Amid increasingly high agricultural price volatility on its domestic market, the Indian Government is attempting to curb speculation on the country’s agricultural commodities exchanges.
The Commodity Futures Trading Commission––a government agency reporting to the Indian Ministry of Food¬¬––has just ordered the two major commodity exchanges to charge investors higher admission fees regarding soybean and soy-oil––two commodities crucial for animal nutrition––whose prices rose by 40 percent in the past five years. Consequently, security deposits doubled, amounting to 10 percent of the effective outlay.
The measure stems from the Indian Government’s more comprehensive effort to control the volatility of domestic agricultural prices by curbing excessive speculation on these markets, both phenomena representing a genuine threat to the country food security as well as social and political stability.
On April 13, the Government thus decided to set up a committee of experts to consider a possible ban on futures trading in several agricultural commodities, in particular for soybean, whose prices have recorded extremely high volatility.
Whether it be the United States1, the European Union2 or India, more and more nations are now concerned about the risks linked to the unchecked financialization of agricultural markets and its exponential rise since the 2000s.
All the various measures implemented in these countries are focused on catalyst legislation, such as position limits, contract standardization or transaction registration on OTC markets, to name but the major approaches.
These actions represent a key progress, since the world’s major agricultural and economic powerhouses agree to recognize the need to control the financialization of agricultural markets, but it is crucial to ensure that their concrete implementation procedures do not vary from one country to the next, at the risk of introducing a competition based on a lowest bidder rationale at the international level.
In this context, a concerted and coordinated approach in the framework of the G20 international negotiations is required.
1 Please see momagri’s November 7, 2011 article ”US regulators decide to curb positions in agricultural commodity markets”, http://www.momagri.org/UK/a-look-at-the-news/US-regulators-decide-to-curb-positions-in-agricultural-commodity-markets_1003.html
2 Please see momagri’s April 9, 2012 article “Controlling OTC markets an essential measure against the volatility of agricultural prices”, http://www.momagri.org/UK/a-look-at-the-news/Controlling-OTC-markets-an-essential-measure-against-the-volatility-of-agricultural-prices_1079.html