Oxfam says some of France's biggest banks have failed to make good on a promise to stop speculative agricultural commodity trading — a practice the anti-poverty NGO says has pushed up food prices and led to food insecurity in developing countries.
In a damning new report published Monday, Oxfam says several financial institutions — including French banking giants BNP Paribas, Société Générale, and Crédit Agricole/LCL — have backpedalled on an earlier commitment to stop gambling on food prices.
Oxfam, whose stated mission is "to right the wrongs of poverty, hunger, and injustice" across the globe, previously called out the banks in a 2013 report titled "Banks: Profiting from Hunger." The latest report is titled "Are French Banks Still Profiting From Hunger?"
"Unfortunately, it's obvious that these promises were outweighed by the desire to make a profit," the report's author, Clara Jamart, a food security advocacy officer for Oxfam France, said in a statement. According to Jamart, the funds assigned to agricultural speculation have increased significantly over the last two years, climbing from 2.5 million euros ($2.9 million) in 2013 to 3.5 million euros ($4 million) in 2015.
Oxfam applauded Crédit Agricole/LCL, France's second-largest bank, for closing down three funds that allowed clients to speculate on agricultural commodities. The organization also said that the Société Générale has become more transparent about its practices — despite being the worst offender when it came to "profiting from hunger."
The NGO noted that BNP Paribas, France's largest bank, had not followed through on its earlier commitment, and that another bank, the BPCE group — which never agreed to change its ways in the first place — has been allocating even more funds to crop market speculation.
'This report shows that is foolish to rely on the goodwill of the banks.'
None of the banks mentioned in the report have publicly responded to Oxfam's allegations.
Oxfam has been highlighting the link between speculation on agricultural commodities and food security for years. "Excessive speculation in crop markets is exacerbating food price volatility, and is depriving the world's poor of access to basic foodstuffs," the latest report says.
The practice of crop market speculation involves betting on the future prices of agricultural commodities — such as wheat or corn — in order to turn a profit.
In a video exploring the practices and consequences of food speculation, Oxfam explains that crops are often subject to "forward buying; a process in which future harvests are traded." This practice allows farmers who are at the mercy of crop prices to protect themselves from price fluctuation on the futures markets.
To do this, a farmer will agree to a future price and delivery date for his crop, known as "futures," through an agreement brokered by an intermediary, known as a "hedger." The hedger insures the farmers against a potential price drop for the crop, but stands to gain if prices increase.
Many believe that this practice, which supersedes the law of supply and demand, causes artificial spikes in food prices, which can have a devastating impact on the world's poorest nations. By considering food crops as nothing more than a financial asset, Oxfam says, the banks are driving up the prices of food for profit, with no concern for the human impact.
According to the World Food Program, 805 million people — about one out of every nine individuals worldwide — do not have enough food.
In 2007 and 2008, dramatic spikes in food prices — including an 87 percent increase in the price of cereal in 2008 — triggered a global food crisis, leading to political instability and unrest in many nations. Rising food costs sparked riots in Senegal, Indonesia, Egypt and Haiti, where violent protests over the soaring cost of staple foods precipitated the fall of the government in April 2008.
Not all economists endorse Oxfam's analysis that crop speculation equals food insecurity. "There is little evidence to suggest that trading in futures markets has driven the price run-up or has destabilized the commodity markets during the first half of 2008," a report by the International Monetary Fund said in 2008.
Alessandro Stanziani, a professor and economic historian at the School for Advanced Studies in the Social Sciences in Paris, told French daily Le Monde in 2012 that "futures" — agreements to purchase or sell a commodity for delivery in the future — have been around since the 15th century and can't alone be blamed for food insecurity.
For both Stanziani and Oxfam, the blame lies with outside speculators — such as banks — that have jumped into the agricultural markets to gamble on the future prices of staple food crops, causing prices to increase.
In a report published in 2010, UN Special Rapporteur on the Right to Food Olivier de Schutter explained that, after the dot-com bubble burst in 2001 and the 2007 housing market crash, these investors started turning to agriculture as a safe investment.
In January 2014, the European Commission adopted a proposal for a regulation banning big banks from engaging in proprietary trading — a high-risk form of trading in which a firm profits from the market by trading on its own account rather than on behalf of a customer.
Michel Barnier, the commission's head of internal market and services, applauded the proposed reform, saying it would "contribute to orderly pricing and prevent market abuse, thus curbing speculation on commodities and the disastrous impacts it can have on the world's poorest populations." The proposal, which was also endorsed by Oxfam and is currently being debated, could be implemented as early as 2017.
In its latest report, Oxfam called on the French government to impose tighter regulations on the banking sector to prevent food price volatility. "This report shows that is foolish to rely on the goodwill of the banks," Jamart wrote. "The State must play its part and the Financial Markets Authority [France's stock market regulators] need to enforce the law."
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