UK pension funds ‘speculate’ £1.5bn on food prices

A new report published by World Development Movement (‘WDM’), a London-based group, argues that tough regulation is “urgently needed” to limit speculation in the food and other commodity markets, which it claims is contributing to the global hunger crisis by driving up food prices.

The call was made in WDM’s 18-page report entitled ‘Dangerous Futures: How our Pensions Fuel Hunger’ (December 2013) as proposals were being thrashed out at a European Union-level through the Markets in Financial Instruments Directive (‘MiFID’). Noting that the British Government appeared set on “blocking agreement” in Brussels, the report’s authors stressed that “there is a risk that ordinary people’s retirement savings will continue to fund food speculation and fuel higher food prices”.

Examining short-term versus long-term speculation, investment banks “peddling” commodity investment, commodity index funds and holdings in food commodities, the report estimated that some £1.5bn of pension savings are used to “speculate” on food prices - equivalent to some £180 for every person in the UK contributing to a pension.

The report noted that institutional investors like pension funds have been putting “vast sums of money” into food and other commodity markets, effectively “placing huge, long-term bets on rising prices” and pushing food prices beyond the reach of the poor and increasing hunger and malnutrition.” And, the “amounts of money involved are only likely to increase”, WDM cautioned.

Such speculation is promoted by a number of investment banks like Goldman Sachs and Barclays Bank. And, while Barclays announced earlier in 2013 that it was withdrawing from food speculation, the bank “continues to facilitate such practices by pension funds and other institutional investors”, the report stated.

Despite acknowledging a “widespread lack of transparency” in pension funds’ holdings, WDM claims their “research has shown how the pension funds of major employers such as BT and the railway industry are speculating on commodity prices.”

For example, the BT Pension Scheme had £960m invested in a range of commodities with an estimated £240m allocated to food commodities, while the Railways Pension Scheme £330m held in commodity futures exposure with around £82m in food commodities, followed by the West Midlands Pension Fund with £202.7m (£58.2m agricultural only; £44m food commodities).

Whilst acknowledging that a “lack of hard data” made an exact estimate difficult, it contends that a conservative estimate (including large funds and small funds) of pension fund money in commodities may be at least £6bn.
Given that 8.2m people in the UK are currently saving in some kind of pension, this would mean that the average person with a pension bets around £731 on commodities - of which 25% (c.£182) is likely to be on food commodities (using an average of the weightings of four broad commodity indices as a proxy including the S&P GSCI).

The report examined published data on the websites of the UK’s 100 largest pension funds between May and September 2013, and initiated Freedom of Information (‘FoI’) for the 21 UK pension funds in the top 100 run by or for public bodies where there was insufficient publicly available information.

Under FoI requests only Teeside Pension fund revealed specific investments in an agricultural fund based on agricultural futures and commodity investments (corn and wheat futures) totalling £11.4m. Of the other pension funds, eight provided no response, five revealed no commodity holdings and seven indicated no direct commodity holdings.