From today’s Financial Times:
BNP Paribas made a loud contribution to the debate on how comfortable fund managers, and financial institutions generally, should be about speculating on food prices last week.
On the back of criticism from Oxfam, the international aid agency, which accused the French house of “speculating on hunger”, BNP suspended subscriptions on two of its funds.
BNP’s Parvest World Agriculture fund, which manages €159m of assets, has been shut to new investors as a “precautionary” measure, while its EasyETF Ultra Light Energy fund has also been closed.
BNP Paribas has funds in which its clients invest; those funds hold investments in agricultural-related businesses and properties of one kind or another, such as companies that make farm machinery, etc. If commodity prices for things such as wheat and soy are rising and that encourages the share prices of various industries to rise, and this encourages more investment in those industries so that the production of said commodities rises, this is not a bug of capitalism, but a feature. And if those speculators, who bet that prices will rise, and they do, and therefore make money, their price-creation role – conveying information that triggers responses – is to be applauded, not condemned.
Oxfam, and other organisations that throw rocks at the financial intermediary role of speculators and the like, is merely playing to a long-established trope. It is demonstrating economic illiteracy on an epic scale. I can, of course, understand why a large bank that makes a big point of its image not wishing to offend organisations such as Oxfam. But bear in mind that what Oxfam objects to is the very process of the free market in action. When a bank caves into such pressure, then that surely is a sign that anyone serious about making money from the agricultural sector would be better advised to do so elsewhere.
In the meantime, if anyone can explain to me how a hungry person in a country benefits from such actions, do let me know.
Update: I suppose it is possible to argue that central bank inflation of the money supply via quantitative easing is encouraging investors to put this money into commodities and other “hard assets” in ways that have unforseen and negative effects, but I haven’t seen that point made by Oxfam.