#10 hunger
Thilo Bode / Sarah Klein

“We Don’t Need This Kind of Capital Investment”

Almost 2 billion people on this planet suffer from hunger or malnutrition – with lasting damage to their health and little prospect for improvement in their lives. When food prices rose by a third in 2010, an additional 40 million people were plunged into the depths of absolute poverty. At the same time, capital investors like insurance companies and pension funds invested 600 million dollars in securities set up by investment banks and hedge funds to bet on raw materials – including corn and wheat.

So the German non-governmental organisation (NGO) foodwatch raised a fundamental question, by asking whether a causal relationship could be proven here: Was the financial industry damaging the lives of the world's poorest people by driving up the price of food?

In October 2011, foodwatch published an extensive report ("The hunger-makers: How Deutsche Bank, Goldman Sachs and other financial institutions are speculating with food at the expense of the poorest") that included serious accusations against Goldman Sachs, the Deutsche Bank and many others. We spoke to foodwatch founder Thilo Bode about what happened in the year since the report was published.

"Our report has moved banks – for whatever reason – to withdraw."

To start us off – what were the reactions to your report like when it first came out?

The report was published at a time in which there had already been quite a bit of debate about the possible negative effects of speculation in the food markets. At the same time, the Markets in Financial Instruments Directive or MiFID guidelines were being discussed on a European level. The MiFID aimed at improving protection for investors, intensifying competition and harmonizing the European financial markets. These negotiations have now almost been concluded. Our report had wide public impact and some financial institutions, like Deka Fonds, the Commerzbank, and the Landesbank Baden-Württemberg, withdrew from speculation on agricultural raw materials. As part of this process, many banks on an international level have also considered taking the same step. At the moment Barclays Bank is debating getting out of the food futures market. Our report highlighted the issue. It has moved banks – for whatever reason – to withdraw. The decisive question at a policy level though is, of course, whether it will be possible to enact decisive regulations.

The Deutsche Bank also announced last March that it would initially forego involvement in speculation on food.

No, not at all! They said they were not going to develop any new instruments. Thanks to our report, former Chairman of the Executive Board of the Deutsche Bank, Mr Ackermann, promised that the Deutsche Bank would take a close look at our report and get back to us within a year. They never did. In the contrary they confirmed most recently that they are sorry to continue betting on food.

Why, despite massive public outcry, can't a bank simply decide on the spur of the moment to refrain from these sorts of practices?

Well, it is a big part of Deutsche Bank's investment banking business – hundreds if not thousands of jobs hang in the balance. It is big business and there are two or three banks that are very deeply involved. And so the Deutsche Bank is weighing the options: public pressure versus business. And if we are honest: in the court of public opinion, you can't get much worse than the Deutsche Bank's image. So it makes perfect sense that they are not going to stop. Ethical considerations really play no role in this branch of the business.

"I often attend lobbying meetings on a European level and time and time again it becomes very clear that the financial sector's power is simply overwhelming."

In the report you speak out in favour of strict regulations for the commodity futures markets. What has been accomplished in the European Union so far?

Too little. To be honest, I am very sceptical. I am often included in lobbying meetings on a European level and time and time again it has been made very clear that the financial sector's power is simply overwhelming. The results produced by the Basel Committee, the group that makes recommendations on how to regulate the banks, are not very positive. Just recently the liquidity rules of Basel III were loosened again.

The Basel III reform package is already an amendment on Basel II. It is intended to enact effective regulation of the banks in view of the banking and financial crises. The goal of this reform was to stabilize the financial system while preventing a credit shortage. It also tries to reduce government liability: the tax payer should no longer be called on to bail out the banks in a crisis. Are these approaches taking us in the right direction?

As far as I am concerned, the agreements reached are insufficient because the capital base is not strong enough. It will not mean that governments can no longer be blackmailed by the big banks if they find themselves in trouble. Let's look at the Spanish bank bailout package – this is a case where what the politicians promised to never do again is just exactly what ultimately happened: the Spanish banks are being bailed out with the help of the ESM, the European emergency parachute. That is the taxpayers pay again. So I am quite sceptical that the principle of liability will be applied here! Unlike in the normal free market economy, the owners and creditors will not be held liable. To put it more clearly: we are faced with a veritable democracy problem.

Do you see a fix for this situation?

We are doing our best to use publicity and advertising campaigns to portray the destructive role of the banks. Scientifically though, it can never be 100 per cent proven that speculation on food futures definitely caused the bubble and as such widespread hunger. The correlations are clear; the only thing missing is proof in the strictly scientifically precise sense. The methods, as well as the data are simply too inexact. But that is exactly why the caution principle should be more stringently applied here.

"Compare renouncing speculation with renouncing nuclear power: debates and discussions raged for years – without success."

Can the world do without speculation in the food futures markets?

Of course. We don't need this type of capital investment. The commodity future exchange worked wonderfully up to the turn of the century without this kind of speculation.

If it worked so well, then obviously the profits used to be made in other business areas. Surely the banks could access other markets if strict regulations were enacted or if they withdrew from this sort of speculation. Why is it proving so difficult?

Compare renouncing speculation with renouncing nuclear power. Debates and discussions raged for years, and every rational and irrational argument was brought to bear – without success. The nuclear power lobby was too strong. It took Fukushima to bring about changes to our energy policy and the reasonable arguments have finally taken the day.

Are you saying we need some kind of hunger Fukushima in Europe for something to happen?

Nobody wants that to happen. But it seems like we perhaps do need another banking crash to push us to really start rethinking the system and so that the last holdouts finally realize we cannot just go on as before. As I said, we are facing a serious challenge to democracy – unfortunately, we have to let go of the idea that financial policy is made to benefit the public. And governments are playing along because they have allowed themselves to get much too dependent on the financial sector.

The caution principle that you mentioned earlier is certainly used in other areas though.

Right. JP Morgan recently decided to create an index fund for copper – meaning a fund in which you can simply purchase copper from the copper markets as a private investment. And what happened? The copper processing industry raised a huge stink, demanding that the banks first prove that this kind of speculation had no detrimental effect on the copper industry. So here the burden of proof was reversed – and that is exactly what we want to happen with the food market, though unfortunately we've had much less success so far. Ergo: profit comes first, human beings come last.

In the report, foodwatch describes how the USA and the EU flooded developing countries with food for decades, effectively bringing agricultural development there to a complete standstill. Many countries did not begin investing in their own agriculture until after the hunger crisis of 2008. Now we, the industrialised nations, are cultivating corn and oil seeds in these fields for biofuels and driving food prices up. Apparently we manage to make every conceivable wrong move possible. What can we do – and what are we allowed to do – to ensure that agricultural production works in developing countries?

Let's look at Tunisia, where I just returned from a visit. I had been working there a long time on behalf of the KfW development bank and the development agency GTZ, particularly in water supply projects. I have a good sense of the processes taking place there. The people in Tunisia are hungry right now. I was shocked to see how poor the rural people still in Tunisia are. People in the rural areas of South Tunisia are not doing one iota better than they were 30 years ago – despite all our political promises and despite billions in aid from Germany. And this is our responsibility too. Germany has been cooperating with Ben Ali of Tunisia, one of the worst dictators in the region. The EU is still holding onto the truly unbelievably one-sided association contracts with the Maghreb region. This means that Tunisia should do its utmost to import all our industrial goods, but they cannot export their agricultural goods! If development aid is structured in such a contradictory way it does not help, it damages. It is especially sad because Tunisia is the poster child for development assistance. It receives one of the highest per capita development aid.

All pessimism aside – was the report still a success?

Yes, absolutely. We managed to draw the attention of the public to the issue. Some banks – even international ones – have decided to withdraw from this sort of speculation. Our "Hände weg vom Acker, Mann!" campaign – a pun on the name Ackermann, literally "field man"; in English "Keep your hands off the field, man!" – was a big hit with the German public.

"We have to play the long game here though. Nothing in this area is going to just change overnight."

"Hände weg vom Acker, Mann!" was a play on words and the campaign targeted the former Deutsche Bank CEO Josef Ackermann. There were funny spots on YouTube and a very effective email protest campaign that around 64,000 people participated in to demand that the Deutsche Bank withdraw from food futures speculation. Did the campaign achieve anything?

The response to the campaign was incredible. We then went to visit investment bankers at the Deutsche Bank in London to talk about the issue. But these are truly hard-core people. They are not at all interested in exploring the problem; it makes no difference to them at all. But happily the public outcry was so huge that the NGO Welthungerhilfe (World Hunger Assistance) was talking about it, German Federal President Gauck picked the topic up: it has really become a topic of discussion. People on the streets have also been expressing their disgust – in part because they were already mad at the banks because of the crisis, and in part because these sorts of speculations are predestined to cause (justified) outrage. We have to play the long game here though. Nothing in this area is going to just change overnight.

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