USA – The United Nations Conference on Trade and Development (UNCTAD) has raised concerns that some of the largest food traders are bypassing existing regulations by being categorized as manufacturing companies rather than financial institutions.
This practice exacerbates the global food crisis, contributing to rising consumer costs. UNCTAD is now urging a “fundamental revision” of this regulatory approach.
The institution emphasized the need for an international tax architecture and tools that enhance transparency and accountability as essential elements of the International Financial Architecture.
It also called for increased oversight of commodities traders, asserting that unregulated activity is aggravating the problem.
According to UNCTAD’s report, the stark contrast between the soaring profits of commodity trading giants and widespread food insecurity highlighted a troubling reality with unregulated activity destabilizing markets, intensifying the global food crisis, and burdening consumers with the rising cost of living.
“The post-COVID-19 world has been grappling with a cost-of-living crisis characterized by high inflation, particularly in grocery prices, and increased financial vulnerabilities in developed nations,” the report highlighted.
“Developing countries have faced import dependencies, fluctuating commodity cycles, trade disruptions, and climate-vulnerable food systems, leading to financial instability.”
The report added that a vicious cycle has emerged, driven by higher energy and food production costs, reduced farm yields, higher food prices, increased inflation pressures, and subsequent financial tightening.
“Despite these challenges, recent price volatility crises have resulted in substantial profits for food traders, with some of the largest players earning profits comparable to leading firms in the energy sector in 2021-2022.”
UNCTAD revealed that unregulated financial activity significantly contributes to the profits of global food traders.
It also underscored the connection between corporate profits and periods of excessive speculation in commodities markets, as well as the growth of shadow banking—an unregulated financial sector presenting systemic, regulatory, and stability challenges.
While UNCTAD’s report raises concerns about profiteering in the food sector, supermarkets have refuted claims of profiteering amid UK inflation, leading to parliamentary inquiries into food prices.
The report traced the regulatory gaps in the commodities sector back to over a decade ago when regulators expressed doubts about using over-the-counter derivatives in food markets.
These concerns highlighted an incomplete and fragmented approach to regulating commodity trading, and regulatory gaps have since widened.
UNCTAD argued that outdated systemic regulations have failed to keep pace with financial, technical, and legal innovations available to corporations, contributing to regulatory gaps.
To address the ongoing food crisis, UNCTAD proposed a three-fold reform of the financial regulatory framework.
The first step involved a market-level approach to close existing loopholes, enhance market transparency, and promote competition.
The second step focused on systemic-level reforms that foster competition to prevent the dominance of a few major players.
Finally, global governance-level reforms aim to address unearned profits, improve transparency, and curb the risks of illicit financial flows.
UNCTAD highlighted the need for further research to explore the link between the speculative activity of food traders in financial markets and price dynamics, emphasizing the importance of data transparency and market participant engagement in discovering prices.