How the rich
get richer on the back of the poor.
£50m in
UN food aid for starving went to buy wheat from Glencore
Glencore's £50bn merger with Xstrata will be latest City coup
for billionaires behind commodities trader
by Rupert Neate
Monday 6 February 2012
A man shovels
grain at a farm in Vasyurinskoe as Russia's harvest suffered in
the drought of 2010. Glencore denied enouraging an export ban to
force prices up. Photograph: Mikhail Mordasov/AFP/Getty Images
More than £50m of World Food Programme aid to feed the starving
has ended up in the hands of a London-listed commodities trader
run by billionaires, despite a pledge by the United Nations agency
to buy food from "very poor farmers".
Glencore International,
which buys up supplies from farmers and sells them on at a profit,
was the biggest single supplier of wheat to the WFP over the last
eight months, the Guardian can reveal.
Glencore, which
was able to operate with secrecy from its base in Baar, Switzerland,
until it floated on the London stock exchange last May, is expected
on Tuesday to announce a merger with mining group Xstrata to become
one of the 10 biggest FTSE 100 companies with a market value of
more than £50bn.
Details of the
dealings with Glencore, which controls 8% of the global wheat market,
emerged a year after the head of the WFP committed to buying food
from local farmers.
"Our new
motto is to help people feed themselves," Josette Sheeran,
the executive director of the WFP, told China's state news agency.
"When we can, we purchase our food from the very poor farmers
who suffer because they are not connected to local markets."
Raj Patel, an
economist expert in the global food trade and former UN employee,
said it was shocking how much food aid money was "funnelling
to one of the largest commodity traders".
The rising price
of wheat has squeezed the incomes of millions of the world's poorest
people. Many have been forced to turn to the WFP, which last year
fed more than 90 million people in 73 countries.
Over the last
eight months Glencore has sold wheat worth $78m (£50m) to
the WFP, according to details of contracts published on the agency's
website.
In the biggest
single deal, the WFP bought $22.5m of Glencore wheat in July last
year to feed Ethiopians in one the worst famines in recent memory.
The WFP also bought Glencore wheat, sorghum and yellow split peas
for Kenya, Djibouti, Bangladesh, Sudan, North Korea and Palestine.
Last month the WFP spent $10.8m on wheat for drought-stricken Djibouti.
In its latest
half-year financial results Glencore, which previously attracted
controversy for environmental breaches and accusations of dealing
with rogue states, including Iraq under Saddam Hussein, reported
that revenue from agricultural products doubled to $8.8bn. The company
said its performance had been "driven by stronger profits in
grains and oil seeds" for which "prices were substantially
higher in H1 [the first half of] 2011 compared to H1 2010".
The company
said: "There were increased geographic arbitrage opportunities
[buying commodities cheaper in order to sell them on later at a
higher price] available in wheat and edible oils." It said
the average wheat price of a bushel [8 gallons] of wheat increased
by 60% over the previous year to $778.
A spokeswoman
for the WFP said: "As a humanitarian agency that depends entirely
on voluntary donations we always aim to get the most competitive
price when purchasing food on the open markets. Rising food prices
do have an impact on our budget and they can be driven up by any
number of factors, including speculation."
Glencore said
it won the WFP tenders because "we were able to offer the commodities
needed at the lowest possible price".
Rob Bailey,
a senior research fellow in food security at Chatham House in London,
said the WFP often buys from traders such as Glencore, Cargill and
Viterra, because food donations are not available and local farmers
cannot provide the quantities needed. "It is concerning that
the World Food Programme is left at the whim of international markets
precisely when prices are high," he said.
"Such crisis
periods of high volatility are also when the big traders make the
most money, because they have the best information on likely supply
and demand and how markets are going to evolve, allowing them to
take positions in the market to turn profits."
John Hilary,
the executive director of the War on Want, said: "Glencore's
self-confessed speculation on grain markets last year forced up
prices at a time of world shortage, driving more people into extreme
hunger. The WFP needs to rethink its priorities and support local
markets rather than corporate giants such as Glencore."
Patel, the author
of Stuffed and Starved: Markets, Power and the Hidden Battle for
the World's Food System, said: "It's a shocking amount of money
to be funnelling to one of the largest commodity traders. That financial
entities are now making their presence felt and Glencore
is among the most powerful of these new corporations points
to the increasing financialisation of food in the 21st century."
Glencore admitted
that it bet on a rising wheat price after drought in Russia, according
to investment bank UBS. "[Glencore's] agricultural team received
very timely reports from Russia farm assets that growing conditions
were deteriorating aggressively in the spring and summer of 2010,
as the Russian drought set in
This put it in a position to
make proprietary trades going long on wheat and corn," UBS
said in a report to potential investors, disclosed by the Financial
Times.
On 3 August
2010 the head of Glencore's Russian grain business, Yury Ognev,
urged Moscow to ban grain exports, according to the UBS report.
Two days later Russian authorities banned wheat exports, which forced
prices up by 15% in two days.
On Monday Glencore
said UBS's account of its role in the Russian grain crisis was "simply
untrue. In any case, the export ban did not help our business".
A spokesman
said: "We share the view that financial speculation in agricultural
products markets can be harmful. Our business is physical
we produce, buy, store and blend agricultural commodities.
"We bridge
the gap between harvests that last for a couple of weeks and demand
which is fairly constant throughout the year.
"Because
we are physical holders, we are always net sellers in the agricultural
products futures markets which actually has a downward effect on
the prices of agricultural products futures."
Glencore's chief
executive, Ivan Glasenberg, earned the moniker "the $10 billion
man" when his stake was valued at £5.76bn at last May's
flotation. Four other partners Daniel Maté, Telis
Mistakidis, Tor Peterson and Alex Beard were also made paper
billionaires. More than $3.6bn was given to the WFP last year, with
the US contributing $1.2bn and the UK £144m.
Meanwhile...
Merger deal
anticipated
Glencore is
on Tuesday 7 February 2012, expected to announce plans to merge
with mining group Xstrata to become one of the 10 biggest companies
listed on the London stock market. It will be the latest move in
Glencore's journey from secretive trading house founded by Marc
Rich, a commodities traderwho was charged by US authorities with
selling oil to Iran during the 1979-81 hostage crisis, to global
powerhouse in the sale of commodities from copper and coal to sugar
and wheat.
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