A small number of largely unregulated commodity trading houses have seen their profits rise astronomically over the last decade. And their wealth has come at the expense of poor people, largely in the Global South.
Where bankers trade in money, commodity traders exchange things—some specialise in oil, or coffee beans or rice.
Like the bankers they are not concerned with what the things they trade might be used for, only how to make money from moving them around.
Some deal in “futures” markets, for instance betting on what a wheat crop will be worth next year. They can even buy and sell real commodities now to influence their future values.
These companies talk about soaring profits, but their manipulation of markets means life or death to the majority of the world’s poor—people who suddenly find they cannot afford food or fuel.
But very little is known about their activities. Oliver Classen of the Berne Declaration NGO said, “The industry right now is a black hole.”
An investigation by the Financial Times has brought their dealings out of the shadows.
It shows that the world’s top 20 independent commodities traders posted profits of £24 billion in 2008, up 1,600 percent from 2000.
Their combined revenue was £800 billion in 2012. And the recession has barely slowed them.
For example Trafigura’s profits were £645 million in 2012, not far reduced from its record of £720 million in 2011.
The International Monetary Fund boasted, “Soaring commodity prices were a hallmark of the global economic boom from 2003 to mid-2008.
“When the global financial crisis erupted and the Great Recession set in, prices crashed and the end of the commodity boom seemed imminent.
“Instead, commodity prices rebounded in the early stages of the recovery, and by the end of 2010, prices of many commodities were close to or above pre-crisis peaks.”
A big part of the boom has been growing demand from developing economies—particularly China, which has sucked in resources from around the world. These mega profits are threatened now that China’s growth is slowing—this is what worries the Financial Times.
Regulators are asking now if commodity trading houses have become “too big to fail” like the banks that triggered the current crisis.
Enron, the firm that collapsed disastrously in 2001 in a fraud scandal, was one such commodities giant.
The companies gamble on commodity prices following information from their own private intelligence gathering networks. They send people to count cocoa stocks in Côte d’Ivoire and work out coal reserves in Japan.
Many of these firms are based in Switzerland, where the government recently admitted, “Physical commodities traders are in principle not subject to any oversight.”
Yet these unregulated giants are stepping into the gap left by Western banks which are too nervous to invest.