Companies at the center of the global grain trade have enjoyed a record bonanza amid soaring food prices around the world, raising concerns of profiteering and speculation in global food markets that could put staples beyond the reach of the poorest, and prompting calls for a windfall tax .
The world’s top four grain traders, which have dominated the global grain market for decades – have seen record or near-record profits or sales. They are forecasting demand to outstrip supply at least until 2024, which is likely to lead to even higher sales and profits in the next two years.
Food prices have surged more than 20% this year, according to the UN Food and Agriculture Organisation. About 345 million people are experiencing acute food insecurity, according to the World Food Programme, compared with 135 million before the Covid-19 pandemic.
Olivier De Schutter, a co-chair of IPES-Food (the International Panel of Experts on Sustainable Food Systems) and UN special rapporteur on extreme poverty and human rights, said: “The fact that global commodity giants are making record profits at a time when hunger is rising is clearly unjust, and is a terrible indication of our food systems. What’s even worse, these companies could have done more to prevent the hunger crisis in the first place.”
Four companies – the Archer-Daniels-Midland Company, Bunge, Cargill and Louis Dreyfus, known collectively as ABCD – control an estimated 70-90% of the global grain trade. “Global grain markets are even more concentrated than energy markets and even less transparent, so there is a huge risk of profiteering,” said De Schutter.
He said this year’s food price surge happened despite what are thought to be abundant global grain reserves, but there was insufficient transparency from the companies to show how much grain they hold and no way to force them to release stocks in a timely way.
“We need to be looking at the grain giants and asking what they could have done to avert the crisis, and what they could be doing now,” De Schutter said.
Cargill reported a 23% increase in revenues to a record $165bn (£140bn) for the year ended 31 May, while Archer-Daniels-Midland made the highest profits in its history during the second quarter of the year.
Sales at Bunge surged by 17% year on year in the second quarter, though its profits were affected by previously incurred charges. Louis Dreyfus reported profits for 2021 up by more than 80% on the previous year, as revenues rose by nearly a quarter to $1.62bn.
John Rogers, an analyst at the credit rating service Moody’s, said it was not surprising that supply constraints and rebounding demand had increased food prices and led to higher profits. “I don’t think they are colluding for outsize profits,” he said, adding that many more companies were also taking an increasing share of global grain markets. “I don’t think they are acting immorally – they’re not intentionally driving up prices.”
He said the profits for grain companies had been increasing overall but their margins had not markedly increased in percentage terms. “This is a relatively efficient market – I don’t think these guys can ramp up the prices.”
However, an unpublished analysis by an NGO, seen by the Guardian, suggests some food companies may be increasing their margins too. The analysis found Archers-Daniels-Midland increased its profit margin to 4.46% in the first quarter of this year, up from 3.65% in the same quarter in 2021, and Cargill’s margin increased from 2.5% last year to 3.2% this year.
Sandra Martinsone, a policy manager at Bond, a network of international development charities, said a windfall tax would be a way to restore some balance to food markets and help the poorest.
“[The big agrifood companies] are clearly capitalizing on the reduced supply and increased demand, further exacerbated by commodity trading,” she said. “When supply is significantly lower than demand, it gives space for price increase. But this is also exacerbated by speculative stock markets, since wheat and other commodities are traded on stock markets and therefore prices fluctuate.”
Oxfam has also called for a windfall tax on food company profits. Alex Maitland, a senior adviser at the charity, said: “There are fears that speculation could be a driver in food price rises. Anything that causes hunger and starvation is immoral.”
Natalie Bennett, a UK Green party peer, joined the call. “As a short-term measure there are strong arguments for a windfall tax on the food oligopoly – the handful of companies, with significant cross-ownership from hedge funds, that from seeds to supermarkets are major contributors to the inflation that’s driving the cost of living crisis to new heights,” she said.
Vicki Hird, the head of sustainable farming at the UK food coalition Sustain, stopped short of calling for a windfall tax as she said it was hard to separate out the price effects in supermarkets where consumers buy most of their food. But she called for the government to regulate to stop abuse. “While farmers, consumers and food workers are suffering in the face of spiraling food and fuel prices, those sitting in the middle of the food chain – a small number of huge, dominant grain traders – are raking in vast profits.”
If governments reject a windfall tax they should consider other means to curb prices, said Martinsone, including price caps or tighter regulation of commodity trading, such as the ban on commodity trading introduced in India to limit inflation and price hikes. She said food companies and commodity speculators were also blamed for fueling the food price rises seen more than a decade ago, when surging prices led to riots in many countries.
The causes of the food price rises are complex. The Ukraine war has played a big part as Ukraine is one of the world’s top producers of grain, sunflower oil, maize and fertilizer. The war sent food prices soaring to their highest ever levels in March, though some have fallen back slightly since. A standoff with Russia over moving grain shipments from Ukraine for export has been partially resolved and some shipments have now moved, but harvests from Ukraine and Russia will be affected this year and next.
Rising energy and fertilizer prices, which have also spiraled due to the invasion of Ukraine, have an impact, while the rebound in demand after Covid lockdowns has added further pressure.
Grain harvests in Europe, North America and India have also been affected by the climate crisis. Last year’s heatwaves in Canada hurt wheat crop yields there, and high temperatures and wildfires this year are likely to inflict damage.
This all adds up to a rosy picture for grain producers. Demand for their product is surging, supplies are constrained, and despite rising input prices in the form of energy and fertilizer, their profits look secure.
The Guardian contacted all four of the ABCD companies for comment but has not received replies.
De Schutter said: “Ultimately, we need to break up the monopolies that have a stranglehold on the food chain. A handful of companies control global seed and fertilizer markets, animal genetics, the global grain trade, and food retail. They are making huge profits at the cost of farmers, consumers and the environment.”
In the UK, food prices have risen for many staples, adding to woes over energy prices that are set to top £3,500 a year this winter for the average household. Poverty campaigners have warned people are facing harsh choices this winter over whether to eat or heat their homes.