Deutsche Bank commodities move draws fire from campaigners

FRANKFURT Mon Jan 21, 2013 10:12am EST

FRANKFURT Jan 21 (Reuters) - Food campaigners criticised Deutsche Bank for abandoning a moratorium on trading new commodities products, arguing that financial speculators continue to cause price rises for vital foods.

"The biggest losers will be the poorest people on low income. They will be facing even more volatile and higher food prices", said Heidi Chow, campaigner with London-based anti-poverty group the World Development Movement (WDM).

"Anecdotal and statistical evidence that we see shows price volatility is driven by financial speculation," she said on Monday.

Deutsche Bank - which responded to controversy over the issue by declaring its moratorium in March 2012 - had said on Saturday it would keep dealing in financial derivatives linked to commodities, arguing there was no conclusive evidence to prove speculators were responsible for rising prices of agricultural products.

The bank reiterated that a review of numerous studies showed no convincing evidence that the growth of agricultural-based financial products has led to higher prices.

Thilo Hoppe, a politician with Germany's green party, said it was nonetheless irresponsible to push ahead.

"So long as Deutsche Bank cannot prove that financial instruments based on commodities don't cause a rise in food prices, they should refrain from using them," Hoppe said.

Thilo Bode, executive director of Berlin-based consumer group Foodwatch, said there were plenty of studies which concluded speculators do amplify price rises.

"Deutsche Bank did not address our concerns, and this amounts to irresponsible management," Bode said on Monday.

Deutsche Bank said it would review new products to ensure these did do not provoke price spikes.

"After a period of intense consultation and reflection, we have lifted our temporary halt on launching new exchange-traded products based on agricultural staples," the Frankfurt-based lender said.

It argued that price surges were due to growing demand triggered by population and income growth in developing countries, while supply was limited by water scarcity, climate change, lack of infrastructure and harvest waste.

Proponents of commodity-linked derivatives also argue they help farmers gauge prices and allow food producers and processors to hedge against fluctuating prices.

Yet the WDM rejected the argument that more financial players were better for the market.

ASSET CLASS

"They are not making decisions based on the underlying supply and demand of food, but may be using commodities to hedge other assets in their portfolio," Chow said. "Smaller farmers in developing markets don't have access to these markets."

She points to her organisation's own research which it says shows how financial speculation has boomed in recent years, turning commodity derivatives into "just another asset class for investors, distorting and undermining the effective functioning of agricultural markets".

The WDM argues the total assets of financial speculators in commodity markets nearly doubled from $65 billion in 2006 to $126 billion in 2011, a speculative inflow which it says resulted in inflated prices which pushed 44 million people into extreme poverty in the six months of 2010 alone.

In August, Germany's Commerzbank removed agricultural products from a commodity index fund after accusations that speculation had pushed up food prices and fuelled unrest in some poor countries.

Yet Deutsche Bank's decision to carry on with the products chimes with the approach of Europe's biggest insurer, Allianz , which earlier this year said derivatives were being unfairly blamed for price rises.

It said price increases were due more to real economic factors like rising food demand in emerging markets and subsidies paid for the production of biofuels.

"Politics needs to examine the evidence, and with the help of science, needs to have a neutral debate to understand the issues. Otherwise we may run the danger of taking decisions which are bad for humanity," Allianz said.

A spokeswoman for German agriculture minister Ilse Aigner declined to comment on Deutsche Bank's move but said politicians were keeping an eye on the issue at G20 level.

Non-profit groups Oxfam and Foodwatch blame speculators for pushing up international food prices, leading to famine in poor countries.

Oxfam has also identified real economy factors but says there are serious questions about the impact of big institutional investors that have been involved in food price speculation.

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