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Insight into Swiss commodities industry - If-Ile 1-8b49-00144feab4...

FINANCIAL TIMES April 23, 201211:02am

Insight into Swiss

commodities illdustry

By Javier Bias, Commodities Editor

The publicity-shy Swiss-based commodities industry handles around a quarter of the world's commodities flow after experiencing strong growth over the last two decades. Yet, the industry remains largely unknown. A new book is reviewing the sector - albeit from a partisan point ofview.

Commodities: Switzerland's Most Dangerous Business, published this week in English by the non-governmental organisation Berne Declaration after an initial edition in French and German, takes a critical view of the industry. But even if the book is decidedly biased, it offers an insight into an industry that, in spite of its importance, only has a short list of reading references offering a good overview of its development. Over the last 30 years, only a handful of books have done justice to the commodities trading business, including two focused on single companies: the excellent history of Cargill by Wayne G. Broehl and the insightful review of trading giant Philipp Brothers by Helmut Waszkis. Apart from them, only Traders and Merchants, by Philippe Chalmin, published in the mid-1980s, and Merchants ofGrain, by Dan Morgan in 1979, have attempted the difficult task of reviewing the commodities trading industry as a whole. The new book will help fill the gap, particularly in understanding why so many of the world's largest trading houses have chosen landlocked Switzerland as their home over the last 50 years. The book is at its best providing historical context, including the arrivaI of heavyweights traders such as Cargill and Philipp Brothers to the country in 1956. The companies, as the book rightly points out, were attracted by the same forces that continue to explain why many others are located in Geneva, Zug and other Swiss cities: an economic and socio-political context that does not impose commercial constraints at any price; a robust financial centre with both large domestic and

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Insight iuto Swiss commodities industry -

foreign banks, and special tax rules that allowed commodities trading houses to optimise their tax payments. The book offers a good overview of the commodities scene of Zug and neighbouring Baar - home of Q:!~P:~9E~ - and Geneva, which it calls "the oil Mecca" for the number of energy traders settled in the city, although it overlooks Lugano and Lucerne - two other important, albeit smaller, commodities centres. But the book highlights the importance of the development of sorne auxiliary industries, particularly commodity trade finance and inspection and certification, which are often overlooked. The development of both industries probably explains the strength of Switzerland and why many trading houses remain in the country in spite of other locations such as Singapore offering better tax deals. A key drawback is that the Berne Declaration tries to blame the trading houses for a development problem that has little to do with them, and readers would do well to take such conclusions with a pinch of salt. The NGO notes: "While these powerful companies experience an unprecedented boom, the population of many resource-rich developing countries remain mired in poverty. This book tackles the question of why?" The resource trap is a well-documented phenomenon that has little connection with the profitability of the trading houses. To answer the question of why sorne countries remain poor in spite of having been blessed with abundant resources, one has to explore the economics and politics of those countries. The so-called "resource curse" has been a force at play for centuries, already described by Adam Smith in The Wealth ofNations in 1776. The book has stirred a debate in Switzerland about the future of the commodities industry just as the federal authorities review the sector, and the call for greater transparency should be welcomed. But to blame traders - and speculators - for high commodities prices is simply wrong. While Commodities: Switzerland's Most Dangerous Business fills part of the knowledge gap as regards the sector, the industry merits a fairer review.

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Editorial du chef de la rubrique matières premières sur Swiss Trading SA