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Mercy’s Concern Over Rising Food Prices Drives Investment Decisions

October 19, 2012

By Mercy Investment Services Social Responsibility Team

This summer’s extreme drought affected food producers around the world. Damaged crops meant rising food prices, which for some people means less food on the table. While global access to food has been a concern for years, this year’s drought brought new attention to this dire situation. More than 925 million people worldwide live in hunger, and organizations such as Mercy Investment Services are looking at ways to improve global access to food.

Because development of a globally accessible sustainable food supply is one of Mercy Investment Services’ shareholder advocacy priorities, Mercy has had ongoing conversations with the companies in which it invests about improving global access to food. Mercy took another step last month when the Board of Directors agreed to avoid investing in food commodities. The impact of food commodities on food prices and the Sisters of Mercy’s concern for the economically poor outlined in the Direction Statement and Critical Concerns drove Mercy’s decision.

Research has shown that the increase in speculative investments in food commodities by banks, hedge funds and institutional investors is a driving factor for increases in basic food commodities pricing. The pricing impacts the global availability and affordability of food in both developed and developing countries.

Historically, food producers used investments in commodities to protect their pricing for the products they were growing or producing. With the passage of the Commodity Futures Modernization Act of 2000, investors with no interest in the underlying food product are able to speculate through investments in food commodities including derivatives, indices and exchange-traded funds. Because Mercy Investment Services has no underlying interest in food commodity production, our investment would be speculative in nature since we would profit by the increases in the price of the food commodities.

Mercy’s goal in its shareholder advocacy has always been to engage companies and, as an investor, have a voice in creating change at a company. Investing in food commodities does not afford Mercy that opportunity because food commodities are financial instruments, not stocks with voting rights. Avoiding investment in food commodities does not prohibit Mercy Investment Services from engaging corporations on food-related issues. Mercy continues to invest in food companies – both producers and manufacturers – as well as in companies investing in food commodities. Past food-related engagements have occurred with companies including Campbell’s Soup, Nestle, McDonalds and Kraft regarding improving access to nutritious food in both developed and developing countries. Mercy has also used its ownership in Archers Daniel Midland to discuss the company’s involvement in food commodity speculation.

Mercy Investment Services will continue to review its investment portfolio and its engagements with companies to determine how best to use investments to create systemic change, in accordance with the Direction Statement and Critical Concerns of the Sisters of Mercy.

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