Too busy making money to worry
They are one of the food brokers, retailers, and manufacturers which governments have allowed build up to giant status, capable of manipulating the markets for basic commodities vital for human life. Glencore describes itself as one of the world’s largest traders of metals, minerals, oil products and sugar and claims to be one of the leading exporters of grain from the EU, eastern Europe, and Australia. It is believed to be the largest trader in Russian wheat, followed by US-based rivals Cargill and Bunge.
Cargill trades in grain and other food commodities, with sales for the nine months to last February totalling €58bn.
Only nature — because weather ultimately determines food production — has more influence on food prices than huge companies like these.
Now going public to raise an expected €41bn from stock exchange investors, Glencore has to “open its books”, and has detailed how it uses “arbitrage strategies” to increase profits as “discrepancies generally arise in respect of the prices at which the commodities can be physically bought or sold in different geographic locations or time periods”.
Operating on a huge scale, it has access to low financing costs and cheaper than average storage facilities. Glencore typically buys now, sells forward, and holds until delivery.
It controls price exposure by hedging or pre-selling.
Typically, 90% of its trading inventory is contractually sold at a pre-determined price or hedged through futures and options transactions.
In food trading, companies like Glencore have been allowed expand to huge sizes, while on the food production side, the biggest fertiliser companies have reached monopoly status.
Potash Corporation of Canada is the world’s largest fertiliser producer, and a hostile bid by BHP Billiton last year would have formed a company controlling over 30% of the global potash market — until the Canadian government called a halt to the merger at the last moment.
In a world where food comprises 50% of family budgets in many underdeveloped low-income countries, where food prices are a matter of life or death, allowing business magnates to pull the strings of the food industry reveals the powerlessness of governments.
Over the last year, maize prices climbed 74%, wheat 69%, and soybeans 36%. Hunger beckoned for poor countries. Farmers are expected to respond with increased production, but they cannot, because fertiliser prices are also sky high.
When you add in government decisions like Saudi Arabia stopping wheat production and importing grain instead, and the US converting 40% of its maize into biofuels, it’s a very scary world for those on the breadline.
The big food brokers are too busy making money to worry about starvation. Cargill is still 88% owned by descendants of founder WW Cargill, seven of whom are billionaires.
An elite team of about 65 commodity traders will each make average personal windfalls of more than €342m, when Glencore goes public.
At least, its launch on the stock exchange reveals what farmers, consumers and governments are up against in the food business.
For example, Glencore has revealed to one of the banks underwriting its flotation that it made a speculative bet on rising grain prices in the early stages of last summer’s Russian drought. Shortly afterwards, senior Glencore traders publicly urged Russia to impose a grain export ban — which it did, a few days later, sending grain prices more than 15% higher in two days. At the time, Glencore distanced itself from the traders’ comments, saying they represented personal views. However, these moves helped Glencore’s agricultural division earn €452m last year.
The EU’s Common Agricultural Policy is the only buffer European farmers have against these real power brokers and money makers in food trading, production, and retail — one more reason for EU leaders to be very careful in their upcoming reform of the CAP.
