Companies at the center of the global grain trade have enjoyed a record windfall amid soaring food prices around the world, raising concerns over profit and speculation in global food markets that could put staples out of reach of the poorest, and prompting calls for a windfall tax.
The world’s four largest grain traders, which have dominated the global grain market for decades, have posted record or near-record profits or sales. They predict that demand will exceed supply until at least 2024, which should lead to even higher sales and profits over the next two years.
Food prices have jumped more than 20% this year, according to the Food and Agriculture Organization of the United Nations. About 345 million people are experiencing acute food insecurity, according to the World Food Programme, up from 135 million before the Covid-19 pandemic.
Olivier De Schutter, Co-Chair of IPES-Food (International Panel on Sustainable Food Systems) and UN Special Rapporteur on Extreme Poverty and Human Rights, said: “The fact that Global commodity giants are making record profits at a time when rising hunger is clearly unfair and a terrible indictment of our food systems. Worse still, 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, known collectively as ABCD – control around 70-90% of the world’s grain trade. “Global grain markets are even more concentrated than energy markets and even less transparent, so there is huge profit risk,” De Schutter said.
He said this year’s food price spike occurred despite what are believed to be abundant global grain supplies, but companies lacked enough transparency to show the amount of cereals they held and that there was no way to force them to release the stocks in a timely manner.
“We have to look at the grain giants and ask ourselves what they could have done to avoid the crisis, and what they could do now,” De Schutter said.
Cargill reported a 23% rise in revenue to a record $165bn (£140bn) for the financial year to May 31, while Archer-Daniels-Midland posted the highest profits highest in its history during the second quarter of the year.
Bunge’s sales jumped 17% year-on-year in the second quarter, although its profits were hit by charges incurred previously. Louis Dreyfus said 2021 profits were up more than 80% from a year earlier as revenue rose nearly 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 rebounding demand had driven food prices higher and led to higher profits. “I don’t think they’re colluding for outsized profits,” he said, adding that many other companies were also grabbing a growing share of global grain markets. “I don’t think they’re acting immorally – they’re not intentionally driving up prices.”
He said grain company profits have increased overall, but their margins have not increased significantly in percentage terms. “It’s a relatively efficient market – I don’t think these guys can raise prices.”
However, unpublished NGO analysis, seen by the Guardian, suggests some food companies may also be boosting their margins. The analysis revealed 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 fell from 2 .5% last year to 3.2% this year.
Sandra Martinsone, policy manager at Bond, a network of international development charities, said a windfall tax would be a way to restore some balance to food markets and help the poorest.
“[The big agrifood companies] are clearly capitalizing on shrinking supply and rising demand, further exacerbated by commodity trading,” she said. “When supply is significantly lower than demand, this leaves room for price increases. But this is also exacerbated by speculative stock markets, as wheat and other commodities are traded on stock exchanges and therefore prices fluctuate.
Oxfam has also called for a one-off tax on food company profits. Alex Maitland, the charity’s senior adviser, said: ‘There are fears that speculation could be a driver of rising food prices. Anything that causes hunger and starvation is immoral.
Natalie Bennett, a British Green Party counterpart, joined the call. “As a short-term measure, there is a strong case for a one-off tax on the food oligopoly – the handful of companies, with significant cross-shareholding from hedge funds, which, from seeds to supermarkets, are major contributors to inflation which is driving the cost of living through the crisis to new heights,” she said.
Vicki Hird, head of sustainable agriculture at UK food coalition Sustain, refrained from calling for a windfall tax because she said it was difficult to separate the effects on prices at supermarkets where consumers buy most of their food. But she called on the government to regulate to end the abuse. “While farmers, consumers and food workers are suffering in the face of soaring food and fuel prices, those in the middle of the food chain – a small number of huge grain traders dominating – rake in huge profits.”
If governments reject a windfall tax, they should consider other ways to reduce prices, Martinsone said, including price caps or tighter commodity trading regulations, such as the commodity trading ban introduced. in India to limit inflation and rising prices. She said food companies and commodity speculators were also blamed for fueling the rise in food prices seen more than a decade ago, when soaring prices sparked riots in many countries. .
The causes of rising food prices are complex. The war in Ukraine played a big role because Ukraine is one of the world’s leading producers of grain, sunflower oil, corn and fertilizer. The war sent food prices skyrocketing to their highest levels on record in March, although some have since retreated slightly. A standoff with Russia over transporting grain shipments from Ukraine for export has been partially resolved and some shipments have now been moved, but both Ukraine and Russia’s crops will be affected this year and next. next.
Rising energy and fertilizer prices, which have also soared due to the invasion of Ukraine, are having an impact, while the rebound in demand from the Covid shutdowns 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 high temperatures and wildfires this year are likely to inflict damage.
All of this adds up to a rosy image for grain producers. Demand for their product is growing, supplies are tight and despite rising input prices in the form of energy and fertilizer, their profits look secure.
The Guardian contacted all four ABCD companies for comment, but received no response.
De Schutter said: “At the end of the day, we have to break down the monopolies that have a stranglehold on the food chain. A handful of corporations control global seed and fertilizer markets, animal genetics, the global grain trade and food retailing. They make huge profits at the expense of farmers, consumers and the environment.
In the UK, food prices have risen for many staples, adding to energy price woes which are expected to hit £3,500 a year this winter for the average household. Poverty campaigners have warned that people face tough choices this winter about whether to eat or heat their homes.