Glencore

Having a hand in food prices

PUBLISHED : Tuesday, 24 May, 2011, 12:00am
UPDATED : Tuesday, 24 May, 2011, 12:00am

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People are literally queuing up to invest in Glencore - the world's largest supplier and trader of commodities such as rice, wheat, sugar and coal. It is offering its shares for sale to the public for the first time today on both the Hong Kong and London stock exchanges.

However, the Swiss company has been criticised for its influence over global prices of food, fuel and other commodities as millions of poor people in the developing world struggle to cope with rising living costs.

About US$11 billion is expected to be raised from the sale, which is likely to make it the largest London Stock Exchange debut ever. Chief executive Ivan Glasenberg, who owns about 18per cent of the company, will be worth more than US$9 billion from the sale, known as an initial public offering. It will create at least three other billionaires, earn dozens of other people more than US$100 million and turn several hundred more people into millionaires.

Glencore, which is valued at about US$60 billion, controls huge quantities of the world's minerals, including 50 per cent of the copper market, 60 per cent of zinc, 28 per cent of thermal coal and 45 per cent of lead. It also controls 10 per cent of the world's wheat market and about 25 per cent of the world's barley, sunflower and rapeseed market.

Devlin Kuyek, a researcher with Grain, a non-profit international organisation working on food security, told the Al Jazeera TV station that Glencore has huge influence over global food prices.

'Glencore owns almost 300,000 hectares of farmland and is one of the largest farm operators in the world. They are engaging in speculation on the grain trade and have immense market power,' he said.

The company makes much of its money by buying and selling food, metals and energy - often at times when prices are at their best for making big profits. To do this Glencore relies on having good information.

'They have offices all over the world and unique access to information about production and distribution,' Kuyek said.

'When the people who have that information are also the ones speculating, there is grave cause for concern. They can purchase forward contracts [agreements to sell something at a specific date and price] when they know prices are going up.'

In March, the World Bank's index of global food prices was 36 per cent higher than a year earlier, although commodities prices have fallen in recent weeks. 'A disturbing amount of price increases, I fear, is being driven by speculative activity,' said Marcus Miller, professor of international economics at Warwick University. 'Bets [on future price rises or declines] can become self-fulfilling if you are big enough to affect the market.'

Chris Hinde, editorial director of Mining Journal magazine, said Glencore was 'effectively setting the price for some very important commodities'.

Some analysts believe food price increases have more to do with a growing global population and a rising middle class, particularly in India and China, who are eating more meat and thus driving up prices for corn and other animal feed.

Duncan Green, the head of research at the development organisation Oxfam Great Britain, said global markets for food and other commodities were shaped like a champagne glass. 'There are a lot of people producing, and a lot of people consuming, but there is a [small] pinch point in the middle, controlled by corporations who can walk away with the final value,' he said. 'Many of the world's poor are - bizarrely - people growing food.'

Last summer, a severe drought in Russia ruined many crops.

On August 3, the head of Glencore's Russian grain unit encouraged Russia's government to halt exports. Several days later the government banned grain exports and cereal prices rose 15per cent in two days.

'Days before the export ban went into place, Glencore made huge bets,' Kuyek told Al Jazeera. 'They had some kind of information there; companies with information are in the best place to capture profits from volatility.'

However, Glencore - established as Marc Rich & Co in 1974 - said it also lost money after the ban because it had to fulfil delivery obligations to clients outside Russia at the new, higher price.

Glencore has attracted controversy with claims that it carried out business with rogue states in the past. Its founder, Marc Rich, traded with Iran during the US hostage crisis some 30 years ago, with South Africa during apartheid, and with Cuba and Libya during US trade embargoes. Rich was charged with tax evasion and illegal trading with Iran, but pardoned by then-US President Bill Clinton in 2001.

In 2005, proceeds from an oil sale to Glencore were seized as fraudulent following an inquiry into corruption in Congo-Brazzaville, in Africa.

 

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