A big week in the campaign to regulate food speculation

By Heidi Chow, 21 October 2011

This week marked an important moment in the global campaign to regulate excessive food speculation. Speculating on food prices is a global problem and can’t be addressed in just one region alone. This week, there were major developments in all three arenas where the campaign is being fought; the G20, the US and Europe.

The G20

Last weekend the G20 finance ministers promised better regulation of commodity markets, where banks and other financial traders speculate on the price of food. WDM co-ordinated an open letter from more than 450 economists urging the finance ministers to agree to strong regulation. Unfortunately, the finance ministers backed proposals which do not go far enough to effectively curb speculation-fuelled price hikes, this was thought to be as a result of the UK blocking agreement on tougher controls. Discussions may continue at the next G20 meeting in November.

The US

On Tuesday, the US commodities regulator voted to introduce position limits (a cap on the amount of the market that financial speculators can hold). Though these limits will help to rein in the biggest speculators they don’t go far enough to prevent speculation from increasing food prices on the world’s largest food markets altogether. The US commodities regulator still needs to go further.

The introduction of position limits has been massively contentious in the US as the banking lobby have been ferociously fighting against them and trying to weaken their effectiveness by lobbying for the cap to be set so high that they can carry on trading at their current levels.

Position limits is one of the core demands of our campaign for European regulation. While the new US position limits are only a partial success, it puts strong pressure on the EU to introduce position limits to ensure Europe (and particularly the City of London) does not become a haven for de-regulated food speculation.

Europe

Yesterday the European Commission announced its long-awaited proposals for financial market regulation which included food commodity markets.

One of the key asks of our campaign is for transparency. Most food speculation is done in secret with almost no publicly available information about the deals and little if any regulation. The European proposals take great steps forward in transparency as all trading now has to take place on exchanges (like the stock exchange) where there is proper regulatory oversight. This trading will also be made much more transparent through the introduction of ‘position reporting’, which means that information on all the major traders’ bets will now have to be made public.

Transparency is essential for effective regulation as authorities need to know what is going on in these markets, in order to regulate them. However transparency measures on their own are not sufficient to tackle the harmful impacts of excessive speculation. The European proposals also include the introduction of position limits but say that this could be done using “alternative arrangements.” This is a massive loophole which could enable countries like the UK to ‘wriggle’ out of the implementation of strong position limits, allowing speculation to go on unchecked.

The good news here is that there is still everything to play for. The European proposals will be debated and voted on by both the European parliament and the Council of Ministers over the coming months. WDM will continue to pressure decision makers in Europe to tighten up the proposals, close the loopholes and ensure that the legislation is effective to regulate excessive food speculation.

What next?

The global campaign continues to fight for effective measures that put the public interest before the profits of the investment banks. Find out more about what some our campaigning allies in Europe and the US are doing.

In the UK, our priority will be to influence our representatives in the European Parliament and our own government over the next year. In both the G20 and the EU, the UK government has been a major obstacle to introducing strong measures such as position limits.

The Chancellor – George Osborne – will be attending the Council of Ministers meetings in Europe over the coming months where proposals to regulate food speculation will be discussed. We will be launching an exciting new digital campaign next month to heighten the pressure on George Osborne to do the right thing on food speculation.