Perils of rigging the food market
Daily Mail City Editor Alex Brummer looks at how commodity trading has helped push up food prices, blighting lives around the world.
Taking their cut: Big money has been poured into commodities like wheat
Here in Britain the price of almost everything - including cotton shirts in Marks & Spencer, woollen suits on Savile Row, utility bills and food on the supermarket shelves - has jumped recently, making us all poorer.
In poor countries, including those in North Africa, soaring costs have provoked riots on the streets.
As Starbucks president Howard Schultz pointed out in London last month, when he criticised 'speculators' for driving up the price of coffee by 34% this year, these price rises have not been driven by natural changes in supply and demand, but by traders cashing in on commodities.
This comes at a time when the recent £47bn London share flotation of the Swiss trading and natural resources giant Glencore has opened a window on the little understood commodities markets.
Glencore's arrival in Britain, and the creation of new billionaires such as CEO Ivan Glasenberg, has been greeted uncritically in the City of London.
Glencore's march into public view comes on the back of an unprecedented boom in the price of commodities which has affected the lives of people around the world.
After the worst financial crisis for a century, global investors rightly became fearful of the stability of banks and the products that they pedalled and so looked to put their money into something more tangible.
Some chose to place their cash in precious metals like gold and silver, sending prices soaring - with bullion climbing to more than $1,500-an-ounce (compared to the $275 price achieved by Gordon Brown in auctions of Britain's gold reserves from 1999 onwards).
But money also poured into every other kind of commodity - from copper to wheat, zinc to chocolate as well as oil, gas and coal. Banks like the New York giant JP Morgan Chase saw commodities as fantastic trading opportunities.
The explanation experts gave for this new boom was that the world was entering a new 'super-cycle', in which demand for raw materials among the so called 'BRIC' economies of Brazil, Russia, India and China is so great that demand will forever soar upwards.
Moreover, disaffection with the dollar in the wake of the financial crisis has caused many governments and individuals to re-think their financial holdings. Heavy buying by Middle Eastern and Asian governments caused the gold and silver prices to rocket.
The sharply-rising price of grains and other foodstuffs on the commodity markets has had a devastating impact on impoverished nations across the world and has also lifted prices in our own supermarkets putting enormous pressure on household budgets.
The World Bank reports that over the last year wheat prices climbed 69.1%, maize by 73.8%, sugar by 21% and beef by 30%.
Soaring food prices are blighting lives in poor nations, where buying bread alone can use up more than 50% of household budgets.
It is easily forgotten that the tumult in Tunisia, which began the 'Arab Spring' late last year, started when an impoverished food seller immolated himself after his produce cart was confiscated by police, sparking a wave of protests.
The uncontrolled rise in the price of basic food products has been a big factor in the revolutions in North Africa because it exposed the huge gap in lifestyles between the elites and ordinary people.
Some of the rise in commodity prices lies with failures such as last year's Siberian grain harvest.But the reality is that much of the increase is due to profiteering by trading giants and financial players, who bet on price movements.
The flotation of Glencore has given us a rare glimpse into the distortions of the commodity market.
What has been revealed is that Glencore has a 60% share of the market in zinc, 50% of the world copper market, huge stakes in lead, aluminium and coal and also claims 9% of the wheat market and 4% of food oils.
Together with a handful of other commodity trading giants, such as the mid-western American company Cargill, it has the market power to hold on to stocks of vital basic products and feed them in to the market in boom times, making the maximum profits for their owners.
Yet instead of Glencore being seen as a great vampire squid, analysts, investors and bankers around the world see it as a money-making machine operating in markets where prices - with occasional setbacks - only move in an upwards direction.
This was the same appalling group-think behind the toxic debt which brought the world economy to a shuddering halt.
What is most remarkable about all of this is that commodity markets are almost totally unregulated, which means that they are even more vulnerable to the kinds of boom and bust which caused the great financial panic of 2007-08.
The big concern over the longer term is that the commodity bubble will eventually burst.
If that were to happen, it would leave behind it financial aftershocks across the world's markets which will be every bit as damaging as the great panic.
Most watched Money videos
- Mini Cooper SE: The British icon gets an all-electric makeover
- Porsche 'refreshed' 911 is the first to feature hybrid power
- Mini celebrates the release of brand new all-electric car Mini Aceman
- A look inside the new Ineos Quartermaster off-road pickup truck
- Kia's 372-mile compact electric SUV - and it could costs under £30k
- Incredibly rare MG Metro 6R4 rally car sells for a record £425,500
- Mercedes has finally unveiled its new electric G-Class
- Top Gear takes Jamiroquai's lead singer's Lamborghini for a spin
- Footage of the Peugeot fastback all-electric e-3008 range
- 'Now even better': Nissan Qashqai gets a facelift for 2024 version
- Leapmotor T03 is set to become Britain's cheapest EV from 2025
- Introducing Britain's new sports car: The electric buggy Callum Skye
- What does it take to win the Premium Bonds - and is it...
- MARKET REPORT: Hangover for cider seller as boss makes...
- ALEX BRUMMER: Vision for the UK's future missing during...
- Shares in night-vision goggle maker Exosens soar on its...
- Influential City group calls on next government to review...
- I hold shares in a takeover bid company - what happens...
- How to invest in the battle against the hackers - and the...
- Tesco shares have soared 18% in a year - can it continue...
- Mike Lynch: We must reform extradition treaty to US
- Family feud sees billionaire brothers who bought Asda go...
- Alfa Romeo Tonale review: I always wanted a little Alfa -...
- Huge US jobs growth hammers Federal Reserve interest rate...
- SMALL CAP MOVERS: SRT Marine Systems shares endure...
- Child benefit tax threshold would rise further under Tory...
- New era for Asda as private equity backer TDR Capital...
- How would Lib Dem plan for free personal care work... and...
- Vinted won't let me have my £1,500 unless I have a valid...
- Ten signs you're about to go bankrupt (but don't realise...