Multinational Denies Manipulating Food Prices

Published: 2008-07-28

From News, page 5, issue no.377, July21, 2008
Translated by Liang Duo
Original article

Critics in China have been accusing multinational agriculture and food conglomerates as the invisible hand behind global food price surges, which they said affected China's food security. One of the world's big-four agro-companies, Cargill, however, rebuked such charges.

In a recent interview with the EO, Cargill China's regional chief executive officer Gregory R. Page was perplexed: "Why are foreign food traders taking the blame?"

ABCD Food Empires
One critic who held to the view of foreign manipulation was Zhou Li, associate professor of the Agriculture and Development Institute under the Renmin University in Beijing. He said: "The giants who have monopolized the global food market are the culprits for the food crisis."

Zhou referred to these giants as "ABCD Food Empires", namely ADM (Archer Daniels Midland), Bunge, Cargill and Louis Dreyfus.

Unofficial statistics revealed that these four companies controlled over 80% of grain trading in the global market. Critics held that they used their dominant position in the market to suppress sourcing prices, but later selling the products at high prices to reap huge profits.

"Totally baseless," was Cargill's response. Page explained that the price fixing mechanism was based on the futures market. He said whenever Cargill sealed a contract with its client, the delivery date would be specified, and the forward market pricing for that day would be the basis of pricing.

However, some Chinese grain traders claimed that the futures market too was manipulated. One trader charged that: "Whenever news has it that China is going to import large quantity of agricultural products, behind-the-scene dealings would inflate prices in the futures market, and the prices would drop after China sealed the contracts.

Some Chinese traders claimed that such manipulations had started as early as 2004, and they blamed the ABCD empires for the "soybean crisis" in China that year.

Bitter Soybean Episode
Prior to 1996, China was a net exporter of soybean. After it opened the soybean market in 2001, however, China has today become the largest importer of soybean in the world. last year alone, China imported 46 million tons of soybean (including edible oil), more than 60% of the global trading volume at 75 million tons. That same year, China only produced 14 million tons of soybean.

According to critics, the multinational traders had first entered the Chinese market with low prices, but in 2004, the soybean futures prices jumped from 220 dollar per ton to 391 dollar.

Critics said after Chinese clients sealed the deals, the US side announced that "based on latest statistics, the production volume of soybean for year 2004-05 has increased tremendously", and global soybean prices dropped nearly 50% following the news.

Industry sources in China claimed that domestic edible oil refineries suffered great losses due to the sudden hike and dive of soybean prices, and thus sunk into financial difficulties. The scenario, they claimed, provided opportunity for multinational companies to launch a series of buyouts and mergers.

Following that, industry sources said that over 80% of the soybean processing facilities in China fell into the hands of foreigners, who were accused of using their monopoly status to suppress local sourcing prices, thus discouraging the enthusiasm of domestic soybean planters, and which resulted in the size of planting areas to drop drasticly over the years.

For such allegations, Page from Cargill was resolute: "We did a survey previously and data showed that of China's total imported soybean, those supplied through the four giants made up about 50%, of which only 20% were directly imported via trading companies owned by the four giants."

He added that as for the ownership of oil processing factory, ADM owned none in China, Bunge had two, Louis Dreyfus had one and a half while Cargill owned four. He said all these foreign owned processing factories combined only formed about 20% of the country's edible oil processing capacity.

On charges that multinational food companies compelled their China-based refineries to use only soybean imported from the US, Page responded that US need not force China to buy its soybean.

He said if profits for soybean became too low, US farmers could switch easily to planting corn for biofuel. He added among the raw material used by Cargill's processing plants in China, soybean imported from the US only made up about one-third of the total volume.

A Chinese scholar who requested anonymity said one should look beyond blaming the "ABCD food empires" for the collapse of numerous local edible oil refineries.

"At that time, over 1,000 refineries emerged within two or three years. A survey done then revealed that most of them had affiliation with local governments. The sheer number of these factories had divided up resources, coupled with backwards technology and management, it was only a matter of time that they would go under," reasoned the scholar.