In Monday's Financial Times Rana Foroohar discusses changes in financing in the food chain. She emphasises the possible implications for food prices, but I am more concerned about the potential for greater concentration and domination by big corporates.
Big banks are pulling out of commodity trade financing or scaling it back. There have been a variety of scandals involving financial fraud. Leverage and volatility in the commodities sector make it a particularly risky area for large banks do business (providing finance to farmers is another matter altogether as land is a very secure and asset that can be cashed in if the need arises).
The retreat of the big banks may hit agricultural producers and distributors, as well as grocery chains and SMEs that form a crucial part of the global food supply chain. Professor Michael Greenberger of the University of Maryland is worried that if second or third tier producers cannot get funding or are forced to pay higher rates to shadow lenders we could see a food price surge. (To some extent, certainly in the UK, this would be offset by the fierceness of retail competition).
Already, after Covid-19, the big companies were getting bigger. There could now be bigger gains for big global commodities traders such as Vitol Group or Ametican agricultural giants including the secretive Cargill.
Monopoly power in the food chain can create supply gluts in some areas (forcing down producer prices) and shortages and higher prices in others (hitting the consumer). A handful of large companies have controlled areas such as meat packing and grain production. It may look economically efficient, but it is potentially fragile in terms of food security.
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