Is Commodity Speculation Ethical?

Commodity Trading and Business Ethics

Hausarbeit, 2018

11 Seiten, Note: 1,7



Table of Contents

1 Introduction
1.1 Topic and Relevance
1.2 Research Question

2 Commodity speculation
2.1 History of the discussion
2.2 The market of commodity trading

3 Moral view on commodity trading
3.1 Different ethical approaches
3.2 View of the society
3.3 Nietzsche’s approach on business ethics
3.4 Ayn Rand’s view on moral

4 Conclusion

5 Executive Summary

6 Bibliography

1 Introduction

1.1 Topic and Relevance

In the year of 2011 the NGO “foodwatch” released their annual report about the worldwide food market and claimed that speculation and the trading of commodi- ties is one of the reasons for hunger worldwide. (foodwatch e. v., 2011) Hunger means that people don’t have enough food for themselves and their children. The UN food-program claims that till today more than 800 million people worldwide are suffering under hunger and have health issues which are directly linked to this problem. The numbers of the UN also have one clear message, this problem isn’t a European problem and it’s also not even a global problem, it’s partly an Asian problem but mostly just an African problem. While Europe has not one single country where more than 5% of the population suffers under hunger, Africa has countries e.g. Somalia, Zimbabwe or Namibia where more than 35% of the popu- lation not only suffer from poverty they also suffer from hunger. (World Food Programme, 2012) Hunger is a problem, that’s a fact in many different countries but it’s also a fact which is getting weaker. The global hunger index which shows the worldwide rate of people who suffer undernourishment dropped 29% between the years of 2000 and 2013. But still is hunger a problem which also affects us in Europe. But why is it still a problem and why don’t we solve this problem? The NGO “foodwatch” has a simple answer to this. They say that the worldwide hunger is the result of speculations on commodity prices and the trade of commodities on stock exchanges. They argue that banks are the reason why people worldwide suffer under high prices and under the pressure to work hard to even be able to pay food. When they released their annual report in 2011 they started a global dis- cuss the banking industry and the correlation between hunger and commodity speculation. (Pachali, 2011)

1.2 Research Question

The discussion was also topic at the United Nations and the result was that many banks dropped their work with commodities. But the discussion isn’t ending still today many NGOs accuse banks like the Deutsche Bank that they are the reason for undernourished children in poor countries. But are they really the reason why prices are high? Is the speculation on commodities something which helps people or is it something people have to suffer from? Are banks the reason why people even in the year of 2018 suffer from hunger? In the following I will discuss the rea- sons for the worldwide hunger problem, I will take a look at commodity trading and how banks work in this sector. Last I will review the situation from an ethical point of view and say if it is ethically correct to trade commodities on stock exchanges. This paper should help to understand the whole discussion and should take a look at different ethical theories. ( Food and Agriculture Organization of the United Nations , 2001)

2 Commodity speculation

2.1 History of the discussion

The year 2011 was the most important year in regards to the overall discussion about speculation on food prices. In this year the real discussion about food prices started. In the years before the financial crisis, the market for futures on commodi- ties grew strong from a level of 13 Bn. $ in 2003 to a level of 260 Bn. $ in the year 2008 (Garner, 2016). This is was not surprisingly due to the fact that the overall market grew fast but the speed of the growth was tremendous. When NGO´s and organizations looked at the volatility of food prices and the correlation between the growing market and a higher volatility in the market, they saw a strong correlation. Outgoing from this analysis they started to blame banks and commodity traders for the rising food prices and for the food shortage in those countries. They argued that in is always important for investors to see prices rising and because of that it would be rational to expect rising food prices. (Pachali, 2011) Based on this analy- sis they showed that the money-inflow into commodity investment funds was the reason for an overall price increase in food and all exchange-traded commodities. At the time of this discussion not just prices rose but also did countries with a high rate of undernourishment suffer under a new wave of hunger and problems (Now, 2014). Parts of the population of those countries had to suffer hunger and wasn't able to pay for food anymore. NGO’s which tried to help blamed also banks and the financial industry for the food shortage. Pictures of people who are suffering hunger also strengthened the impression that banks and the western-world are the reason for poverty in the third world. Some people and politicians argued that banks should stop trading those commodities. (Zuber)

2.2 The market of commodity trading

On the other hand, it is important to see why banks and institutions started with the trading of commodities. First of all the overall volume in this section of the financial market started to grow later than other parts of the industry. When in the late 90s the financial market to grow fast and the money inflow got bigger and bigger the focus of investors wasn't on the commodity market. The development of the com- modity market was furthermore just a result of the developments before. Banks argued that they just provided a platform for a new market which also would help the economies and the people in poor countries. Furthermore, they argued that banks and stock exchanges just help to find the price of a good. Supply and de- mand are determination prices for commodities and because of that higher prices just show a higher demand for a good. (Garner, 2016) For example, would that mean that if Germany would suffer under a drought and it would have a corn shortage the prices for corn would rise? This is would not be the result of food speculation but rather just a result of the smaller supply. In terms of the globaliza- tion, Germany would have to buy more corn from other countries of the world and this higher demand would lead to higher corn prices in Africa and any other coun- try. In theory, higher prices would make it interesting for other farmers to plant more corn and the food shortage could be solved. Also, banks argue that higher prices are a result and not the reason of the worldwide undernourishment. Higher prices are in theory also a potential sign of higher investments the seller has to do. From this point they argue that if people are paying more for e.g. corn the farmers could invest more into an expansion of their corn production. This is also one of the most important arguments for food speculation. (Schaffnit-Chatterjee, 2013) The reasons for investments are not to benefit from higher prices but rather to help to invest in the expansion of the food production. That means that the investments in the commodity market are not a reason for undernourishment but rather a tool to fight undernourishment. (Moj, 2016)

3 Moral view on commodity trading

3.1 Different ethical approaches

Based on those two parts of the discussion there is no statement possible to clarify the technical side of food-speculation. Furthermore, it’s possible to find a solution for the questions if banks should do commodity trading based on an ethical theory. Like explained in the part above it’s not certain that commodity trading causes higher food prices it’s only a theory. Based on this assumption we have to think in different cases to create a statement. First of all is there the possibility that banks are telling the truth and food-speculation helps and doesn’t affect the price, in this case, everybody would benefit and no statement is actually needed since every- body will get profits from the trading activities. There are just two different cases possible which make a statement possible. What if commodity trading helps farm- ers to grow more in the future but in the short term it harms some people and what if commodity trading affects prices and is only good for banks and investors. Does questions are different and it’s important to review both of them because they help to be able to see the whole picture. The first case is the one which would make it able to give a statement since this is a discussion about the question if it is ethical- ly correct to sacrifice people if you can save in return more people.


Ende der Leseprobe aus 11 Seiten


Is Commodity Speculation Ethical?
Commodity Trading and Business Ethics
International School Of Management, Standort Frankfurt
ISBN (eBook)
ISBN (Buch)
commodity, speculation, ethical, trading, business, ethics
Arbeit zitieren
Anonym, 2018, Is Commodity Speculation Ethical?, München, GRIN Verlag,


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