Farming money: How European banks and private finance profit from food speculation and land grabs

Farming_money_FoEE_Jan2012Published By: Friends of the Earth Europe, January 2012

Writing and research: Daniel Pentzlin, Rachel Tansey et al.

Whilst working in the economic justice team at Friends of the Earth Europe 2011-2012, I was heavily involved researching, writing and editing ‘Farming Money‘, a seminal report analysing the activities of 29 European banks, pension funds and insurance companies, and revealing their significant involvement in food speculation, and the direct or indirect financing of land grabs. The executive summary is available below, and the report can be found on Friends of the Earth Europe’s website: Farming Money (Jan 2012)

Executive Summary

With global financial markets in turmoil, agricultural commodity ‘futures’ have become increasingly attractive to financial investors and speculators. Billions of euros and dollars are flooding in and out of commodity markets, causing sudden price spikes in world food commodity markets,  leading to higher prices for consumers. While high food prices hit the most vulnerable the  hardest, threatening their right to food, the rapid price swings also affect poor farmers, threatening farm viability and making it more difficult for farmers to maintain a predictable income.

The huge growth in financial speculation has led to prices no longer being solely driven by supply and demand, but also increasingly by the actions of financial speculators and the performance of their investments.Excessive speculation has forced food prices to rise in recent years and has increased the frequency and scale of price volatility.

Rising food prices and high volatility have in turn contributed to rising living costs for Northern consumers, and led to more hunger and poverty across the world. Poor households, forced to spend more money on food, are less able to afford other essentials such as healthcare and  education. In 2008, the world saw a major food crisis as prices skyrocketed for crops such as rice, wheat and corn. Food riots erupted in 25 countries and more than 100 million more people were officially classed as undernourished or starving. After a price correction in 2009, food prices again reached record heights in June 2011.

Driven by high food prices and increasing demand for agrofuels and raw materials, the number of large-scale acquisitions of farmland in developing countries is soaring, threatening the livelihoods and the food sovereignty of communities. Land grabs refer to land deals that disrespect rights of local communities and land-users. Such land deals often lack their free prior informed consent, violate or disrespect customary land rights, result in loss of access to natural resources, fail to deliver on employment and development, drive landlessness, and can involve violence and intimidation.

As a result of land-grabbing, peasants, smallholder farmers and local communities can lose the ability to feed themselves, and/or their access to locally-produced food, e.g. due to a shift to cash crops such as jatropha for agrofuels. Land use changes also have environmental impacts, for example increasing water use, privatising water assets, and increased pesticide use. Smallholders forced to abandon their land may relocate into ecologically sensitive areas, leading to primary  forest clearance, biodiversity loss and land use change-related greenhouse gas emissions.

Companies, investment funds and sovereign wealth funds are increasingly investing in land to hedge their price risks, driving land grabs. This is as a consequence of food security concerns in some investor countries, agrofuel programmes in Europe and the North, and predicted rising consumption patterns in emerging countries. Non-commercial speculators follow, fleeing from insecure financial markets, in pursuit of profits from growth in land value.

This research finds that both food speculation and the financing of land grabs are issues with great significance for Europe. It appears that a broad list of EU-based private financial institutions – banks, pension funds and insurance companies – are involved in trading or marketing investment products based on agricultural commodity futures or other agricultural commodity derivatives and complex instruments. Some of those which seem most involved are Deutsche Bank, Barclays, the Dutch pension fund ABP, the German financial services group Allianz and French banking group BNP Paribas.

A significant number of financial institutions across Europe appear to also be involved in financing land grabs directly or indirectly. Allianz has a fund that invests in Bulgarian agricultural land, Deutsche Bank has a fund that invests in Brazilian farm land, and a subsidiary of the Italian insurance group Generali has purchased land in Romania. Other financial institutions are  involved in financing large agribusinesses whose activities include purchasing or leasing land in third countries: ABP, HSBC, Lloyds, Unicredit, AXA and Credit Agricole. Some of these have financed agribusinesses with explicit links to land grabs and human rights abuses, notably ABP in Mozambique, AXA in India and HSBC in Uganda.

This report recommends a set of key measures to regulate EU financial markets and tighten corporate policies on financial services and investments in food commodity derivatives and land deals. In order to avoid excessive speculation influencing food prices, the de-regulation that has taken place over the last 20 years must be reversed. Commodity futures markets have become monstrous in size compared to the actual production of the traded commodities, thereby causing volatility and longer-lasting speculative bubbles.

As a first step in the right direction, new rules for improving transparency in commodity derivatives markets have been proposed by the European Commission. However, serious omissions and loopholes in these plans need to be addressed. Caps on the size of the bets speculators can make, so called ‘hard position limits’, are essential to tackle excessive speculation. The EU proposals must be strengthened and improved supervisory capacities must be introduced. Index speculators and similar types of investors should be banned from agricultural commodity markets. Indexes that track agricultural commodities or commodity derivatives should be excluded from use by index funds, ETFs and related structured and synthetic products.

Private financial institutions, including banks, pension funds and investors, should investigate their involvement in food speculation and their direct or indirect investments in land grabs and publish the results of that research, making it available to relevant stakeholders. 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. Commodity index funds and related structured and synthetic products should be phased out. Investments in agricultural commodities and related derivatives should not be retailed to end-customers. Fund managers and financial service providers should apply strict codes of conduct on the use and sale of food commodity products and agricultural land investment, as well as respective financial services.

Report: Farming Money (Jan 2012)

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