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The United Nations (UN) is calling for stricter regulations on the world’s largest traders of agricultural commodities, claiming that a lack of oversight has allowed these merchants to make record profits while consumers face a cost of living crisis.
Higher food prices, along with rising energy costs, are major contributors to the current wave of inflation, the most significant in a generation. The conflict in Ukraine has further heightened concerns about food security for millions of the world’s poorest populations.
In a report published on Wednesday, the United Nations Conference on Trade and Development (Unctad) highlighted the stark contrast between the conditions faced by ordinary people and the surging profits of the commodity trading giants. Unctad emphasized the troubling reality of this disparity.
Unctad also pointed out that a lack of regulation in the sector means that traders are not required to transparently record their transactions. This lack of transparency could contribute to instability and price increases by enabling financial speculation, corporate arbitrage, and profiteering. However, the report acknowledged that more research is needed to definitively establish these links, as costs are also influenced by political and climate risks.
Food prices have been steadily increasing since the onset of the Covid-19 pandemic in 2020, and they have further spiked following Russia’s full-scale invasion last February due to conflicts obstructing the export of grain and fertilizers.
The war in Ukraine has created a severe food security crisis in poorer countries that heavily rely on Ukraine and Russia for grain. This crisis has resulted in skyrocketing consumer costs for essential goods such as milk and eggs, prompting some governments to impose price controls.
Unctad’s report highlighted that during 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. According to the UN report, these four companies dominate the market, controlling approximately 70% of the global grain trade. The report advocates for increased competition within the sector.
In their latest financial statements, these agricultural trading groups have reported a slight decrease in profits. However, they still record profits well above historical levels. Many transactions within the industry occur privately between two counterparties.
Unctad is advocating for increased transparency in the agricultural commodities trading industry by compelling trading houses to use centralized exchanges. This approach has already proven effective in improving monitoring within other areas of the derivatives trading sector following the global financial crisis in 2008.
Unctad warns that it is crucial to develop tools that enhance transparency and accountability in this critical global industry, which currently lacks transparency. The organization calls for a fundamental revision of the regulatory approach.
Kona Haque, the head of research at ED&F Man, an agricultural trading house, argues that the industry has successfully navigated recent geopolitical challenges while ensuring the smooth movement of grains around the world. Haque questions who would handle this immense task if the sector were to face significant clampdown measures.
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