that people starve, it is simply not a risk worth taking. But there is another, broader, moral question, too. Even if Glencore and its ilk are not exacerbating the crisis, they are openly hoping to profit from it. While their activities may indeed improve the efficiency of the market, that does not make them right.
How, then, to remedy the situation? Simply outlawing futures trading in agricultural commodities would be both impractical and counter-productive, given that farmers and their buyers also need to "hedge" against unforeseen price fluctuations. But doing nothing is no answer, either. Until the 1990s, rules introduced by Franklin Roosevelt set "position limits" on food futures, capping the amount that financial speculators were allowed to invest. Now, laws introduced in the US in the aftermath of the financial crisis have paved the way for a return to the limits system and similar changes are also on the table in Europe.
The moves are welcome, and hugely significant. Even if the direct effect on food prices is limited, with speculators removed from the equation the international community will at last be forced to focus on the trickier, structural problems that are the real cause of the succession of recent crises. While the impact of futures trading on food prices is uncertain, the deleterious effects of everything from self-serving national subsidies and tariffs, to US biofuels policy, to the exigencies of climate change are not.
There is, of course, no single answer. But there are many opportunities for progress – investing in small-holder farms, say, to break the reliance on a few "breadbaskets" such as Russia and the US. Improving agricultural technology outside the major grain belts would also help, as would tighter rules governing exports. Yet few advances have been made since the last price spike, which prompted riots in more than 30 countries just four years ago.
The UN is pushing for an emergency G20 summit to address the immediate crisis. Quite right. But attendees will need to do more than just keep talking. It can only be hoped that Mr Mahoney's observations of the money to be made in the meantime will focus minds.Reuse content