Tuesday, July 02, 2013

EU backs away from commodity speculation controls

It look as if the EU is going to back away from imposing limits on commodity speculation. Of course, not all commodities are agricultural, but according to consultancy ETFGI there are 111 agriculture-focused products with €2.8bn of assets. Within exchange traded funds about 30 per cent or $55.5bn of these assets include agricultural investments, according to data from Somo, the centre for research on multinational corporations.

Critics argue that current trading practices help to boost food price volatility. There is no proof that this is the case, but many believe that excessive trading in derivatives can accelerate bubbles and create heavy price peaks which disadvantage the individual consumer. The US has already adopted position limits for a number of core commodity futures and option contracts, including corn (maize) and wheat.

NGOs had been hoping that position limits would be imposed on commodities speculation under the EU's revised Markets in Financial Instruments Directive (Mifid II). Such limits would restrict the activities of fund management companies that continue to engage in soft commodity trading, a number having pulled out earlier in the year. Reputational damage was a major motive for quitting speculative trading.

However, the European Council wants to allow individual member states to set their own position limits. Christine Haigh of the World Development Movement argues that this would pit member states against each other in a race to the bottom. The UK and France are thought to be the most likely to put lenient position limits in place to allow current trading practice to continue as normal.

The Commission and Parliament continue to favour Europe-wide rules, so it remains to be seen what emerges from the trilogue process with a final decision expected by March 2014.

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