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  Deadly Greed: The Role of Speculators in the Global Food Crisis

Deadly Greed The Role of Speculators in the Global Food Crisis

By Beat Balzli and Frank Hornig

Part 3: 'Passive and Profit-Oriented'

Voices like Eibl's have been rare until now, perhaps because a comparable commodities boom has never existed before. Experts are already discussing what they call a "super cycle," set off by constantly growing demand in China, and by farmers unable, in the long term, to keep up with that demand as they sow their seed and harvest their crops. The planet has only a finite amount of land for farming.

The upshot is that more and more small investors are jumping on the commodities bandwagon. Many investors, not unlike hedge fund managers, seek diversification in their portfolios, partly through investment in agricultural commodities. From the standpoint of these investors, poor harvests that drive up prices are only good for their portfolios. Many investors either don't care or are simply oblivious to the fact that by investing in the global casino, they could be gambling away the daily food supply of the world's poorest people.

Andreas Grünewald is a star among small investors in Germany. He launched his Munich Investment Club (MIC), together with eight fellow students and his grandfather, in 1989 with about €15,000 ($24,000) in initial capital. Grünewald, a business school graduate, now manages more than €50 million ($80 million) for the MIC's 2,500 members.

Commodities are a big issue for Grünewald. "They are the megatrend of the decade," he says. His portfolio in this sector is already worth about €15 million ($24 million). According to Grünewald, this is only the start.

Grünewald says he wants to "remain broadly invested" in water and agricultural commodities, in particular, and "to expand those investments if possible." He has already placed his bets on oranges, sugar and corn on the futures exchanges. His bet on wheat alone has produced a handsome profit of 93 percent to date.

Grünewald has already planned his next step. "Rice is another interesting topic that could complement our portfolio very effectively," he says. Scruples are in short supply in Grünewald's investment club.

"Most of our members tend to be passive and profit-oriented," he admits. At MIC's national events, few people bring up the social consequences of his investment tips. Riots because of exploding rice prices? Aid organizations in a state of high alert? None of this matters much to the preferred suppliers and apostles of profit in the small investor community. The finance industry regularly introduces new investment "products" for every sexy sector, no matter how questionable.

Financial giant ABN Amro has been especially adept at turning a profit in the current market. As a provider of commodities-investment products for private investors, ABN Amro last March became the first bank to offer certificates allowing small investors to place bets on rising rice prices on the Chicago Futures Exchange.

The bank's marketing department has reacted with cold precision to headlines about famine around the world. Two weeks ago, when experts warned of an impending hunger crisis and the political instability associated with it, ABN Amro introduced a new ad campaign on its website. As India imposes a ban on rice exports, the ad said, world rice supplies have declined to a minimum: Now ABN Amro was making it possible, for the first time, to invest in Asia's most important basic food product.

Unveiling an investment product during a supply bottleneck that has since led to riots? Are ABN Amro's bankers really such clichéd, unscrupulous bean counters? "We are aware of the current discussions relating to agricultural commodities," says Önder Ciftci, head of ABN Amro's German certificate business. But he's not interested in a discussion of ethics. "We make the drills, but others have to do the drilling," he says.

ABN Amro has, in fact, drilled into substantial source of profit. In the space of only three weeks, investors raked returns of more than 20 percent. The number of futures contracts traded in Chicago has skyrocketed.

No Food at All?

Jim Rogers, the former business partner of legendary financier and philanthropist George Soros, is perhaps the best-known investor in broad-based commodity funds. He started shifting his money to commodities in the 1990s. On his trips around the world, he came to realize that almost everything, from nickel to cacao, was in short supply in a globalized economy.

He's laid bets on rising prices ever since. This has had an impact on the entire industry, because Rogers' International Commodities Index is a benchmark for countless funds. These moneymaking machines have attracted billions in investments in recent years, and some of that money has been pumped into futures contracts, heating up prices even further.

But now Rogers, of all people, is warning: "Unless something happens soon, we will see people not getting any food at all, at any price. This is the sort of thing we read about in history books, but now I'm afraid that it could happen again."

From his perspective, though, the calamity is not the fault of investors like him, but of developing countries' policies -- like imposing export bans and capping prices. This deprives farmers, who face rising costs of necessary items like fuel and fertilizer, of any incentive to produce more rice.

"I think this attitude is morally reprehensible," says Rogers. "These governments would rather let people starve than allow prices to rise naturally." Removing price controls, he says, is the only way to increase rice production levels once again.

Farmers, after all, wouldn't give away their rice to the poor, says Rogers. But he fails to explain how the poor should pay the higher prices in the first place. Perhaps it's up to politicians?