News / Economy

Farm Ministers Call for Commodity Market Regulation

French leaders blame financial speculators for rise in food prices

In this July 9, 2007 photo, traders in the S&P 500 Futures trading pit watch quote boards at the Chicago Mercantile Exchange in Chicago.
In this July 9, 2007 photo, traders in the S&P 500 Futures trading pit watch quote boards at the Chicago Mercantile Exchange in Chicago.

Multimedia

Audio

Farm ministers from the G20 group of leading and emerging economies wrapped up their first-ever meeting this week with a call for better regulation of the global commodity markets.

French leaders in particular have blamed financial speculators for contributing to this year's rise in food prices and the unrest they have triggered in the Middle East, Africa and elsewhere.

But while experts agree commodity speculation has grown sharply in recent years, they do not agree how much blame it deserves for today's high and volatile food prices.

Wild swings

Woody Barth has been farming and raising cattle in North Dakota for about 30 years. He says he always looked to the commodity markets for stability. But that's changed in recent years.

"We've seen a lot of wild swings in the market," says Barth. "I mean, a day of five cents up on the corn market, 10 cents up on the wheat market, up or down, was a big day five, seven years ago, 10 years ago. But that's a quiet day nowadays."

Corn, or maize, has hit its 30-cent one-day trading limit 51 times so far this year on the major U.S. grain exchange. That's up from 36 times in all of last year.

Avoiding these wild price swings is one reason why farmers and food makers are in the commodity markets to begin with. They can set prices today for crops that are still in the ground.

Transferred risk

That lowers the risk that weather or other factors beyond their control will push prices up or down come harvest time, says economist John Anderson with the American Farm Bureau Federation.

"There are so many things we don't know. And so, the people who are involved in these markets face tremendous risk. And the whole point of these markets is to allow a way for that risk to be transferred."

Transferred to someone who is willing to gamble on what the price of a commodity will be in the future. That is what speculators do - they take on that risk because where there is risk, there may be reward.

So a certain amount of speculation is a good thing, says Michael Masters, head of the hedge fund Masters Capital Management. "You need enough liquidity from speculators to provide grease for the wheels, if you will."

Flood of new money

But something changed in the mid-2000s. Pension funds, sovereign wealth funds and other large institutional investors began looking to commodity market speculation as a way to diversify their portfolios.

Masters says investments in commodity index funds rose from $13 billion in 2003 to about $400 billion today. He says the flood of new money is helping to push prices up.

"Prices move when new money comes into a market. So if you have a house, and one buyer shows up, you may sell it at one price. On the other hand, if you have a house and five buyers show up, you're going to sell it at another price."

Masters adds that speculators used to make up about a third of the money in commodity markets. Now they dominate many of them. He says markets today are much more volatile because there is much more money reacting to good or bad news about crop supplies.

"If there's a certain amount of speculative capital, it's going to move a certain price. But if there's 20 times that amount of speculative capital, then it's going to move much more."

Push for new regulations

France has used its position as current head of the G20 to speak out against excessive speculation.

French agriculture minister Bruno Le Maire says high and unstable food prices affect the poor the most. "Nobody can accept to have speculation on the poorest countries in the world, on the people in the world."

The French have been pushing for stricter regulations on commodity speculation in their role as head of the G20. But the negotiations faced stiff opposition -- for the simple reason that many are not convinced that speculators are to blame.

"I don't think there's a very good case at all to be made for much of a speculative impact in our grain markets right now," says economist Scott Irwin at the University of Illinois, adding that most research on the subject does not show that the mere presence of more speculators pushes prices up.

And the evidence that they are adding to volatility is not conclusive.

"There's no smoking gun that clearly points towards the kind of volatility and manipulation problems," says Irwin. "If that's not there, why do you need the new regulations to begin with?"

Irwin adds that new regulations may even push out the speculators the markets need to function smoothly.

He says there is a much simpler explanation for why prices are so high and unpredictable today: supplies of many food commodities are extremely low and demand is extremely high. With such small margins of error, any little bump will send shudders through the market. And the market has taken a lot of bumps in the past year, from drought in Russia to floods in Canada to heat waves in the United States.

"We just have had a really kind-of amazing string of just plain bad luck with weather. And it just keeps accumulating recently."

Experts say it will take at least two years of good harvests to build enough stocks to buffer prices.

In the meantime, the agreement the G20 agriculture ministers reached calls for "appropriate regulation and supervision" of commodity markets. It makes some suggestions, but provides few details. And it leaves the issue to the G20 finance ministers to work out what regulations are appropriate. A G20-appointed commission is expected to deliver its recommendations in the fall.

You May Like

Video On The Scene: In Ethiopia, 'Are You a Journalist?' Is a Loaded Question

VOA's Anita Powell describes the difficulties faced by reporters in fully conveying the story in a country where people are reticent to share their true opinions More

Nigerians Await New President With High Hopes

When pomp and circumstance of inauguration end in Abuja, Buhari will sit down to the hard task of governing Nigeria More

India's Restrictions on Several NGOs Raise Concerns

Political analysts link recent clampdown on advocacy groups to report last year that said foreign-funded NGO’s negatively impact economic development More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Expelled from Pakistan, Afghan Refugees Return to Increased Hardshipi
X
Ayesha Tanzeem
May 28, 2015 6:48 PM
Undocumented refugees returning to Afghanistan from Pakistan have no jobs, no support system, and no home return to, and international aid agencies say they and the government are overwhelmed and under-resourced. Ayesha Tanzeem has more from Kabul.
Video

Video Expelled from Pakistan, Afghan Refugees Return to Increased Hardship

Undocumented refugees returning to Afghanistan from Pakistan have no jobs, no support system, and no home return to, and international aid agencies say they and the government are overwhelmed and under-resourced. Ayesha Tanzeem has more from Kabul.
Video

Video Britain Makes Controversial Move to Crack Down on Extremism

Britain is moving to tighten controls on extremist rhetoric, even when it does not incite violence or hatred -- a move that some are concerned might unduly restrict basic freedoms. It is an issue many countries are grappling with as extremist groups gain power in the Middle East, fueled in part by donations and fighters from the West. VOA’s Al Pessin reports from London.
Video

Video Floodwaters Recede in Houston, but Rain Continues

Many parts of Texas are recovering from one of the worst natural disasters to hit the southwestern state. Heavy rains on Monday and early Tuesday caused rivers to swell in eastern and central Texas, washing away homes and killing at least 13 people. As VOA’s Greg Flakus reports from Houston, floodwaters are receding slowly in the country's fourth-largest city, and there likely is to be more rain in the coming days.
Video

Video 3D Printer Makes Replica of Iconic Sports Car

Cars with parts made by 3D printers are already on the road, but engineers are still learning about this new technology. While testing the possibility of printing an entire car, researchers at the U.S. Department of Energy recently created an electric-powered replica of an iconic sports roadster. VOA’s George Putic has more.
Video

Video Al-Shabab Recruitment Drive Still on In Kenya

The al-Shabab militants that have long battled for control of Somalia also have recruited thousands of young people in Kenya, leaving many families disconsolate. Mohammed Yusuf recently visited the Kenyan town of Isiolo, and met with relatives of those recruited, as well as a many who have helped with the recruiting.
Video

Video US Voters Seek Answers From Presidential Candidates on IS Gains

The growth of the Islamic State militant group in Iraq and Syria comes as the 2016 U.S. presidential campaign kicks off in the Midwest state of Iowa.   As VOA’s Kane Farabaugh reports, voters want to know how the candidates would handle recent militant gains in the Middle East.
Video

Video A Small Oasis on Kabul's Outskirts Provides Relief From Security Tensions

When people in Kabul want to get away from the city and relax, many choose Qargha Lake, a small resort on the outskirts of Kabul. Ayesha Tanzeem visited and talked with people about the precious oasis.
Video

Video Film Festival Looks at Indigenous Peoples, Culture Conflict

A recent Los Angeles film festival highlighted the plight of people caught between two cultures. Mike O'Sullivan has more on the the Garifuna International Film Festival, a Los Angeles forum created by a woman from Central America who wants the world to know more about her culture.
Video

Video Kenyans Lament Losing Sons to al-Shabab

There is agony, fear and lost hope in the Kenyan town of Isiolo, a key target of a new al-Shabab recruitment drive. VOA's Mohammed Yusuf visits Isiolo to speak with families and at least one man who says he was a recruiter.
Video

Video Scientists Say Plankton More Important Than Previously Thought

Tiny ocean creatures called plankton are mostly thought of as food for whales and other large marine animals, but a four-year global study discovered, among other things, that plankton are a major source of oxygen on our planet. VOA’s George Putic reports.
Video

Video Kenya’s Capital Sees Rise in Shisha Parlors

In Kenya, the smoking of shisha, a type of flavored tobacco, is the latest craze. Patrons are flocking to shisha parlors to smoke and socialize. But the practice can be addictive and harmful, though many dabblers may not realize the dangers, according to a new review. Lenny Ruvaga has more on the story for VOA from Nairobi, Kenya.
Video

Video Iowa Family's Sacrifice Shaped US Military Service for Generations

Few places in America have experienced war like Waterloo. This small town in the Midwest state of Iowa became famous during World War II not for what it accomplished, but what it lost. As VOA’s Kane Farabaugh reports, the legacy of one family’s sacrifice is still a reminder today of the real cost of war for all families on the homefront.

VOA Blogs

World Currencies

EUR
USD
0.9152
JPY
USD
122.70
GBP
USD
0.6494
CAD
USD
1.2374
INR
USD
63.925

Rates may not be current.