Richard Kozul-Wright, co-author of the UNCTAD report released last week, says that a ratio of 70% hedgers and 30% speculators is "healthy". But, he said: “What we see in the market indicates that that ratio has been reversed: 70% speculators and 30% real hedgers.”
According to Yaneer Bar-Yam, professor and founder of New England Complex Systems Institute, an independent American research institution, investors such as pension funds have stopped the commodities market from following the fundamentals of supply and demand.
Bar-Yam co-authored a 2011 paper that showed speculation was a primary cause of food price increases.
Pensions defence
Some pension funds explicitly reject investments in commodities on ethical grounds. Others, like Nest, started investing in commodities to protect themselves from inflation, as explicitly stated in the fund’s 2018 annual report. But experts say this strategy can be self-defeating, since the investments themselves help to drive inflation.
Other pension funds have defended their investments on different grounds.
ABP, a Dutch pension fund whose commodity investments dwarf those of Nest and USS, said: “Trading in commodity futures has no upward effect on prices, not even in the market for agricultural commodities. This view is supported by academic research.”
Dave Whitcomb, founder of Peak Trading Research, which focuses on commodity markets, disputes this position. Whitcomb, a former commodity trader for Cargill, one of the world’s largest grain traders, said: “I would argue that that would be a very exceptional market where buying doesn't drive prices.”
Bar-Yam also dismissed this defence. “The science is very clear that trading does have upward effects on prices,” he said, adding that claims to the contrary “are counter to the manifest role of buying and selling in commodity price-setting markets and validated predictions using quantitative models”.
Ultimately, he said pension funds’ investments in food commodities are “undermining their mission as advocates for the public good.”
This investigation was coordinated by Lighthouse Reports in collaboration with EU Observer, Follow the Money (NL), Apache (Belgium), OpenDemocracy (UK), El Diario (ES), Il Bo Live (IT), LongPlay (FI)
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