Commerzbank to Stay Away from Speculative Trading in Food Commodiites

Aug 10, 2012 04:58 AM EDT | By Sharon Robinson

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Speculating over the prices of grains has long been touted as one of the reasons for the soaring price of food, and consequent civil unrest in many countries. As a result, Commerzbank has now abolished investments in agriculture.

Commerzbank, Germany's second largest bank, has refused to give many details about its move to remove agricultural commodities from an exchange trade fund (ETF), but, Foodwatch, a German lobby group, claims that this decision is based on ethical concerns.

"Commerzbank is reacting to the debate about a series of studies which show that investment in this type of commodity fund pushes food prices upwards and so contributes to the hunger crisis in many parts of the world," Foodwatch told Reuters.

A spokeswoman for Commerzbank said Thursday that agriculture has been removed from ComStage ETF CB Commodity EW Index TR, a fund which has assets of $14.1 million.

Commerzbank is just one of several banks in Germany which have responded to criticism over speculation of price of food commodities by restricting investments. In March Deutsche Bank, Germany's largest bank, said it would not issue new investment products in agricultural commodities this year while it researches the impact of investment in commodities on food prices.

DekaBank has also pulled out of investing in several basic food grains, like maize, soy and wheat.

The trend of investing heavily in good commodities was started by Goldman Sachs, in 1992, when it received approval from the Commodity Futures Trading Commission (CTFC), to exceed limits on investing in grain markets to market its commodity index, the GSCI.

One of the main reasons for the surge in food prices in 2008 is attributed to speculation. According to the data collected by the CTFC, in the US alone, more than $66.6 million has been invested in commodities like wheat and coffee.

However, after the food crisis of 2008, governments around the world have been trying to curb excessive speculation by trying to get banks to impose new limits. Though no other bank outside of Germany has set any restrictions on speculation over food commodity prices, hope that other banks may soon follow continues.

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