A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
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The Senate highlights the dangers of agricultural market financialization

9 May 2011

At a roundtable organized by the Senate on 27th April, on the theme of agricultural commodity volatility, participants were able to review the current situation on agricultural markets. Among the many topics discussed, they recognized that these markets were becoming increasingly more financialized.

During this round table, were present Senators Jean Bizet and Jean-Paul Emorine, David Hallam, director of the International Trade Division and Markets at the FAO, and Bernard Valluis, an expert from the National Association of Food Industries (Ania). All emphasized the risks associated with growing and uncontrolled financialization, including price volatility in agricultural commodities.

For David Hallam, "the fundamentals of agricultural markets have evolved considerably in recent years because they are more closely linked to energy markets and finance". Indeed, "since 2004, raw material baskets, which combine agriculture with other sectors, are offered to investors by financial institutions" recalled Bernard Valluis. The result is a growing influence of commodity prices, their volatility and therefore, on those of agricultural products.

But as pointed out by they participants, the financialization of agricultural markets is also heightened by a new in vogue practice on financial markets: "high frequency trading," 1which involves buying and selling options very quickly using computer algorithms. Given the extreme volatility in the prices of agricultural raw materials, this practice is increasingly singled out by many players in agricultural markets who believe it increases the existing structural volatility on these markets.

If financialization is to be controlled, we should not however conclude that it should be totally eliminated, because it is useful to agricultural markets as it provides liquidity and makes risk transfers. Most experts, including the United States and Europe now share this observation. It is now hoped that the Agriculture Ministers of the G20 countries who will meet in late June in Paris, try to come up with concrete solutions.

1 Cf. article momagri du 21/03/11 : http://momagri.org/FR/regards-sur-l-actualite/Matieres-premieres-agricoles-le-trading-haute-frequence-une-pratique-sous-surveillance_869.html
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