Our position: the key questions and answers
1. Why is Deutsche Bank continuing to offer its clients staples-based financial products?
The agricultural sector is a key component of the global economy. In developing countries alone, more than USD 80 billion needs to be invested every year in order to increase productivity levels to meet the increasing demand for food in the coming decades.
2. To what extent is Deutsche Bank involved in transactions in the agricultural sector?
We support these investment needs. We offer credit facilities and financing for farm operators, trading companies and food processors. We also provide investment opportunities for our clients in the form of a variety of which cover the entire value chain in agriculture, including in innovations and technology. We no longer offer commodity price hedging products as we are restructuring our commodities business as announced in December 2013.
We continue to provide our clients with investment opportunities in the form of commodity index products. These index products have been the subject of controversial discussions for some time now as some observers believe these products to be responsible for higher and more volatile agricultural prices, and ultimately for hunger in the poorest countries.
3. Are financial investors responsible for increased food prices that lead to so many people suffering from hunger?
Over the past two years, we have continued to engage with non-governmental organizations (NGO), clients and academia on a bilateral basis and at public events. In April 2014, one of our Co-Chief Executive Officers hosted a private round table discussion with key stakeholders, including those who have been most critical of our actions.
This discussion confirmed one more time the fundamental cause of rising food prices is fast growing demand that is not yet matched by supply as production is constrained by water scarcity, climate change, lack of infrastructure and harvest waste. Drought and political interventions such as export bans have proven to be key reasons for temporary price spikes in recent years.
The discussion revealed that academics have not yet reached consensus on whether or not the growth of agricultural-based financial investments has led to either higher or more volatile prices. While some studies suggest a temporary influence for some commodities in a specific time period, the same methodology cannot confirm such influence for other commodities or other time periods. Moreover, there is a strong body of literature that cannot identify index investors as responsible for price movements at all.
As such the bank maintains that there is no convincing evidence that the products we offer have a de-stabilizing impact on prices and cause more people to go hungry.
4. But is it not true that speculating on commodities drives up the price in local markets?
There are many kinds of index products and we believe most are straightforward ways to invest and do not contribute to problems such as food price inflation. But we have taken a careful look at the different kinds of index products and we make sure that when we launch new products, the underlying investment strategies are not likely to lead to price Convenience Translation spikes. Specifically we have decided not to offer products that are based on “momentum strategies.”
At the same time, we will continue to work with stakeholders to identify potential approaches that can help shed more light on the complex issues around causes of hunger and the responsibilities of investors.
5. Do we need more regulation in these derivative markets? Should we ban financial investments in commodities markets?
We continue to support regulatory actions in both the U.S. and in Europe to avoid market abuse and enhance market transparency.
Last update: May 2014