Companies at the heart of global grain trade have enjoyed a record boom amid rising food prices around the world, raising concerns about sentiment and speculation in global food markets which could put basic products beyond the reach of the poorest and asking for an extraordinary tax. .
The world’s top four grain traders, who have dominated the global grain market for decades, have posted record or near-record profits or sales. They predict that demand will outpace supply at least until 2024, which is likely to lead to even higher sales and profits in the next two years.
Food prices have risen more than 20% this year, according to the Food and Agriculture Organization of the United Nations. Some 345 million people are acutely food insecure, according to the World Food Programme, compared to 135 million before the Covid-19 pandemic.
Olivier De Schutter, co-chair of IPES-Food (the International Panel of Experts on Sustainable Food Systems) and UN Special Rapporteur on extreme poverty and human rights, said: “The fact that the global commodity giants are making record profits at the same time. when hunger is on the rise is clearly unfair and a terrible indictment of our food systems. What’s even worse, these companies could have done more to prevent the hunger crisis in the first place.”
Four companies: Archer-Daniels-Midland Company, Bunge, Cargill and Louis Dreyfus, collectively known as ABCD, control between 70 and 90% of the world’s grain trade. “Global grain markets are even more concentrated than energy markets and are even less transparent, so there is a high risk of taking advantage,” De Schutter said.
He said this year’s rise in food prices came despite what are believed to be abundant global grain reserves, but there was not enough transparency from companies to show how much grain they have and don’t have. there was no way to force them to release stocks in a timely manner.
“We have to look at the grain giants and ask what they could have done to avoid the crisis and what they could be doing now,” De Schutter said.
Cargill reported a 23% rise in revenue to a record $165bn (£140bn) for the year ended May 31, while Archer-Daniels-Midland profited highest in its history during the second quarter of the year.
A Cargill grain terminal near Nesbitt in Manitoba, Canada. Photograph: Terrance Klassen/Alamy
Bunge’s sales rose 17% year-on-year in the second quarter, although its profit was hit by earlier expenses. Louis Dreyfus reported 2021 profits up more than 80% from a year earlier as revenue rose by almost a quarter to $1.62 billion.
John Rogers, an analyst at credit rating service Moody’s, said it was no surprise that supply constraints and a pick-up in demand had pushed up food prices and led to higher profits. “I don’t think they are colluding to make exorbitant profits,” he said, adding that many more companies were also taking an increasing share of global grain markets. “I don’t think they’re acting immorally, they’re not intentionally driving up prices.”
He said that the profits of grain companies had increased overall, but that their margins had not increased significantly in percentage terms. “This is a relatively efficient market; I don’t think these guys can raise prices.”
However, unpublished analysis by an NGO, seen by the Guardian, suggests that some food companies can also increase their margins. The analysis found that Archers-Daniels-Midland increased its profit margin to 4.46% in the first quarter of this year, from 3.65% in the same quarter of 2021, and Cargill’s margin increase from 2.5% last year to 3.2% this year.
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Sandra Martinsone, policy director at Bond, a network of international development charities, said an extraordinary tax would be a way to restore some balance to food markets and help the poorest.
“[The big agrifood companies] are clearly capitalizing on reduced supply and increased demand, further exacerbated by commodity trading,” he said. “When supply is significantly lower than demand, it gives room for increased prices. But this is also compounded by speculative stock markets, as wheat and other commodities are traded on stock exchanges and thus prices fluctuate.”
Oxfam has also called for an extraordinary tax on the profits of food companies. Alex Maitland, a senior adviser at the charity, said: “There is a fear that speculation could be a driver of rising food prices. Anything that causes hunger and starvation is immoral.”
UK Green Party peer Natalie Bennett joined the call. “As a short-term measure, there is a strong case for a windfall tax on the food oligopoly: the handful of companies, with significant hedge fund cross-ownership, that from then to supermarkets are the main contributors to the inflation that is driving the cost of living through the crisis to new heights,” he said.
Vicki Hird, head of sustainable agriculture at the UK food coalition Sustain, did not call for a windfall tax as she said it was difficult to separate the effects from prices in supermarkets where consumers buy most of their food. But he called on the government to regulate to stop the abuses. “While farmers, consumers and food workers suffer from spiraling food and fuel prices, those in the middle of the food chain, a small number of large and dominant grain traders, are making huge profits.”
If governments reject a windfall tax, they should consider other means of curbing prices, Martinsone said, including price caps or tighter regulation of commodity trading, such as the ban on commodity trading introduced in the India to curb inflation and price hikes. He said food companies and commodity speculators were also to blame for fueling the spike in food prices seen more than a decade ago, when rising prices led to unrest in many countries.
The causes of rising food prices are complex. The war in Ukraine has played an important role, as Ukraine is one of the world’s leading producers of grain, sunflower oil, corn and fertilizers. The war sent food prices soaring to record highs in March, although some have retreated slightly since then. The conflict with Russia to move grain shipments from Ukraine for export has been partially resolved and some shipments have now been moved, but harvests in Ukraine and Russia will be affected this year and next.
Rising energy and fertilizer prices, which have also soared due to the invasion of Ukraine, are having an impact, while the pick-up in demand following the Covid lockdowns has added further pressure.
Cereal harvests in Europe, North America and India have also been affected by the climate crisis. Last year’s heat waves in Canada hurt wheat crop yields there, and this year’s high temperatures and wildfires are likely to cause damage.
All this adds up to an optimistic outlook for grain producers. Demand for their product is increasing, supplies are limited, and despite rising input prices in the form of energy and fertilizer, their profits appear secure.
The Guardian contacted the four ABCD companies for comment but has not received a response.
De Schutter said: “Ultimately, we need to break up the monopolies that dominate the food chain. A handful of companies control the world’s seed and fertilizer markets, animal genetics, global grain trade and the sale of in food retail. They are making huge profits at the expense of farmers, consumers and the environment.”
In the UK, food prices have risen for many staples, adding to the woes of energy prices which are set to top £3,500 a year this winter for the average household. Poverty campaigners have warned that people face tough decisions this winter about whether to eat or heat their homes.