Speculation on Global Food Prices

– Jay Thompson –

Action in Jane-Finch area of Toronto for right to housing and food security, August 24, 2021

A joint investigation by Unearthed (a project of Greenpeace UK) and the website Lighthouse Reports found that 10 of the globe's largest oligopolies called hedge funds "bet on hunger" and made nearly $2 billion on the food-price spike following the pandemic and the outbreak of the U.S./NATO proxy war in Ukraine against Russia in February of 2022.

Commenting on the findings of the investigation, Olivier De Schutter, a UN Special Rapporteur on extreme poverty and human rights said, "Hedge funds helped inflate a price bubble, putting upward pressure on food prices [...] and this has affected hunger levels of the world's poorest people [...] Hedge funds and financial speculators have made obscene profits by betting on hunger and exacerbating it. That cannot be right."

The investigative report examined the returns made by Société Generale's SG Trend Index for the first quarter of 2022, both prior to the start of the proxy war in Ukraine and immediately after it. The analysis focused on grains and soya beans. Calculations from the report showed that "the hedge funds in question made $1.9 billion in returns on these commodities, a much higher figure than the returns on them in the first quarter of any of the previous five years. The prices of staple foods like wheat, as well as fertilizers rose sharply following the start of the military operation, propelled by soaring energy costs as the globe feared for the future of Russia's energy exports amid sanctions that followed the conflict."

Unearthed and Lighthouse Reports also found the extent to which food companies have profited from the crisis. The world's 20 largest food companies made $53.5 billion in additional profits in the last two years beyond what they "normally" expropriate, "first from rising food prices during the COVID-19 pandemic and then from last year's spike with the outbreak of the U.S./NATO proxy war against Russia."

While it is the stranglehold over world markets and distribution chains by oligopolies that is behind the rise in food prices, the blame for rising prices was first put on the COVID pandemic and now it is put on the U.S./NATO proxy war in Ukraine which imposes sanctions on Russia and has disrupted Russian exports to Europe. Davi Martins, a spokesperson for the report, gets closer to the truth of the matter when he says:

"What we are witnessing is an enormous transfer of wealth to a few rich families that basically own the global food system, at a time when the majority of the world population is struggling to make ends meet.

"[A] few rich families that basically own the global food system" form one or more oligopolies which operate as cartels and coalitions to control prices by colluding with each other, ultimately providing uncompetitive prices in the market. Loblaw, Sobeys and Metro make up more than half of all food retail sales in Canada. Factoring in Walmart and Costco, just five companies control three-quarters of grocery sales across the country.[1] They have caused food prices to increase at the fastest rate in 40 years, the CBC reported. It says that their "market concentration has come under intense scrutiny in recent months," and "All five companies have faced accusations of profiteering, with executives summoned to testify before a parliamentary hearing in Ottawa where they were grilled by MPs about higher grocery bills."

"The truth is we are at the end of a very long food supply chain that has economic inputs at every step and stage," Empire president and CEO Michael Medline told the committee in March. In other words, he denied the accusations of price fixing by saying their margins on food are low.

The federal competition watchdog has separately launched a study into grocery store competition in Canada, and will issue its report in June, the CBC reported.

Facts however are stubborn things. What is lacking is a political system which holds anti-social actors to account. In 2017, George Weston Ltd. and Loblaw Companies Ltd. revealed that both participated in an industry-wide bread price-fixing "arrangement" for over a decade.

"Canada's competition watchdog alleged in court documents in 2018 that at least $1.50 was artificially baked into the price of a loaf of bread during the 16-year price-fixing conspiracy involving the country's largest bakery wholesalers and grocery retailers. The Competition Bureau says its investigation into bread price-fixing is ongoing," the CBC reported.

A strategy retailers use to maximize their own profits is called "price discrimination" or the "two-price system" -- "a long-standing technique used by retailers and service providers to squeeze the most profit out of their customers by selling to different people at different prices" says Jean-Paul Lam, an associate professor of economics at the University of Waterloo in Waterloo, Ontario.

"The goal is to increase sales and profits," he said. "Retailers will charge customers the price they are willing to pay, allowing them to capture more of the consumer surplus, which is the difference between what a customer is willing to pay and what they actually pay," Lam explained in an email to CBC. "These retailers/producers can increase their profits and profit margins by capturing more consumer surplus," he stated.

An oligopoly exists when several companies or entities which represent narrow private interests exert significant control over a given market or sphere of interest. This includes steel manufacturers, oil companies, railroads, tire manufacturers, grocery store chains, wireless carriers, Big Pharma, construction and engineering companies and many more such as supranational consulting firms and banks. All of them operate as cartels and coalitions to control prices by colluding with each other ultimately providing uncompetitive prices in the market. They can act independently of specific governments or, most likely, usurp the decision-making power in this or that country to get tacit approval, funds, tariffs imposed which favour them, sanctions so as to profit from the results and so on.

The military-industrial-civil complex in the United States is also an oligopoly where all kinds of state actors operate in concert to achieve a specific result. So too NATO is an oligopoly which combines various branches of the economy and governments, national and international decision-making, international institutions, organizations and alliances to achieve definite results. The superpacs operate during U.S. elections to speculate on winners and losers. They act as cartels and coalitions to intervene in an election and influence the outcome in favour of their own private interests.

In the economic domain, one definition of oligopoly is "a market structure with a small number of firms, none of which can keep the others from having significant influence. The concentration ratio measures the market share of the largest firms." The pertinent dictionary says, "There is no precise upper limit to the number of firms in an oligopoly, but the number must be low enough that the actions of one firm significantly influence the others."

"Key Takeaways" provided by Investopedia are:

- The term "oligopoly" refers to a small number of producers working, either explicitly or tacitly, to restrict output and/or fix prices, in order to achieve above normal market returns.

- Economic, legal, and technological factors can contribute to the formation and maintenance, or dissolution, of oligopolies.

- The major difficulty that oligopolies face is the prisoner's dilemma that each member faces, which encourages each member to cheat.

- Government policy can discourage or encourage oligopolistic behavior, and firms in mixed economies often seek government blessing for ways to limit competition.

Firms in an oligopoly set prices, whether collectively -- in a cartel -- or under the leadership of one firm, rather than taking prices from the market. Profit margins are thus higher than they would be in a more competitive market.

In the economic field, these oligopolies represent pooled private wealth that can exercise control over certain sectors or aspects of the economy. They now dominate the imperialist economy. They take over decision-making of compliant governments and use the prerogative police powers of executives and the courts to do as they wish. A harmful example of this today is how they keep prices high in the supermarkets. For instance, the Weston family is described as a prominent family of business people of Canadian-origin with global interests primarily in food and clothing ventures. Founded by George Weston in 1882, the company today consists of the Choice Properties real estate investment trust and Loblaw Companies Limited, Canada's largest supermarket retailer, in which the family maintains a controlling interest. Retail brands include President's Choice, No Name and Joe Fresh. Forbes Magazine (June 2019) listed CEO Galen Weston and his family, with an estimated net worth of USD$8.7 billion, as the third wealthiest in Canada and 178th in the world.

Examples of this damaging control abound throughout the economy. Many oligopolies are organized as so-called holding companies, which operate similar to banks except their creditors are restricted to people with extreme wealth. They pool together social wealth that workers have produced and use it to buy and sell whatever is available. Today, more often than not, they trade fictitious commodities called derivatives. The oligopolies can also be identified as financial institutions, hedge, mutual and pension funds, and even philanthropic organizations such as the Ford Foundation. They use the power of their massive holdings to overwhelm existing enterprises and sectors to bring them under their control. From this position and aided by their usurpation of the decision-making powers of compliant governments, they manipulate prices and attack the working class with demands for concessions to increase the value they expropriate and make their owners even richer. Oligopolies are symptomatic of the parasitism and decay of the imperialist system, which is corrupt, moribund and a heavy burden on the peoples of the world and Mother Earth.

Stone Canyon Industries Holdings Inc. centred in California is one such oligopoly that has "cornered" salt production and distribution in the Americas. Backed by compliant governments and courts, it is waging a dirty war against striking salt workers in Windsor, Ontario to enforce conditions which seek to reduce the workers to an unorganized force which cannot defend its claims on the wealth it produces.[2]

Note

1. Who's Who 2022 report by industry trade magazine Canadian Grocer.

2. For reference see: Workers' Forum, March 6, 2023, No. 10; Workers' Forum, March 17, 2023, No. 14; Workers' Forum, March 23, 2023, No. 15; Workers' Forum, April 13, 2023, No. 20


This article was published in
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Volume 53 Number 5 - May 2023

Article Link:
https://cpcml.ca/Tmlm2023/Articles/M530052.HTM


    

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