By Daniel Hunter
European proposals for the regulation of the commodity markets are inadequate to prevent excessive speculation from contributing to food price spikes, according to a new report released today (Wednesday).
Proposals discussed yesterday by the European parliament’s Economic and Monetary Affairs (ECON) committee rely on a system of ‘position management’ or ‘position checks’ to prevent market manipulation and excessive speculation from distorting commodity prices. But the report, from the World Development Movement, argues that the proposals are doomed to failure and that a system of position limits is essential.
Financial speculation on the commodity markets is fuelling price volatility and contributing to price spikes, increasing food bills for consumers and driving up hunger and poverty.
The report, Back to fundamentals, shows that:
- Position limits are the international norm for regulating the commodity markets.
- Position limits have a track record of success - US markets functioned effectively for most of the twentieth century following their introduction.
- ‘Position management’ approaches lack transparency, introduce conflicts of interest and have a track record of failure. For example, hedge fund Armajaro was able to corner the European cocoa market through the London exchange in 2010, pushing prices to a 33 year high.
For the first time, the report sets out how position limits could be implemented across the European Union, and analyses the current status of proposals for regulation. It finds that attempts by some MEPs to radically weaken the proposed rules puts commodity markets at risk of ongoing volatility.
“European decision makers are at a crossroads in regulation of the commodity markets. They can act in the public interest and demand position limits, or they can give in to pressure from financial lobbyists," Christine Haigh, policy officer at the World Development Movement, said.
“This report shows that, if they follow their current path, money that could be invested in the real economy will instead be gambled in the commodity markets, increasing price volatility and contributing to price spikes that cause hunger and poverty around the world.”
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