Oxfam gets behind our demands for regulation of food speculation
06 October 2011
We are please to see the big NGOs increasingly getting behind our food speculation campaign. A few months ago, Christian Aid published a report linking rising food prices with speculation. Now Oxfam has joined in with a new briefing on financial speculation in agricultural markets. Not a game: speculation vs food security (PDF), comes out strongly in favour of regulation and calls for the same rules that we have been calling for since we launched the campaign last July:
New rules must be adopted to restore the useful functions of these markets and to prevent excessive speculation from fuelling food price volatility. […] Oxfam calls on the US, the EU and the G20 to increase transparency adopt adequate regulation. "
So which regulation is needed?
The first is increased transparency. At the moment, many food derivates are traded in secret. This makes it difficult for regulators and policy makers to know the exact volumes of trades and the impact they have on the market. To solve this, trading should happen on public exchanges with all transactions reported to national authorities as soon as they happen.
The second is position limits. In the mid-nineties, speculation in the Chicago wheat futures market accounted for only 12 per cent, but following deregulation had increased to over 60 per cent by 2011. To prevent this kind of market take-over by speculators, strict limits need to be put in place. These include rules stopping the market being cornered by one single player, reducing the involvement of traders not dealing directly in physical commodities and restricting speculation that is not based on supply and demand, especially by large commodity index funds.
In a follow-up post on the From Poverty to Power blog, Ruth Kelly, economic policy adviser at Oxfam, adds that the time to act is now:
Decisions are already being made at the G20, in the EU and in the US. Those with a vested interest in continued volatility are lobbying hard. Those hit the hardest by volatility – small-scale producers whose livelihoods depend on receiving reliable prices for their produce, consumers in the poorest countries who spend up to 75 percent of their income on food – have a much weaker voice. That is why it is so important to listen and to take action over the next few months and beyond. The right reforms will go a long way to making financial markets work for the people who contribute to feeding everyone on our planet."
Right at this moment, the US Commodity Futures Trading Commission is involved in a battle with Wall Street lobbyists attempting to water down the implementation of the Dodd-Frank Act, including proposals for position limits.
In Europe, where we are focusing our campaigning, the European Commission is about to publish the Markets in Financial Instruments Directive (MiFID) which, according to our intelligence, also includes provisions for position limits.
Over the coming months we will be stepping up our campaigning to ensure that the UK government, cheered on by its friends in the City, is not able to prevent the implementation of regulation this side of the Atlantic.