On 19th March, the European Commission once again stressed the need to urgently act on the “gray areas”1 in financial markets.
Michel Barnier, European Commissioner for the Internal Market, called for the establishment of effective regulation and supervision to cope with the rapid development of this “parallel finance” according to the Financial Stability Board, the global amount of unregulated banking activities has more than doubled in recent years, from 21,000 billion Euros in 2002 to 46 000 billion in 2010.
All economic sectors are affected by the growth dynamic of unregulated financial transactions, first and foremost raw materials, and particularly agricultural raw materials. As we have repeatedly stressed2, speculation in agricultural commodity markets has increased sharply since the early 2000s, accompanied by a significant increase in the volatility of agricultural commodities.
Accordingly, between 2002 and 2010, the number of unclosed contracts in commodities, especially agricultural, was multiplied by 5 according to the Bank for International Settlements, an increase well above that found in other areas, such as interest rates, precious metals, shares, even though in absolutes terms, trading volumes for these are far more important.
It is essential that the discussions currently underway aim at increasing transparency on these markets and introducing appropriate regulation. These discussions should not only take agricultural markets into consideration but also the strategic dimension of agriculture, because of its close links with global food security.
Effective regulation of agricultural markets can only be achieved by mixed regulation, which involves both agricultural and financial markets and also the physical markets, because of their close ties.
It is therefore crucial that future proposals, established during the G203, integrate these challenges in order not to end up with a mini reform that would unfairly exclude agriculture from a new useful regulation for combating price hyper-volatility in the long-term.
1 The “gray areas” are the financial markets that are not under any regulation, like the OTC markets.
2 Please see momagri’s articles, “Regulation of agricultural markets: False debates and real issues
Report on the Pluriagri Conference”, http://momagri.fr/UK/focus-on-issues/Regulation-of-agricultural-markets-False-debates-and-real-issues-Report-on-the-Pluriagri-Conference-_1022.html, and “For a French National Assembly report, the hyper volatility of agricultural commodity prices requires strong regulatory measures”, http://momagri.fr/UK/personal-accounts/For-a-French-National-Assembly-report-the-hyper-volatility-of-agricultural-commodity-prices-requires-strong-regulatory-measures-_1042.html
3 Please see the G20 Action Plan on Food Price Volatility and Agriculture, http://agriculture.gouv.fr/IMG/pdf/2011-06-23_-_Plan_d_action_-_VFinale.pdf