News 11.12.2023

Food speculation: What are we talking about again?

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Food speculation is the buying and selling of food products on financial markets with the aim of making a profit. Ever since 2011, we have been trying to show that food prices are largely determined by speculation: farmers no longer have any say in the price they want for their produce. Speculators set the price and feed on scarcity so that the price can be driven up.  They profit from hunger.

Back in 2008, speculation proved to be an accelerating factor in the food crisis: 15 years later, the Russian invasion of Ukraine and the resulting price increases on food commodity markets show that the problem is still not solved. Indeed, at the height of the crisis, 80% of wheat purchases qualified as speculative and were mainly carried out by financial players: investment funds and investment banks.

We have made steps..

After Foodwatch launched a petition addressed to government leaders, we started intensive lobbying behind the scenes in Brussels to tackle excessive speculation. Eventually, several proposals proposed by some NGOs (of which CCFD, foodwatch, Oxfam and SOSFaim are the main players), were adopted by the European Parliament. These proposals were to lower position limits and a limit-up and limit-down circuit breaker, (this is a mechanism that is intended to prevent trades in the market from occurring outside of specified price bands. The bands would be set at a percentage level above and below the average reference price of the security over the immediately preceding five-minute period). Also, the big commercial actors such as ABCDs had to respect the same regulations as financial actors. Last proposal was to have a minimum for the duration you keep a contract before you sell it (in order to ban high-frequency trading for example). To achieve all this, greater transparency is needed, financial markets must communicate their data, and the principles on which the mechanism is based must be harmonized throughout Europe.

With this as a starting point, negotiations took place with the European Commission, after which we sent out letters to ministers. We asked them to support the proposals for improvement and transparency in the financial market. And with some results. Three of the amendments we submitted were indeed adopted. 

So, trading venues will have to obey to new transparency requirements regarding the conditions to use their circuit breakers. ESMA is mandated to establish the general principles of circuit breakers to harmonize the use and functioning of these mechanisms. Competent authorities will now be able to require trading venues to stop trading on a given financial instrument in case of high volatility or emergency situation(!). Then, the definition of ancillary activity exemption will be revised in 2024 to include the hedging criteria (new chance!) and finally the position limit regime will be reviewed in 2025 – hopefully we will be able to set stricter limits then. As expected, the proposal to define minimum holding periods for commodity derivatives was rejected.

Still a long way to go. 

Although several amendments were adopted, we know that the European Commission is not taking the issue seriously enough. In response to our letters, the Commission gave a variety of arguments that should mitigate the fact that speculators are deliberately driving up the price for their own gain. As far as they are concerned, price increases are mainly due to how the market simply works ('it appears that fundamentals have driven most of the current food prices') - and this is true, long-term price increases are part of financial market principles. But the volatility we are seeing again since the Russian invasion, which is causing market anxiety, is purely due to actions of traders in the market. And can therefore be prevented. 
They also indicate in their answer to our letters that yes, over 50% of the European food commodities market may consist of financial players who seek nothing but profit there - but this is better than in Chicago, because there it is up to 75%! 

foodwatch continues to speak out

Trading on food scarcity should be banned. As long as this does not happen, as long as food speculators can make their profit with impunity, we will continue to campaign and take our opportunity in lobby again in 2024 and 2025. 

In order to develop our next strategy and identify our need for research, we are organizing a (hybrid) masterclass on speculation. This masterclass will take place on 17 November from 11 until 16. Invited are all our teams and befriended NGOs and experts. The exact program will follow.