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The UN wants tougher rules for the world’s biggest traders of agricultural commodities, claiming a lack of oversight has enabled merchants to make record profits while consumers face a cost of living crisis.
Higher costs for food are — along with rising energy prices — one of the big factors behind the most serious wave of inflation for a generation. The war in Ukraine has also raised concerns over food security for millions of the world’s poorest.
The United Nations Conference on Trade and Development said in a report on Wednesday that the conditions faced by ordinary people lay in “stark contrast” to the “surging profits of commodity trading giants”, underscoring “a troubling reality”.
Unctad added that a lack of regulation of the sector meant that traders were not required to record transactions in a transparent way. That opacity could be exacerbating instability and price increases by enabling financial speculation, corporate arbitrage and profiteering, the report said. The report acknowledged more research was needed to definitively prove the links, as costs were also affected by political and climate risks.
Food prices have risen steadily since the Covid-19 pandemic lockdowns began in 2020, and have surged after Russia’s full-scale invasion last February, as some exports of grain and fertilisers were blocked by the conflict.
The war in Ukraine plunged poorer countries, many of which relied on Ukraine and Russia for grain, into a full-blown crisis of food security. Across the world, consumer costs for essentials such as milk and eggs soared, leading some governments to impose price controls.
Unctad noted that over broadly the same period — in 2021 and 2022 — the world’s four largest crop merchants — Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus — reported “a dramatic rise in profits”.
The four companies dominate the market, together controlling an estimated 70 per cent of the global grain trade, according to the UN report, which advocated more competition in the sector.
In their latest financial statements, the agricultural trading groups have reported a slight drop, with Louis Dreyfus this week posting net income of $568mn for the first half of 2023, down from $662mn for the same period last year. But the groups are still recording profits well above historical levels.
Many transactions in the industry take place privately between two counterparties.
Unctad wants to compel agricultural commodities trading houses to use more transparent centralised exchanges — a move that has helped provide better monitoring in other parts of the derivatives trading industry following the global financial crisis in 2008.
“It is imperative to develop tools to enhance transparency and accountability in this opaque yet systemically vital global industry,” warned Unctad, as it called for “a fundamental revision of this regulatory approach”.
Kona Haque, head of research at ED&F Man, the agricultural trading house, said the industry had managed to deal with the geopolitical challenges of recent years and still ensure “grains moved all around the world”.
“If this sector is clamped down upon, who would move all of that stuff?”