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Deutsche Bank-Foodwatch spat highlights unresolved global food issues

Deutsche Bank denies accusations by NGO Foodwatch that it misleads the public over its involvment in agricultural trading funds. The spat highlights food security issues that are still unresolved.

Germany's number one bank Deutsche Bank and German food security NGO Foodwatch are currently in a clinch over undertakings the bank made in recent years to curb its agriculturally based Exchange Traded Commodity (ETC) Funds.

Deutsche Bank categorically rejects Foodwatch's claims that it is misleading the public by failing to stick to pledges to withdraw from agricultural ETCs, which Foodwatch blames for high and volatile prices in basic foodstuffs.

Financial deregulation blamed

The dispute centres on prices for basic foodstuffs on global commodities markets. Like other commodities, foodstuffs are effectively raw materials and as such they can be traded on spot and futures markets like any other. Critics say this leads to wild price fluctuations in food prices, speculation and hoarding. They point to the food crises of 2008 and 2011.

In those years, food prices spiked at multiples of their historical norms. The UN estimates that by 2011, 44 million more people had been forced into food poverty by the crisis. It identifies the expansion of banks and hedge funds into agrimarkets after global deregulation as a key factor behind price spikes.

The idea of corporate responsibility

Deutsche Bank, like many banks and financial institutions, found itself in the spotlight over its agricultural ETCs. As part of the emerging trend towards Corporate Social Responsibility it responded with a number of undertakings, even though it insists the jury is still out over the blame for price spikes such as those seen in 2008 and 2011.

In its most serious complaint Foodwatch says Deutsche Bank pledged in 2012 that it would not open any new funds based on agricultural commodities, until a working group had determined the effect of agrifund trading on prices. Foodwatch cites five ETC funds launched by the bank that same year, as containing agricultural components, some of which tracked market momentum. Deutsche insists the components are marginal, and therefore don't breach its 2012 committments. On top of that three have been closed, and only two are left operating.

However DW has found that the components of the two remaining funds are regularly rebalanced according to market conditions. It is not unthinkable that foodstuff components could take on a greater weight in the event of a short term price rise in, say, the soya sector. Foodwatch insists that the agricultural components of these five funds have topped 20 percent in some cases.

Prices falling and stable - for now

Chicago Commodities Market mayhem

There's not a dull moment for traders at the Chicago Commodities Market

For now though food prices are generally falling. The United Nations Food and Agricultural Organization (FAO) shows prices for rice falling over $200/t (151.7 euros/t) over the last two years. Wheat has remained stable well below 2011 levels and corn has fallen $100/t over the same period. That suggests supplies are steady.

The FAO says production is also set to improve this year and next. But prices are still close to crisis levels. And the FAO also estimates that 33 countries, including 26 in Africa, are in need of food aid due to conflict, crop failures and high domestic food prices, or a combination of those factors.

The search for solutions

In the middle of the Foodwatch-Deutsche Bank spat, this raises the core question - that of distribution. The question of how to get food from farms to hungry mouths. This is supposed to be the task of the market, but the financial drive for profit has clearly become detached from the realities of food supply and demand.

The UN's Special Rapporteur on the Right to Food, Olivier de Schutter, says one essential solution is to restrict food derivative trading to people qualified and knowledgable in the agriculture sector.

For its part Foodwatch wants to see limits to the positions a bank may hold on commodity futures, and a ban on institutional investors such as insurance companies playing the market.

Deutsche Bank says that although it is essentially market-oriented, it has never opposed regulation as part of the solution.

That sounds as if a solution couild be just around the corner. But until then even routine climate disruptions like the El Nino event will retain the power to starve millions of people thousands of kilometers away - even though there is always more than enough food to go round.

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