The boss of the world’s biggest food company told an audience at the City Food Lecture at London’s Guildhall this week that higher food prices and food price speculation should be welcomed.
He said that food price speculation had a positive influence on global food markets and did not affect trends in prices.
“It’s become common to bash people in these [financial] markets,” he said. “But futures markets are a fundamental management tool.
"When agents take market positions, that reduces volatility and volatility is a negative factor. Speculation has helped volatility but does not affect trends in prices, which is a longer term factor,” he said.
However, his comments have provoked anger from the World Development Movement, a UK-wide group that campaigns against global poverty and inequality.
Food price volatility
“In claiming that financial speculation does not affect global food prices, Nestlé ceo Paul Bulcke ignores a growing body of evidence pointing to the opposite conclusion. The OECD and the UN Conference on Trade and Development are among the many institutions whose research has concluded that speculation can exacerbate food price volatility,” said Miriam Ross from the group.
She said commodity futures markets were a valuable tool for farmers and food producers to manage the uncertainty involved in growing crops, but only when they functioned properly.
“The problem is that the volume of speculative trading in these markets has skewed them to such an extent that they no longer accurately reflect the fundamentals of supply and demand,” she added.
“In the Chicago wheat futures market, in June 1996 genuine hedgers held an 88% share of the market, while speculative financial players held just 12%. Fifteen years later in June 2011, genuine hedgers had become a minority, holding only a 39% market share, and financial speculators held 61%.”
Ross added that financial speculation, particularly through commodity index funds, paid little attention to supply and demand, being based more on diversification of investments.
Bumper harvest
This had led to situations where the price of a particular commodity rises sharply, despite the foodstuff being in ample supply on global markets, she said.
“For example, in summer 2010, there was a sharp spike in global wheat prices despite the fact that the US was experiencing a bumper harvest, contributing to one of the highest global harvests on record.
“In the past five years we have seen three significant spikes in global grain prices. The 2007–2008 spike was followed by a sharp drop in prices a few months later, but prices did not return to previous levels. A few months may not be a long time for Nestlé, which has the cash reserves to ride out such fluctuations, but if you live in rural Kenya and spend 50 to 90% of your income on food, even a short-term spike can be disastrous,” she added.
In January, Unilever ceo Paul Polman – himself a former Nestlé executive – called on speculation in world commodity prices to be removed as he warned that global food prices would continue to rise.