A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
A look at the news

Europe moves forward on agricultural market regulation

January 20, 2014


2013 was a good year for financial regulation: Whether across the Atlantic or in Europe, a genuine political resolve was supplemented by concrete deeds for more transparency and regulation, especially regarding derivatives markets.

2014 could indeed see a prolongation of the trend. The first piece of good news is that, following two years of negotiations regarding the European markets in financial instruments directive (MiFID), an in-principle agreement was reached on January 15 between the European Parliament and the member states in order to better monitor transactions and curb both excessive speculation on agricultural commodity markets and high-frequency trading1.

For the first time ever, the relevant authorities will set position limits that a trader, or a group of traders, can hold on commodity derivatives markets, especially agricultural commodities.

This agreement comes at a time when regulating financial markets has been one of the key European issues since 2012. The European Commission’s Directorate-General for Agriculture had thus created an advisory “group of experts on agricultural derivatives markets and spot markets.”

“Clarity, accountability and ethics” could thus become the new mantra of relevant authorities in Europe. From Brussels to Washington, there is a growing awareness that yesterday’s paradigms are now not only outdated but also wrong, at a time when agricultural markets are increasingly financialized and failing. These observations are also confirmed by a recent study on the regulation of agricultural derivatives markets that was issued by the European Parliament2 :
    - A growing disconnection between the real world and the financial world characterizes these markets, and this is especially true for agricultural commodities. While they almost did not exist in the early 1990s, the BIS indicates that the realizable value of derivatives reached nearly $639 billion at the end of June 2012––a 16 percent increase over late 2008.

    - Financial speculation plays a role in food price volatility and could be one of the causes of the soaring food prices recorded in 2007-2008 and 2010-2011. Yet, interpreting agricultural market future trends is hardly reaching any consensus.

    - The free interplay of market forces is not the ultimate antidote to crises and price hyper-volatility.
The failures of the global financial system are real and have been destructive for several decades. Reforms––such as the one adopted in principle by Brussels this past January 15––are indeed crucial but must be pursued in a context of permanent transition, structural instability and extreme volatility. In fact, some doubts are already being raised regarding the sustainability of these initiatives. In the informal agreement proposed on January 15, the choice of position limits as well as the implementation of the future CAP will be left up to member states. In this respect, the NGO Oxfam worries about “a race to the regulatory bottom between European nations.” Isn’t The City already home to the Americans frustrated by the recent CFTC’s clampdowns?

Confronted to the current unstable and uncertain context, the importance of modeling the new market realities affecting current agricultural markets is all the more urgent, especially regarding the growing speculation on OTC markets and its impact on price volatility.

Accordingly, the model designed by the momagri think tank, which was first presented in 2008, seeks to answer the vital issues to better deal with such realities: Why are agricultural prices and revenues so unstable and volatile? Or what would be the consequence of trade liberalization on agricultural prices and revenues?


1 A recent illustration of such transactions that have been on the increase for the past few years is available from: http://www.momagri.org/UK/a-look-at-the-news/When-fiction-takes-over-markets%85_1317.html
2 The study is available from: http://www.europarl.europa.eu/RegData/etudes/divers/join/2013/513989/IPOL-AGRI_DV(2013)513989_EN.pdf
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Paris, 16 December 2018