The food crises, caused both by the war in Ukraine and by extreme climatic events, have caused a windfall effect on the markets for agricultural raw materials. A study by CCFD-Terre Solidaire and FoodWatch shows that speculation by financial players has reached new heights, aggravating the rise in prices.
Excessive speculation in agricultural commodities can cause prices to increase by 15-20%.
Large retailers and food manufacturers pass the buck on rising prices. But two NGOs, CCFD-Terre Solidaire and FoodWatch are warning about the role of much lesser-known players, who act on the agricultural commodity markets by amplifying price volatility. “This speculation leads to extreme volatility in cereal prices and, ultimately, to difficulties of access to food in emerging countries, which are very dependent on imports.“, explains Jean-François Dubost, Advocacy Director of CCFD-Terre Solidaire. He recalls that 10% of the world’s population is still undernourished and 40% does not have access to healthy food.
A study carried out by the two NGOs thus shows an increasingly important part of the intervention of financial players on the commodity markets. These serve above all to secure food prices for agricultural producers, by guaranteeing a sale price until the moment when manufacturers buy. Financial players, investment funds, pension funds, etc., intervene on the market to finance this coverage. But with more and more excess.
Sharp increase in speculation
The various crises that have shaken commodity producers have indeed provided great opportunities for these financial players. The war in Ukraine, a major grain-producing country, has caused shortages and pushed prices up. Poor harvests in 2021, due in particular to extreme weather events such as heat domes in North America, also contributed to destabilizing the market. According to the FoodWatch and CCFD study, in January 2020, financial players only represented 26.2% of the French commodity market, the Matif (French international futures market). In June 2022, when the food crisis was in full swing, their share reached a peak of 70%. “Financial players recorded record profits over this period. According to our dialogues with market participants, the increase in speculative activity had an effect of amplifying the price increase by 15 to 20%“says Lorine Azoulai of CCFD-Terre Solidaire, co-author of the study.
The complexity of the market, with little-known financial players and some who, like agribusiness giants (Cargill, Louis Dreyfus, etc.), have both industrial and financial activities, makes it difficult to analyze. Especially since this excessive speculation is very often completely decorrelated from the real stocks of agricultural raw materials, which the operations are nevertheless supposed to cover. According to Pierre Duclos, a consultant specializing in the grain market, trading volumes can thus correspond to 40 to 50 times the actual physical volumes.
Better regulate financial players
“The right to healthy and sustainable food cannot be swept away by economic windfall effectssays Karine Jacquemart, Managing Director of FoodWatch France. This is uncontrolled abuse, so rules of the game have to be put in place.“The two NGOs therefore want to call on French and European political leaders to try to stem the excesses on the markets for agricultural raw materials. each financial player, but also to better understand the state of the physical stocks of manufacturers.
They also ask to limit the number of possible operations, and their amount, for each actor in order to avoid excessive speculation. Finally, they want the French government to encourage the reform of the financial markets directive (Mifid2) currently under discussion between the Commission, the Council and the European Parliament. This directive provides for several limits on speculation, as well as a short-circuit mechanism, ie the possibility of stopping the market when price volatility becomes too high.
Can these measures contain global food price volatility? Excessive speculation is only one component of the market and price fixing. “It is now difficult to say, behind the prices of food on the shelves, who reaps the most between the distributor, the manufacturer and the speculator. Here too, transparency is needed to know who is taking a margin and when.“says Karine Jacquemart of FoodWatch.
Arnaud Dumas
