EU stops banks betting on food prices

With the current economic crisis in the West taking its first few baby steps towards a healthier economy, the European Union last week resolved that it’s time for us to take responsibility for the way we conduct ourselves when it comes to our financial endeavours in the food commodities market.

After two years of negotiations over the new rules, the EU concluded that it had had enough of wealthy Western corporations betting on food prices and driving up the cost of staples such as corn, maize and rice - making it unaffordable to the communities who rely on it the most.

This is an important step towards ensuring the food security that is needed if we want to achieve a world where no-one goes to bed hungry. As it stands around 800 million people around the world don’t have enough to eat, with 98% of these people living in developing countries where, due to low pay, households already spend a majority of their pay on food.

Michel Barnier, the European commissioner responsible for financial services, has condemned profiting from food trading calling the practice outrageous. In a response to the revised European rules the commissioner said: 

“In fulfilment of our G-20 commitments, the introduction of a trading obligation for derivatives will make trading safer and more efficient and will complement the compulsory clearing requirements under the European Markets Infrastructure Regulation. By introducing a harmonised EU system setting limits on the positions held in commodity derivatives, MIFID II will contribute to orderly pricing and prevent market abuse, thus curbing speculation on commodities and the disastrous impacts it can have on the world's poorest populations.”

Since 2000 the World Bank global food price index increased by 104.5%, an average annual rate of over 6%. These changes are the difference between a family being able to eat and a family going hungry.

The new rules will limit the size of positions that traders can hold in a broad range of commodities, including food staples - hopefully helping to curb the food price curve that we have seen over the last 10 years; however, there is still some way to go. 

Although the EU has voted through the rules, the limits need to be ratified and implemented by individual nation states, meaning there is still room for movement when it comes to putting the rules into effect. 

This is slightly concerning as the UK treasury had been lobbying for less strict regulation. To let them know that you want stricter regulation and fairer food prices for all, please sign our petition at the top of the page calling on the UK government to implement responsible and robust food speculation rules. 

Clea Guy-Allen