Food campaign news
Goldman Sachs responds to the launch of our food campaign
Today, we launched a report showing how banks speculate on foods causing their price to rocket, increasing hunger in developing countries. Yesterday the Mail on Sunday revealed that a hedge fund bought over 250,000 tonnes of cocoa beans, a move designed to make millions for the hedge fund but losses for people in the UK who are partial to a Twix or farmers in developing countries who are finding it impossible to plan what to grow when the prices are rising and falling like a yo-yo.
Banks and hedge funds ‘buy’ cocoa and other food all the time but they don’t normally request delivery and stash them in warehouses in Liverpool and London. Usually, they buy and sell without ever seeing a single bean or grain, they only see money. Prices rise and fall as a mirror image of speculative hot money flooding in and hot footing it out.
You may have heard the author of our report, Tim Jones on BBC Radio 4 Today programme this morning. In the Guardian today our report was greeted icily (and a smidge arrogantly if you ask me) by Goldman Sachs.
Goldman Sachs said WDM’s report is “horribly misinformed” on a number of fronts, that the “overwhelming majority” of Goldman Sachs’ activities in commodity markets are on behalf of clients, and WDM’s estimates of their profits from gambling on food are “ludicrously overstated".
Based on figures in Goldman Sachs annual report, we estimate the Bank made $1 billion from speculating on food in 2009. The annual report goes on to say that commodities produced “particularly strong results” for Goldman Sachs in 2009.
The fact that the majority of Goldman Sachs’ activities are on behalf of their clients does not make it any more acceptable that they make vast profits from an activity that affects the price of basic foods.
Goldman Sachs go on to say that “Research by respected international bodies like the OECD demonstrates clearly that long-term trends, including increased meat consumption by the growing middle class in the emerging markets and the increased use of biofuels in the developed markets, have created a backdrop for global food shortages. Our own research supports those findings.”
It is no surprise that Goldman Sach’s research supports what makes Goldman Sachs profits. The increased use of biofuels and the effects of climate change have been causing food prices to rise. But these do not account for the sudden price spikes and falls, which mirror the entry and exit of speculative hot money.
Respected international bodies like UNCTAD and the FAO have conducted research into this issue and have found that speculation has increased the price of commodities and increased volatility. The Chairman of the US commodity regulator and the European Commissioner responsible for financial markets agree. Our own research supports those findings, and unlike Goldman Sachs, the World Development Movement has no vested interest in commodity markets. We don’t make hundreds of millions of pounds from launching a report saying that speculation is hurting people. If we did, I suspect our reports would be a lot prettier.
Finally Goldman Sachs say: “We have repeatedly said that we support effective reform. Our lobbying effort is designed to achieve reform that will continue to allow producers to hedge their risks so that consumers get the benefit of greater price stability. To suggest otherwise is disingenuous and downright misleading."
The kind of reforms we are calling for are like those passed by the US Congress on Thursday to regulate speculation. These reforms would allow producers to hedge their risk whilst increasing price stability.
We are calling for the UK to push for regulations in Europe. Because of their record in lobbying against regulation, it’s our expectation that Goldman Sachs will do little to support these reforms, but will do everything to resist them. We have recently been warned by MEPs that banks, including Goldman Sachs, seem to have too much voice over financial regulatory reform in Europe. Naturally, we would of course strongly and humbly welcome Goldman Sachs’ support in our campaign to stop gambling on food. But I doubt WDM will need to dust off our silver spoons with which to eat humble pie.
If you are as angry as us over speculation playing havoc with food prices, join us and call the FSA to demand action that would curb this crazy betting.