(Bloomberg) -- The United Nations called for greater oversight of commodities traders, saying unregulated activity is worsening the global food crisis in the wake of Russia’s invasion of Ukraine.

Profiteering from financial activities now drives revenues in global food trading, yet commodity traders circumvent regulations by being regarded as manufacturing companies rather than financial institutions, the UN Conference on Trade and Development said in a report on Wednesday.

“It is imperative to develop tools to enhance transparency and accountability in this opaque yet systemically vital global industry,” Unctad said. “Unregulated activity within the commodities sector contributes to speculative price increases and market instability, exacerbating the global food crisis.” 

Food commodity traders have reaped record profits as Russia’s assault on Ukraine restricted agricultural flows and sent prices soaring, causing hardship for hundreds of millions of people. The UN agency’s call is the latest sign of growing pressure on commodity traders, which have attracted far less scrutiny than banks since the global financial crisis.

Unctad’s analysis reveals that unregulated financial activity — through the use of over-the-counter trades or regulatory arbitrage — bolsters the profits of global food traders. Those profits appear to be strongly linked to periods of excessive speculation in commodities markets and to the growth of shadow banking, it said. 

To be sure, more research is needed to establish the link between speculation and food prices, Unctad said. Food prices have fallen since climbing to a record in March last year, though they are still higher than before the pandemic.

“While financial speculation, and excessive speculation specifically, may accentuate price swings, agriculture prices are highly affected by market conditions, geopolitical tensions, climate risks and trade measures,” it said. 

To help combat profiteering, arbitrage and unearned profits, Unctad has identified regulatory measures to help address market dysfunction and risks of shadow financial trading. They range from greater disclosure of trading positions and transacted volumes to fostering competition.

“In the highly concentrated commodity trading industry, the super profits enjoyed by ‘agripolies’ trickle down very slowly, if at all, to local farming communities,” Unctad said. “We need to foster a future where equity replaces excess.”

--With assistance from Archie Hunter.

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