Speculators' new craze for chocolate leaves a bitter taste

European cocoa traders threaten to quit the London market over 'manipulation'

Sanna Chu
Sunday 11 July 2010 00:00 BST

First they ruined the property market, and then they fouled up the banks and building societies, before wrecking the high street. Now hedge funds and other financial speculators are threatening the good order of the chocolate market.

Cocoa prices have reached their highest levels for 33 years, increasing 150 per cent in the last 18 months, and financial speculators are being accused of inflating prices to make a financial profit. Cocoa crop failure in the Ivory Coast, the world's top grower, is partly the cause, but some experts are blaming the London commodity market where cocoa is traded.

Speculation is now so rife that a group of European cocoa trading companies have taken the rare step of making public a complaint about the extent of the speculation on the London cocoa market and demanding tighter regulations. In a letter seen by The Independent on Sunday, leading cocoa industry figures claim there is clear "manipulation... which is bringing the London market into disrepute". They accuse the market of lacking "transparency and control". They warn that unless action is taken to stop "big players from cornering the market" they will quit London.

Fair-trade activists and anti-poverty pressure groups are calling for government action to curb financial speculators from inflating food prices. They warn that unless urgent moves are taken to clamp down on the hedge funds and other financial groups behind the speculation there could be shortages, death through starvation and outbreaks of civil unrest in poorer countries.

Barbara Crowther, of the Fairtrade foundation said: "Fairtrade's experience is that people are willing to pay a little more for chocolate, if this supports cocoa farmers in poor countries to improve their own standard of living. But consumers would be very angry if this is simply helping rich and powerful financial speculators to line their own pockets."

Julian Oram, Head of Policy & Campaigns at the World Development Movement, said: "It has profound consequences for the world's poorest people by pushing up the price of basic foods like wheat and corn. Governments really need crack down on the banks and hedge funds that are gambling on what is a basic human need." He warned that market instability affects farmers in developing countries, particularly in West Africa, the dominant cocoa-growing area by making it harder to plan.

Critics claim that financial speculation in food commodities has caused hundreds of thousands of deaths through malnutrition. A steep rise in prices for staple foods between 2006 and 2008, including rice, which rose 217 per cent, and wheat, which increased by 136 per cent, resulted in a global food crisis and riots in Haiti, Bangladesh and Egypt. Oxfam said an extra 119 million people were pushed into hunger.

The London cocoa market operator, Liffe, said it was aware of concerns about the market and was ensuring an orderly market by carrying out "normal regulatory activities". Liffe said it would be discussing critics' concerns with them privately.

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