Blog: Nestle comments spark debate over global food prices

Michelle Russell | 5 March 2013

The World Development Movement (WDM) has hit back at comments made by Nestle chief Paul Bulcke that financial speculation has no effect on global food prices.

Speaking at the City Food Lecture in London last week, Bulcke told attendees that higher food prices and food price speculation should be welcomed. He said it had a "positive influence on global food markets" and "did not affect trends in prices".

The comments, however, did little to please the UK poverty campaign group WDM, which said the Nestle chief "ignores a growing body of evidence pointing to the opposite conclusion".

Miriam Ross from the group said: "The OECD and the UN Conference on Trade and Development are among the many institutions whose research has concluded the speculation can exacerbate food price volatility.

"Commodity futures markets are a valuable tool for farmers and food producers to manage the uncertainty involved in growing crops - when they function properly. The problem is that the volume of speculative trading in these markets has skewed them to such an extent that they no longer accurately reflect the fundamentals of supply and demand."

Ross said the WDM was not calling for an end to any speculation on commodity markets but for "strict limits" to be placed on speculation so that the markets are able to "fulfil their price discovery function, and excessive speculation by investment banks like Goldman Sachs no longer drives up global prices".

Indeed, according to the Independent, Goldman Sachs made more than a quarter of a billion pounds last year by speculating on food staples, reigniting the controversy over banks profiting from the global food crisis.

Speculation - investors betting on food prices - has existed for decades, but until the late 1990's was restricted to farmers and food producers, who have direct market interests and used forward purchasing contracts to offset their risks.

Deregulation has now allowed for the creation of commodity funds and, in the US, banks like Goldman Sachs have been busy setting up and managing funds that invest money from pension funds, insurance companies and wealthy individuals in return for fees and commissions. The likes of Barclays and Morgan Stanley have followed suit.

According to the Independent, global food prices in 2012 were 16% higher than in 2010 and 2.3 times as expensive as a decade earlier, even after adjusting for inflation. British consumers have not been spared the impact of rising food costs either, with prices have, on average, having risen by nearly 40% in the past seven years, the publication noted.

And this year may see another price hike, following the worst draught in the US in 50 years and poor harvests in Russia and Ukraine. According to The New England Complex Systems Institute, a failure to cut back on food speculation could add to the hike.

The WDM, along with similar NGO's like Foodwatch and Oxfam, have for years blamed financiers for inflating food prices, or at least for creating a more volatile market.

US economist Paul Krugman, however, told earlier this year that speculation is "a marginal factor" compared to rising demand from developing countries, as well as the expanding production of corn and maize for biofuels at the expense of foodstuffs.

Deutsche Bank co-chief executive Juergen Fitsche told the Global Forum for Food and Agriculture earlier this year that it “will continue to offer financial instruments linked to agricultural products”. 

Others, however, seem to be yielding to pressure, with Germany's Commerzbank last year ceasing to speculate on basic food prices for “moral” reasons.

In January, Unilever CEO Paul Polman - a former Nestle executive - called on speculation in world commodity prices to be removed, warning that global food prices would continue to rise.

Whatever the argument, it appears clear that the overall effect of speculation on food prices is, and will continue, to be an issue of dispute for some time to come. And in the meantime, consumers will no doubt be bracing themselves for yet another hike in the price of their weekly shop.


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