EU regulators should discuss with United States authorities ways to curb volatility in agricultural commodity markets so as to avoid unwanted buildups in speculative positions, a draft paper showed Nov. 26.
The European Commission, the EU’s executive arm and author of the document, said it would examine the possibility of taking regulatory initiatives in this area. If they were necessary, proposals would be finalized by summer 2009, the paper said.
“The commission is of the opinion that such a degree of volatility as the one appreciated during the recent months is not in the benefit neither of producers nor of consumers,” said the paper, to be presented for endorsement by the full European Commission at its regular meeting next week.
“For this reason, the commission will examine, together with the regulators of commodity markets and in close contact with other non-EU regulatory authorities … what measures contributing to a reduction in price volatility in agricultural commodity markets could be taken,” it said.
Those authorities would particularly include the United States, home to the most important commodity exchanges, it said.
It would review the supervisory and regulatory framework applied to all significant financial market players, including hedge funds and private equity, with a particular focus on capital requirements, risk management and transparency, it said.
It would also “investigate actively how excessive volatility and the buildup of herd-like speculative positions can best be avoided in view of the potential damage that these may cause”.
The commission has had commodity market speculators in its sights for some time, aware of what it calls a considerable increase in the activities of non-commercial players.
In May, it said they had to bear at least some of the blame for high food prices earlier this year.
Now, while repeating that speculators’ activities needed to be carefully monitored, its latest paper concluded that not all the analytical evidence supported the view that speculation had played a “significant role” in commodity price formation.
Even so, the potential market damage of excessive speculation still needed to be avoided, it said, adding that the level of market volatility witnessed in recent months was not to the benefit either of producers or consumers.