Current Concerns: In his comments in the National Assembly of 17 September 2015 Federal Councillor Johann Schneider-Ammann said, “Speculation does definitely have some positive and useful functions. It increases the liquidity in the markets. This enables producers and processors to hedge financial risks on reasonable terms. It is all about planning security and cost-efficiency. If earnings are improved by cost-efficiency and the resulting profits passed on in a properly functioning market to the consumers in the end there cannot be only adverse effects.”
Is the Federal Councillor here confounding hedging with speculation, although according to the text of the initiative those two must be kept apart? Or in other words, what does the initiative “No food speculation!” prohibit, and what would still be permitted?
Caroline Morel: Yes, the Federal Councillor is mixing the two issues here.
Because crop yields are difficult to foresee, producers and distributors protect themselves. On so-called future markets they negotiate contracts on trade with an agricultural raw material, in which they fix amount, maturity and price in advance. These contracts have an insurance function and are not affected by the Speculation-Stop-Initiative in question. The “positive functions” mentioned by the Federal Councillor will therefore continue to be possible.
Since 2000, however, financial investors, banks, hedge funds and institutional investors have increasingly become players on the futures markets. They bank on long-term rising prices, or speculate on short-term price changes. The speculation which this group is responsible for and which is disconnected from the physical trade, is dangerous and has to be regulated.
The volume of speculation is frightening: Until 2000, 20 per cent of the contracts were speculative in nature. Since the financial crisis, their share has risen to 80 per cent and more, due to new financial investors.
The initiative’s opponents main argument is that is was not speculation that caused the massive price increases for cereals on the world market in the years 2007/2008 and 2011. What is one to think of that?
The 2008 food crisis gave the international community a start. The number of people going hungry rapidly increased by a hundred million, reaching the sad record of 1 billion people. The main reasons: The prices of staple foods had risen sharply due to crop failure after droughts and floods. This was aggravated by the politically promoted cultivation of agro fuels as well as by the growing animal feed production because of increasing meat consumption. But also the speculation in agricultural commodities such as wheat or rice drove the prices up.
It is clear that several factors have been responsible for the massive price increases. However, some factors are difficult to influence (weather conditions), others can be solved politically. High food prices lead to hunger, setbacks in the fight against poverty, and social unrest. In developing countries poor households spend from 60 to 80 per cent of their income on food – that is a much higher per centage than we spend here. Rising prices for staple foods therefore threaten the life and existence of these families. That is why it is necessary to minimize the various factors that have led to the price increases as quickly as possible. With the Speculation-Stop-Initiative we focus on an important factor contributing to price increases.
As there are other factors already pushing up prices, is a ban on speculation thus still urgently needed?
Yes, it is. The financial and economic crisis was the main cause of this strong increase in adverse speculation – since investors and hedge funds were looking for new investment opportunities.
Ever since the food crisis the really big problems have not so much been the price increase but rather the price fluctuations that were massively increased by harmful speculation.
The unpredictable price development is devastating for small farmers, because it can lead to less investment in agricultural production, or – in the case of dire need – to the selling of seeds, livestock or land. There is a growing risk that people will be qualitatively and quantitatively supplied less well with food. The farmers lose their planning security.
Many opponents of the initiative fear, in the case of its acceptance, a negative impact on the attractiveness of Switzerland as a business centre, because namely big banks and other large corporations might move their business abroad. On the other hand, there are also many investors who would rather use and invest their money for ethical purposes. Could we still move up a gear in Switzerland in this respect?
The Swiss financial center can only gain in reputation with the adoption of the initiative because this will give a clear signal against speculative practices. It is also about the prevention of reputation risks – which can benefit precisely the Swiss financial center.
In the US and the EU, there are already efforts to counter the speculative practices, but they are less extensive than the present Swiss people’s initiative. Instead of having to take over what others have decided on earlier, Switzerland could pro-actively go a step further to lead the way.
Does something like fair trade for financial enterprises already exist in Switzerland, something like a certificate by Swissaid and other aid organisations that a bank or a pension fund only deals in “clean” financial investments (eg. no funds containing weapons or food stocks)?
No, to my knowledge there is nothing like that. Swissaid is not specialized in this topic. There are several ethical and sustainable funds which can be invested in with a clear conscience. But the debate on speculation in foods has had the positive effect that there have already been banks that have pulled out of investments in agricultural commodities. It is important here that customers inform themselves accurately about their own bank or pension fund.
Can you finally tell us voters shortly why we should say yes to the initiative “No Food Speculation!” on 28 February?
Given the 800 million people who are now suffering from hunger, the food speculation is a scandal. Every effort must be made to prevent excessive speculation. Therefore Swissaid supports the Stop-the-Speculation-Initiative. Namely in Switzerland, one of the most important global trading centres for agricultural commodities, a bold political step is needed to protect the right to food for everyone.
Mrs Morel, thank you for this insightful and clarifying conversation. •
(Interview Marianne Wüthrich)
Corn prices are soaring to a record. Reasons for this are the corn reserves of the United States and the fear that crop yields might be reduced.
Frankfurt. Prices for a bushel of this food and feed product were up by 0.2 per cent to $ 7.6175 on Tuesday. On Monday the price had temporarily risen to 7.65 dollars and had thus overtaken the previous record of June 2008.
“There is plenty of market news which can push the corn price further up,” said commodity strategist Luke Mathews of Commonwealth Bank of Australia. These include the lowest US corn reserves for 15 years and the investors’ fear of harvest losses in the northern hemisphere due to bad weather.
In the US Midwest cropping areas no corn can currently be planted due to heavy rains. If planting is delayed too long, farmers have to switch from corn to soy beans.
In the wake of corn, wheat increased in price by 0.4 per cent to $ 7.9275 a bushel. Soy beans cost $ 13.86 with 0.1 per cent more than the previous day.
Source: Handelsblatt from 5.4.2011, Reuters
(Translation Current Concerns)
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