THE global-trading giants that control the world's food markets,
but operate in the shadows, unlisted and unregulated, have been put
under the spotlight by Ecclesiastical Investment Management
Its report, The Hard Truth About Soft Commodities,
notes that many of the firms that trade in raw materials such as
wheat, cocoa, and cotton, earn revenues that are equal in size to
the GDP of entire countries, and yet the sector is "almost wholly
"We see investment in soft commodity trading as problematic
owing to the fundamental model that disconnects the raw material
from the wider beneficiaries - growers and customers," a senior
analyst at EIM, Neville White, writes.
Commodities are traded mainly in Chicago, New York, and London,
but the main tax domicile is Switzerland, where the typical tax
rate is five to 15 per cent. The sector is dominated by a few large
firms, which act as middlemen in a complex supply chain. For
example, the coffee trade involves growers, processors, packers,
shippers, dealers, roasters, and supermarkets.
The report argues that criticism of these companies is "not just
about their size or lack of transparency. Most have been dogged by
charges of poor environmental management, pollution, deforestation,
and complicity in human-rights violations."
The report argues that only manufacturers can address ethical
problems in the supply chain, such as poor labour practices. It
cites examples of companies that have taken control of their
sourcing, cutting out the middlemen. For example, 11 per cent of
Nestlé cocoa is now sourced directly, in the wake of allegations of
child labour and dangerous practices on plantations.
EIM has not, to date, invested in any soft-commodity trading
company. "There is no blanket ban on investing in soft-commodity
traders, but we are trying to highlight some of the ethical
dilemmas we would face," Mr White said last week. "We particularly
like the increasing-share-value model, where retailers are taking
more control of how they source raw materials, bypassing the
trading bloc in the middle by buying directly from farmers."