European Commission proposals were due to be released last week but reportedly suffered delays due to the insistence of France that they were not tough enough on speculation in commodity markets.
Nicolas Sarkozy, the French president, who recently took over the presidency of the G20, has been talking tough on taking down speculators who may cause price volatility in commodity markets.
At the World Economic Forum in Davos, the French leader questioned why a cocoa speculator could get 15% of the global market share "without paying one cent of the quantity of cocoa and resell it without even having paid for it".
The EU paper, seen by EurActiv, does not blame financial markets outright for price volatility but it mentions the sector's influence in commodity markets, something sources claim was not in the communication until Sarkozy waded in.
"There is no conclusive evidence on the causality between speculation in derivatives markets and increased volatility and price increases in the underlying physical markets," the paper claims in a draft obtained by EurActiv.
But further down in the fineprint the paper makes the link between an enormous surge in commodity investments and increased instability. From 2003 to 2008, investments rose from $15 billion to between $250 and $300 billion, the paper claims.
"The negative influence of price volatility is clear but we are not 100% sure that speculation is the main source of volatility," Cezary Lewanowicz, a spokesperson for the European Commission, told EurActiv.
"There is probably a link between physical markets and paper markets," Lewanowicz continued.
It is this probability that Sarkozy recently threatened to prove in a study.
"I will recommend a date for the publication of a study showing that speculation does not result in global price rises of raw materials: 1 April," Sarkozy reportedly said ironically at a press briefing for journalists.
However, experts beg to differ.
'Politicised link'
Diego Valiante, a research fellow at the Centre for European Policy Studies, a Brussels think-tank, argues that the link between speculation and commodity prices has been overly politicised and that speculation, which is actually good for commodities, is being confused with market manipulation.
"We need to make a distinction between speculation and market manipulation where one operator can acquire a dominant position and drive up spot prices," Valiante said.
The proposal does not say how it would prevent speculation from causing price volatility but refers to an earlier proposal which would drive derivatives trading - contracts based on the expected future price of something – onto exchanges.
In practice, trading venues, like exchanges, are in a good position to see if companies are getting a disproportionate share of the market, but whether they do anything about it is another matter.
The document also lists several other reasons why prices jump, such as more competition on the market, changing eating habits, poor crop yields, trade restrictions and climate change.
