Brussels, 02/02/2011 (Agence Europe) - On Wednesday 2 February, the European Commission promised action to improve honesty and transparency on the commodity markets to ensure that the increasing commercialisation of raw materials, including food, does not prevent the markets from operating properly and working to the benefit of the real economy.
Unveiling a report on dealing with the problems raised by the commodity markets, Commissioner Antonio Tajani said that the report was important because it looked at issues that directly the concern the future of companies in Europe, directly affecting productivity, competitiveness and innovative capacity.
Michel Barnier, EU Internal Market Commissioner, said he was delighted that France had decided to put commodities and reducing the secrecy and price volatility on the commodity markets on the agenda for the G20 to discuss in 2011, adding that the European Commission would be contributing to that debate. The main reason for price volatility is the huge shifts in supply and demand, explained the commissioner because supply falls in one region due to climate problems as demand increases under the pressure of population growth. There will need to be twice as much food grown in 30 or 40 years' time to feed the world's 9 billion inhabitants, he said. There is also increasing speculation on the commodity markets with attention being shifted from stocks and shares to food and other raw materials with the search for monetary gain entering the food market. Between 2002 and 2008, the number of derivatives contracts on the commodity markets trebled and the actual size of the deals increased fourteen-fold! Between a quarter and a third of investments or contracts for agricultural products are held by investment funds. Not to mention the fact that big business and countries like China are buying vast swathes of tens of thousands of acres of farmland in countries in Africa and elsewhere. Farm products are no longer seen as food, but are increasingly viewed as financial assets, explained Barnier.
The measures being studied by the Internal Market staff at the European Commission include: - a draft EU regulation on OTC ('over the counter market') derivatives to reduce the danger of meltdown; - review in the spring of the insider dealing directive (Market Abuse Directive) to define what abuse of the commodity markets amounts to and ensure that all markets and all forms of abuse are covered by the EU rules; - revising the MiFID Directive in the summer of 2011 (financial instruments' market) to boost transparency about deals and commodity derivative prices. This will set criteria for non-OTC commodity dealings, said Barnier, suggesting that limits be set where necessary.
EU Agriculture Commissioner Dacian Cioloº said that farmers' income has been falling over the past few years due to fluctuating prices. Big changes in prices are not in the interest of either farmers or consumers. The problem facing livestock farmers has become very tough this year, he added, pointing out that price volatility is due to speculation on the derivatives markets. Cioloº commented that the debate about the extent to which food prices are influenced by speculation on the financial markets was largely “academic” because the scale of commodity investment is so huge that it always influences the market. Cioloº pointed out that one source of food price volatility is the secrecy shrouding dealings on the derivatives markets. We have to prepare for this situation continuing into the future and identify ways of dealing with it, he said, like new mechanisms to be introduced. Cioloº suggested in this connection ensuring the markets operate properly by increasing transparency about deals and providing more detailed information at international level about production, demand and public and private stockpiles; - working at international level to put an end to one crisis after another caused by bad policy (export embargos and speculation generated by concerns and rumour about stock levels). The commissioner recommended creating an international body, along the lines of the Food and Agriculture Organisation, to exchange information and discuss action before it is taken. He also suggested improving information about the EU markets (production levels, stockpiles and likely future price changes); - increasing the supply of farm products, particularly in areas of food shortages. Farming must be invested in to increase yield and maintain the EU's production capacity.
The Commission is also planning measures for increasing efficiency in the use of resources and encouraging recycling. (L.C./transl.fl)