Photo: Perry McKenna

High food prices and food riots in developing countries in 2008 drew the attention to food commodity price speculation and unregulated derivatives markets. SOMO assessed how new EU laws regulate commodity derivatives markets and their participants from the perspective of EU farmers and the EU agricultural sector in a report just published by the European Parliament. The report concludes that the perspective of EU farmers and the food chain has not been explicitly been taken into consideration and found many opportunities for further improvements.

The report first provides some explanation of how agricultural commodity derivatives markets work and how different financial and non-financial traders operate. It gives a short analysis of the academic literature that is non-conclusive about the link between financial speculation and commodity prices. Since policy makers at international level (G20) decided to regulate commodity markets and their participants, the study describes and assesses eleven of the most recent relevant EU laws. This EU regulatory framework is compared with that of the US and India. The detailed analysis of the various aspects of those EU laws provides an insight in what way the derivatives markets have been better regulated. However, the study also exposed many weaknesses, lacunes, loopholes and challenges for which the study makes recommendations for improvements. A final chapter highlights the additional elements that are needed for a comprehensive agricultural commodity derivatives policy.

Following June 2014, many technical details of the newest EU laws have to be decided by the national and EU regulators. “During the coming months and years, these decisions on standards for limiting financial speculation, transparency and reporting, infrastructure for farmers, and supervisory capacity will improve or worsen the weaknesses and loopholes in the EU laws. The European Parliament and others have a role to play to protect the public interests during those decisions”, says research Myriam Vander Stichele who lead the team of experts who produced the study.

Download the publication Financial instruments and legal frameworks of derivatives markets in EU agriculture: current state of play and future perspectives.