The appalling revelations about the behaviour of global banks in manipulating interest rates such as Libor expose the frailties of existing financial systems worldwide.
They may also provide an opportunity for Ireland.
In this column some time ago, I mentioned the idea of establishing an exchange in Ireland that could handle financial transactions in the agri-food industry.
This activity is currently dominated by those global banks that sit at the centre of a variety of scandals and it begs the question as to why these banks are given so much sway in financial matters of great importance to the agri-food sector.
The food industry, its suppliers and the end consumers of its output need some certainty around prices when planning for the future.
Hedging through financial instruments is a key tool used in that process whereby derivative products are manufactured and sold for use in fixing prices for a determined period of time.
Imagine an Irish food company producing a ready meal for a UK supermarket. It buys ingredients such as meat and sauces to manufacture the meal and then sell it to the retailer over a contract period for, say, six months.
Hedges help the company lock in the cost of that meat and sauce to protect margins for product sold to the retailer at a fixed price. Billions of euro worth of this type of hedging take place every day worldwide.
Instead of leaving that business to the global banks, why can’t a country such as Ireland invest in a project that brings this business to our state?
Given Ireland’s existing reputation as a provider of reliable and high quality food products, could it not also evolve as a centre of excellence for manufacturing, researching, selling and trading financial products that assist in the production of food and beverages worldwide?
This would need some strong leadership that brings together the needed academic, industry and financial experts — all of whom exist here already — to co-ordinate and lead such an initiative. It should seek the support of the EU too as I sense a growing wariness about leaving global banks control key aspects of everyday life.
Nothing is more core to normal society than access to affordable food and having a critical element of that chain — pricing — under the influence of banks that have manipulated interest rates for their own benefit should trigger alarm bells everywhere.
For Ireland, it seems natural to me that the success achieved in creating global food companies creates a platform upon which other related and valuable services can be developed.
Establishing an eco-system of companies (private and state-sponsored) that turn Ireland in to a hub for agri-food trading and financing flows would create jobs, wealth and tax revenues for the State while embellishing our reputation as a world leader in the agri-food sector.
The concept could develop as follows:
(1) Specialist firms that offer agri-food related derivative products for hedging input and output costs among companies across the food chain;
(2) A virtual exchange where physical products can be bought and sold over the web;
(3) A competing group of companies that provide world-class data and analysis of all those engaged in financing the agri-food industry worldwide.
I know this may be another flight of fancy, something this column tends to specialise in, but Ireland needs some big ideas if we are to make step-changes in the next decade that materially impact wealth and job creation.
An Irish food exchange could form part of that plan and, as we have the presidency of the EU in 2013, maybe the time to market test it is coming soon.
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