Financial institutions that so frequently defend themselves by saying they provide a positive service to society by efficiently allocating capital within the global economy are much less inclined to acknowledge the detrimental impacts their financial dealings have on the world. They may be especially concerned to see the analysis conducted in a report released today by Friends of the Earth International that accuses many of the largest European banks, pension funds and insurance companies of generating commodity instability in the markets and outright hunger in the developing world, most notably in sub-saharan Africa.
According to its introduction, "The report analyses the activities of 29 European banks, pension funds and insurance companies, including Deutsche Bank, Barclays, RBS, Allianz, BNP Paribas, AXA, HSBC, Generali, Allianz, Unicredit and Credit Agricole. It reveals the significant involvement of these financial institutions in food speculation, and the direct or indirect financing of land grabbing. Environmental and development organisations are calling for strict regulation to rein in these destructive activities."
The report looks at two inter-related elements that contribute to so-called "food crises" -- the most pronounced of which occurred around the globe in 2008 -- and those elements are 'commodity speculation' and 'international land grabs.' As the Huffington Post/UK reports:
[Regarding speculation], there is a growing chorus of non-government organisations (NGOs) that insist that financial trading of agricultural commodity markets – i.e. that done by actors who buy and sell the futures products without intending to take delivery of the physical commodity that underpins it – adds to volatility in pricing.
A report compiled for the G20 in June 2011 found that volatility in agricultural commodity markets had been greater since the turn of the Millennium, a period which also saw a rise in the number of financial participants in the commodity markets.
Poorer households spend a greater proportional amount of their incomes on food, and fluctuations in prices can seriously impact their quality of life.
Food price riots in the developing world were a feature of 2010, and many analysts believe that they sowed the seeds for the unrest in parts of North Africa that led to the Arab Spring.
but the recent trend for big land deals has shifted ownership from small- holders and communities to foreign control – sometimes using force or intimidation, frequently without free prior and informed consent.
The drivers of this trend are diverse. Food security concerns, caused by recent food price hikes, diminishing agricultural production, population growth and increasing urbanisation have made acquiring foreign land an attractive option.32 Another driver is demand for agrofuels, triggered by government targets intended to mitigate against climate change and energy security.33 Emerging carbon markets may also be driving land acquisitions, e.g. for projects within the UN Clean Development Mechanism (CDM).
And the report does not stop with simply critiquing these trends, but calls for specific policies designed to curb or put a stop to some of the worst practices. As Blooomberg reports:
The group said index funds and exchange-traded funds should be excluded from using indexes that track agricultural commodities, and commodity index funds and related structured and synthetic products should be phased out.
Banks, pension funds and insurers should investigate their involvement in food speculation and direct or indirect land investments, and publish the results, according to the group.
“They should liquidate their open positions in food- commodity derivatives and related funds and refrain from further activities that are not directly linked to hedging for farmers, food-processing companies and related commercial traders,” Friends of the Earth said.
Banks and insurers should not retail investments in agricultural commodities to end-customers, the group said.