Commodity markets require better regulation, according to a speech given by French President Nicolas Sarkozy at the European Commission’s conference "Commodities and Raw Materials: Challenges and Policy Responses" on 14 June in Brussels. At this high-level event, the Commission’s President José Manuel Barroso, and five Commissioners, along with international experts discussed questions of market transparency for mineral, energy, and food commodities.



One controversy concerned the role of speculation in recent commodity price volatility. While some argued that scientific research has not proven speculation to be the main cause of commodity price volatility, the French President highlighted common-sense: the financial market volume for petrol is 35 times higher than the physical market. At the Chicago exchange, the derivative market is 46 fold of the annual American wheat production. Against this background, Sarkozy is keen to see the market regulated, not least to prevent hunger revolts. The concrete measures he is putting forward under the current French G20 chairmanship concern a register for derivative trade. This would at least increase transparency of those who are fuelling price hikes. He also suggested a minimal cash deposit to substantiate derivative trade with some physical security. Finally, the US experience with position limits has been very positive. Limits, such as measures that cap the trade on futures markets, are an approach also supported by Michel Barnier, Commissioner for Internal Markets and Services. Ultimately, everybody agreed that the rules of the game require further definition, though opinions differed on how much transparency a market can take.



Adding another perspective, Commissioner for Trade Karel de Gucht pointed to other commodity market failures concerning environmental and development aspects. In this regard he highlighted the 'resource curse’ and stated that sudden unilateral export restrictions on food imposed by developing country governments had further escalated prices in the past. He emphasized Europe’s responsibility in producing food and further decreasing restrictions. Even if the Doha round fails, the EU will cancel all remaining export subsidies by 2013. (Moira Feil)



For comprehensive documentation of the conference, including some speeches and press responses, please see http://ec.europa.eu/bepa/expertise/conferences/raw_materials/index_en.htm

Published in: ECC-Newsletter, 3/2011