Speculation on financial markets is contributing to higher and more volatile food prices, said MEPs in the European Parliament's Committee on Economic and Monetary Affairs, who voted yesterday (26 September) for a 500 millisecond break on ultra-fast computerised trades.
Lawmakers sitting on the committee adopted a report on the review of the Markets in Financial Instruments Directive (MiFID).
The draft text – which still needs approval from the full Parliament and EU member states to become law – imposes limits on positions that traders can hold in energy and food commodity derivatives markets. This is a step the United States has already taken.
The MEPs called for stronger regulation of commodity derivative markets to avoid that millions of people are forced into poverty and hunger.
Soy and maize prices were at all-time highs in July according to the World Bank. Prices of cereals and vegetable oils also remained at high in August according to the Food and Agriculture Organisation (FAO).
Commodities markets are subject to a wide range of influences, but recent years have seen a massive shift in the level and nature of financial speculation. There has been evidence that this shift has exacerbated price volatility and is contributing to elevated prices.
The European Commission promised to wage war against speculation on commodity markets when it tabled a revision of its Markets in Financial Instruments Directive (MiFID) in October last year.
The regulatory crackdown aimed at addressing issues raised by new market practices such as computerised ultra-fast trading.
In their vote yesterday, MEPs called for a 500 millisecond period to be placed between trade orders, in order to decelerate high-frequency trading and curb commodity speculation.
Pots and pans for lower prices
The EU legislator's calls for stronger regulation resonate with environmental and development NGOs, which have been advocating for limits to the number of contracts in a particular commodity that can be held by traders.
Ahead of the vote in the Parliament, Oxfam and Friends of the Earth, backed by other activist groups, staged a demonstration using hundreds of recycled pots and pans to spell out 'Stop food speculation' in giant letters at the entrance of the European Parliament. The 925 pots and pans used represented the 925 million people facing hunger worldwide.
"We ask for a strong regulation because there is a huge movement of food speculation that we definitely want to stop. It has a very bad impact on the Southern population, for peasants and consumers. It brings people to poverty because of speculation on for example cereals and sugar," said Virginie Pissoort, a food campaigner at the NGO 'SOS Faim'.
Pissoort said the EU does not have strong enough rules to prevent speculative practices on food commodities. "We hope the politicians are listening, and so far it's going in the right direction," she told EURACTIV.
Leading Parliament legislator sees 'need of a strong regulation'
The demonstrators handed over a petition with 100,000 signatures from across Europe to German MEP Markus Ferber (European People's Party), who was appointed to steer the proposed legislation through the European Parliament.
"I can promise you that we will have a strong eye on this particular part of the MiFID in the negotiations with the Council as I really see there's a need of a strong regulation. Otherwise, there'll be speculation in areas where I really don't think it's necessary," Ferber told the protestors.
Ferber added that the European Parliament's text in his view was "very, very strong in comparison to what the Commission has proposed."
He added: "We invite the member states to follow our line, especially on this item as we see for the moment especially in the wheat market that speculation has started again that will create hunger in the third world".
MEP Arlene McCarthy from the Socialists & Democrats Group also said that the European Parliament is making a difference and produces a stronger ruling than the Commission.
"That is because of people power, and I think people make a difference, people matter and we can make a difference with your support," she said.
NGOs denounce 'loopholes' in the Parliament's text
NGOs were only half satisfied with the Parliament committee's vote yesterday, saying they welcomed the MEPs backing for introduction of mandatory limits on speculation.
They warned warned however about "a number of loopholes" that threaten to make the rules ineffective, including "an overly narrow definition of the limits to be imposed on speculation and generous exemption clauses excusing some companies from regulation."
"Unless these problems are fixed, harmful speculation will continue to fuel the devastating price volatility we are seeing on global food markets,” said Christine Haigh, from World Development Movement.