The next subprime crisis could be in food

Of all the many problems caused by Covid-19, three of the most visible have been food insecurity, the demise of small businesses and asset market volatility.

All of those things might be poised to get worse, thanks to an unexpected but important financial shift. Big banks, including ABN Amro, ING and BNP Paribas, are either pulling out of commodity trade financing or scaling it back. This will leave a funding hole for some farmers, agricultural producers and distributors, as well as grocery chains and other small and medium-sized companies that represent crucial parts of the global food supply chain.

The problem is like a gigantic iceberg under the surface of financial markets, one that we can’t yet see but are nonetheless headed for, according to Michael Greenberger, a professor at the University of Maryland’s Carey School of Law and former director of trading and markets at the US Commodity Futures Trading Commission.

He is worried that if second and third-tier agricultural companies — who depend on such financing for things like shipping or manufacturing but also to hedge prices in a volatile industry — cannot get funding or are forced to pay higher rates to shadow lenders, we could see a food price surge. We might also see greater corporate concentration and increased…

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