Barclays has made as much as half a billion pounds in two years from speculating on food staples such as wheat and soya, prompting allegations that banks are profiting handsomely from the global food crisis. 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, research from the World Development Movement points out. Last week the trading giant Glencore was attacked for describing the global food crisis and price rises as a "good" business opportunity. The extent of Barclays' involvement in food speculation comes to light as new figures from the World Bank show that global food prices hit an all-time high in July, with poor harvests in the US and Russia pushing up the average worldwide cost of staples by an unprecedented 10 per cent in a month. 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. Nor has the UK escaped rising food costs. Shop food prices have risen, on average, by 37.9 per cent 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 per cent in the UK during that period, fish prices by 50.9 per cent, bread and cereals by 36.7 per cent, meat 34.5 per cent and vegetables 41.3 per cent. In April, average UK food prices were 4.2 per cent 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 World Development Movement report estimates that Barclays made as much as £529m from its "food speculative activities" in 2010 and 2011. Barclays made up to £340m from food speculation in 2010, as the prices of agricultural commodities such as corn, wheat and soya were rising. The following year, the bank made a smaller sum – of up to £189m – as prices fell, WDM said. 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 per cent since the start of June, with wheat jumping by 30 per cent. 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 channelled 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. Dealing with the reputational headache associated with high levels of food speculation will be yet another item in the already-bulging in-tray of Antony Jenkins, who was promoted to become Mr Diamond's replacement on Thursday. Christine Haigh, policy and campaigns officer at the World Development Movement 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 behaviour risks fuelling a speculative bubble and contributing to hunger and poverty for millions of the world's poorest people." Banks and hedge funds typically argue that speculation makes little or no difference to food prices and volatility and argue, correctly, that no definitive link has been proved. 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. "Our clients include investment companies, food producers and consumers who, among other things, seek our help to manage risks." Barclays also declined to comment on whether it thought large amounts of speculation pushed up prices and volatility. A spokesman said: "We recognise 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".
EP committee votes to curb food commodity trading to tackle price spikes
German banks seem to be losing their appetite for agricultural commodities trading as public opinion turns against the investment vehicles blamed for driving up global food prices.
Catastrophic droughts this summer in the United States and Russia have led to an explosion in global cereal prices, fanning the flames of debate on whether it is ethical for investment banks to make billions of dollars in profits from speculation in food commodities while millions of people are condemned to live — and die — in hunger and poverty.
“By betting on price developments for agricultural commodities, investment banks are driving up food prices. They are accessories to the world’s famine crisis,” the German-based NGO, Foodwatch, says on its website.
“And because the banks are using the money that we invest in life insurance policies and pension funds to gamble in this global commodities casino, it’s a problem that implicates all of us,” the campaign group said.
But the tide of public opinion is turning. And in face of growing pressure, Germany’s second-biggest bank Commerzbank, regional banks LBBW and LBB and the savings bank DekaBank have all announced in recent months that they are pulling out of agricultural commodities trading and ceasing to offer such investment vehicles to their customers.
Deutsche Bank, Germany’s biggest lender and which for most people embodies the German banking system, announced in March that it was shelving a new set of investment products based on basic agricultural goods. Nevertheless, its DWS investment arm would continue to offer existing products, at least for the time being.
“We cannot with a clean conscience advise our clients” on investments in agricultural commodities, said Commerzbank’s chief commodities analyst Eugen Weinberg.
“The media and politicians are currently convinced that these are driving up prices. And even if we do not share that opinion, for the sake of image, we don’t want our products to be associated with speculation,” he said.
German banks are nevertheless still relatively minor players in the agricultural commodities markets in comparison to big investment banks such as Britain’s Barclays or HSBC, insurers and even agricultural companies themselves.
Industrial-scale agricultural producers, for example, use so-called futures contracts to guard themselves against short-term price volatility by fixing prices several months in advance.
“It could actually prove counter-productive to bar banks from investing in agricultural commodities,” warned Thorsten Polleit, former chief economist at Barclays Capital and now chief economist at the precious metals trading group Degussa Goldhandel.
“Agricultural firms would find it difficult to finance their investments” and that would push up prices even more, Polleit argued.
Expert opinion is in fact divided over whether there is a real causal link between agricultural exchanges and rising food prices.
“The majority of studies reach the conclusion that investors aren’t behind price movements per se, but that they reinforce the underlying trends be it up or down,” said Manfred Schoepe, an agricultural specialist at the Ifo economic think tank in Munich.
In the long term, it is other factors that influence agricultural prices, such as global population growth, large-scale changes in nutritional trends or a decline in the amount of cultivatable land, he argued.
German Development Minister Dirk Niebel recently used the controversy of soaring agricultural prices to propose a ban on the sale of the bio-fuel E10, arguing that land used to cultivate it meant there was less land for growing foodstuffs.
In reality, however, E10 was disliked by car drivers because they feared it damaged their car’s engine.