Hedge funds have emerged as some of the biggest winners from the global food price spike that followed Russia’s invasion of Ukraine, with the world’s 10 biggest hedge funds alone making profits estimated at nearly $2bn.
Analysis of the profits of the top 10 hedge funds for the first quarter of last year shows they are likely to have made about $1.9bn (£1.5bn) from trading in two food commodities, grain and soya beans, in the run-up to and immediate aftermath of the invasion.
The findings, compiled by Unearthed, Greenpeace’s investigative journalism unit, and the non-profit journalism organisation Lighthouse Reports, have raised fresh questions over the role of hedge funds and other speculators in inflating food prices, as a global cost of living crisis continues to bite. After the Russian president, Vladimir Putin, moved to invade last February, prices of many key commodities – many of which had already been on the rise as the world recovered from the Covid-19 pandemic – shot up in response.
Olivier De Schutter, co-chair of the International Panel of Experts on Sustainable Food Systems and UN special rapporteur on extreme poverty and human rights, said: “Hedge funds and financial speculators have made obscene profits by betting on hunger and exacerbating it. That cannot be right. At the start of the Ukraine war, financial investors piled into grains and commodities in large numbers, seeking to capitalise on uncertainty and rising food prices, and they hit the jackpot.”
He said the jolts to the food market since the Ukraine invasion showed how dangerous speculation in food commodities could be, with the effects of these extraordinary profits being felt by vulnerable people. It is difficult to disentangle the impact of speculation from food prices that may already be rising for other reasons, but De Schutter said speculation was likely to have played a key role.
“The signs are they helped inflate a price bubble, putting upward pressure on food prices – that were not in proportion to agricultural market fundamentals, to the actual supply of food – and this has affected hunger levels of the world’s poorest people,” he said.
Doug Parr, the chief scientist at Greenpeace UK, said governments must put into action the measures they had already agreed during the last food price crisis in 2008-09. “Windfall profits causing misery to millions are not confined to price spikes from fossil fuels,” he said. “Badly regulated food commodities, and their trading, are also engines of economic, social and environmental destruction. It’s 14 years since G20 governments committed to improve the regulation and transparency of commodity markets and yet still we have a trading system driven by profit rather than purpose, and an international market with, essentially, no rules.”
Fossil fuel prices rose sharply when Russia advanced into Ukraine, and with them the price of grain and other staple foods, and fertiliser. Ukraine is one of the world’s biggest suppliers of wheat, maize, sunflower oil and other important commodities, and of chemical fertiliser.
In the days after the invasion, food prices leapt to record highs. They have fallen back in the past year, but not yet to the levels of 2021. The crisis is far from over, with the International Monetary Fund warning last month that “many vulnerable countries still face heightened food insecurity”.
Hedge funds closely guard the details of their investments, so it is not possible to say which funds did best from trading in food commodities. To come up with their estimate of $1.9bn in profits from the food price rise in the first quarter of 2022, Greenpeace and Lighthouse Reports examined the returns made by Societe Generale’s SG Trend Index for that period.
This covers the run-up to the invasion on 24 February last year, as well as the immediate aftermath, because many funds had bet on a potential invasion as it was clear for some weeks that Putin might have been planning an offensive.
The daily returns of the SG Trend Indicator and data from SG showing the hedge funds’ assets under management were combined with estimates of how much such funds are weighted towards commodities. The analysis stripped out non-food commodities and homed in on grains and soya beans.
The $1.9bn in returns on grains and soya beans from the top 10 hedge funds in the first quarter of 2022 was significantly higher than the returns on those same commodities in the first quarter of any of the previous five years.
Food companies have also made bumper profits. Greenpeace calculates that the world’s 20 biggest food companies delivered $53.5bn (£42.8bn) to shareholders in the last two financial years, with windfall profits the result of rising food prices during the Covid-19 pandemic and the Russian invasion of Ukraine.
Davi Martins, a campaigner at Greenpeace International, said: “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. These 20 companies could literally save the world’s 230 million most vulnerable people and have billions of profit left over in spare change. Paying more to shareholders of a few food corporations is just outrageous and immoral.”
The EU is reviewing its rules on excessive speculation but there are doubts over how much appetite regulators have for intervention. Governments may feel under less pressure on food as the UN’s Food and Agriculture Organization announced last week that prices had declined steadily over the last 11 months.
But De Schutter warned there could be no complacency and governments should act urgently. “This is not gold or silver we’re talking about, its people’s daily bread – driving up food prices affects millions and millions of people. It’s a scandal and it shouldn’t be allowed to happen – but deregulation over the past several decades has enabled excessive speculation on food to take place,” he said.
“These hedge funds have nothing to do with the production, buying and selling of food, they’re simply profiteering, but their herd-like behaviour can corner markets, make upward price swings higher, and distort market prices – and this is inflaming price volatility of the food we eat.”
He said the price volatility, driven by speculation, showed an urgent need for stricter regulations, including restrictions on how big a position investors could take in the market for food commodities, and better transparency in those markets. Commodity traders should have to provide information to the Agricultural Market Information System, he said.
There are also concerns in the US over the impacts of speculation on food prices. Cindy McCain, the former US ambassador to the UN agencies for food and agriculture, who has since been appointed head of the World Food Programme, told the Guardian earlier this year of her fears. “You can’t tolerate it [speculation] – people are starving. Speculation does nobody any good during a crisis,” she said. “[We need to] keep reminding the world that food security is a national security problem. This has not only community effects, but has national security implications.”
The top 10 hedge funds were the Managed Futures Offshore fund, run by AQR Capital Management; the Managed Futures fund, run by AlphaSimplex Group; Diversified, run by Aspect Capital; BlueTrend run by Systematica Investments; Tactical Trend A, run by Graham Capital Management; Systematic Trend, run by ISAM; Lynx Bermuda D, run by Lynx Asset Management; Man AHL Alpha, run by Man Investments; DTP Enhanced Risk, run by Transtrend BV; Winton Trend, run by Winton Capital.
The Guardian approached all 10 companies for comment.
A spokesperson for Natixis Investment Managers, of which AlphaSimplex is an affiliate, said: “The research is based on an index and includes a number of assumptions and hypothetical returns. While we do not comment on hypothetical returns, we can say the hypothetical returns suggested by this research do not accurately represent the source of returns for our investors.”
Man Investments declined to comment. Aspect Capital declined to comment.
