* Germany's 2nd largest bank gives few details about move
* Lobby group Foodwatch says ethical concerns behind
* Speculation has been blamed for fuelling food price hikes
* S&P Dow Jones Indices says not change indexes based on
By Arno Schuetze
FRANKFURT/LONDON, Aug 9 Germany's Commerzbank
has removed agricultural products from a commodity
index fund after accusations that speculation has pushed up food
prices and fuelled unrest in some poor countries.
Commerzbank followed at least two other German banks in
restricting investments in agriculture, while most banks and
fund managers have defended investment in commodities, saying
that price jumps have been due to heavy demand and shortages.
Germany's second-largest bank declined to give details about
the reason for its decision to remove agricultural commodities
from an exchange-traded fund (ETF), but German lobby group
Foodwatch said the decision was because of 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 said.
Agriculture has been removed from the ComStage ETF CB
Commodity EW Index TR, a Commerzbank spokeswoman said, declining
The fund, which has assets of $145.1 million, was
restructured on July 30 and now contains 12 metals and energy
commodities, Commerzbank said on its website.
"I think that more and more investors are sensitive to
banks' exposure to agriculture. In the last 12 months, there's
been lots of discussion about ethical investment," said David
Bicchetti, economics affairs officer at the United Nations
Conference on Trade and Development (UNCTAD).
In March, Germany's largest bank, Deutsche 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, which is owned by the German savings banks, said
in April it was pulling out of investing in basic food stuffs,
such as wheat, soy, maize and meat.
GRAIN PRICES SOAR
A drought in the United States, which is the worst to hit
the Midwest in 56 years, pushed up corn prices by almost 23
percent in July.
"The poor U.S. harvest but also outside speculation have
played a role in the price rises," said Foodwatch spokesman
The surge in grain prices and a series of investment bank
trading scandals have stirred up debate over whether investors -
including institutions such as pension funds - are responsible
for inflating food prices because they have been buying raw
materials mainly through bank-backed commodity index funds.
In the United States, these typically passive investors have
ploughed some $200 billion of net investment into commodity
futures markets over the past decade or so, more than a third of
that in agricultural contracts such as wheat and coffee,
according to Commodity Futures Trading Commission data.
But the trend dates back to 1992, when Goldman Sachs
received approval from the CFTC to exceed limits on investing in
grain markets to market its commodity index, the GSCI.
After the 2008 spike in prices, however, politicians
clamoured for new limits on excessive speculation across all
commodity markets. New "position limits" rules, approved late
last year, will cap passive investment in the biggest indexes.
The GSCI and the Dow Jones-UBS indexes,
both owned by McGraw-Hill's Standard & Poors, are by far the
largest of such commodity baskets. There is more than $80
billion tracking each of those products, and they include
S&P Dow Jones Indices, which represent the two indexes, said
there was "clear evidence" that fundamental supply-and-demand
drove grains prices, although there was an ongoing debate at
industry level on whether investments were responsible.
"S&P Dow Jones Indices does not build or change its indices
based on debatable results," Jodie Gunzberg, head of Commodity
Indexing at S&P Dow Jones Indices, said in an email.
Goldman Sachs forecast that corn, soybean and wheat prices
would go even higher over the next three months due to the
severity of the U.S. drought. In the same note, Goldman advised
its clients to lock in current prices and buy upside options in
anticipation of the higher prices it was forecasting.
Banks outside of Germany have not joined the move to curb
investment in agriculture, despite heavy lobbying by groups such
as Britain's World Development Movement (WDM) for strict
regulation on speculation in commodities.
"It's great that Commerzbank has decided to pull out, but I
wouldn't want to wait for a voluntary approach from banks," said
Amy Horton, food campaigner at WDM.
"In the UK, there's been a spate of scandals over the last
few months, and banks still think they can act with impunity. We
need regulators to set standards."
The U.N.'s food agency reported a surge in global food
prices in July and said the world could face a food crisis of
the kind seen in 2007/08 if countries restrict exports.
Soaring grain futures markets and restrictive export
policies pushed up prices of food in 2007/08, sparking violent
protests in countries including Egypt, Cameroon and Haiti.