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BackThis week, the EU Commission presented a Communication on raw materials, in which it outlines a strategy on dealing with increasing and more volatile prices of raw materials and agricultural products. A three pillar strategy shall ensure the supply of commodities and restrict the speculation with them.
Increased demand and supply
The rise of demand is, so the EU Commission, one of the main factors for increasing and more volatile prices of commodities and agricultural raw materials. In particular emerging economies have increased the demand for raw materials during the last decade. The Commission intends to meet this demand with a three pillar strategy: the development of raw material production/extraction within the EU, a guaranteed supply with raw materials from outside the EU (“Raw material diplomacy”) and a better use of raw materials through recycling.
Another reason for the increasing and more volatile prices is the rise in speculation and the increased importance of the financial markets. The trade volume in commodity markets is growing faster than production and extraction. It is the aim of the Commission to improve the functioning of the derivative and spot markets by increasing transparency and information and reinforcing regulation.
More transparency and information
More specifically, the Communication of the Commission provides the revision of the Market Abuse Directive as well as of the Markets in Financial Instruments Directive (MiFID). The Commission has adopted a proposal for rules on OTC derivatives, which shall reduce the systemic risk and increase transparency. Currently there are no plans to introduce additional measures, such as limiting the number of positions, which may be held in the commodities market. However, this does not mean that it might not happen in the future.
Food products und Speculation
Concerning the problem of price bubbles in respect of food and agricultural products, which over the past years have led to food shortages in many regions, the Commission in particular regards climatic effects as a central factor; however, the financial sector is another cause for the price development. The Commission expects that food prices will remain above the historic prices. The Commission supports a global approach to the problem of rising food prices and the supply of food, in particular within the scope of the G20, for which France has assumed the 2011 presidency.
Further Information:
Communication on commodity markets and raw materials
Memo: Questions and Answers on the Communication on Commodity Markets and Raw Materials
The rise of demand is, so the EU Commission, one of the main factors for increasing and more volatile prices of commodities and agricultural raw materials. In particular emerging economies have increased the demand for raw materials during the last decade. The Commission intends to meet this demand with a three pillar strategy: the development of raw material production/extraction within the EU, a guaranteed supply with raw materials from outside the EU (“Raw material diplomacy”) and a better use of raw materials through recycling.
Another reason for the increasing and more volatile prices is the rise in speculation and the increased importance of the financial markets. The trade volume in commodity markets is growing faster than production and extraction. It is the aim of the Commission to improve the functioning of the derivative and spot markets by increasing transparency and information and reinforcing regulation.
More transparency and information
More specifically, the Communication of the Commission provides the revision of the Market Abuse Directive as well as of the Markets in Financial Instruments Directive (MiFID). The Commission has adopted a proposal for rules on OTC derivatives, which shall reduce the systemic risk and increase transparency. Currently there are no plans to introduce additional measures, such as limiting the number of positions, which may be held in the commodities market. However, this does not mean that it might not happen in the future.
Food products und Speculation
Concerning the problem of price bubbles in respect of food and agricultural products, which over the past years have led to food shortages in many regions, the Commission in particular regards climatic effects as a central factor; however, the financial sector is another cause for the price development. The Commission expects that food prices will remain above the historic prices. The Commission supports a global approach to the problem of rising food prices and the supply of food, in particular within the scope of the G20, for which France has assumed the 2011 presidency.
Further Information:
Communication on commodity markets and raw materials
Memo: Questions and Answers on the Communication on Commodity Markets and Raw Materials