EU sees link between speculation, surging food prices

2nd February 2011, Comments 0 comments

The European Commission acknowledged Wednesday a link between commodities speculation and huge swings in food prices, reversing course after angering France by previously denying a connection.

In a policy paper, the European Union's executive arm calls for greater transparency in the commodity derivative markets blamed for a huge spike in food prices in 2008 that caused unrest in developing countries.

French President Nicolas Sarkozy has made the battle against price volatility a centerpiece of his G20 presidency, which is hosting a summit next week in Paris.

The leak of a draft version of the EU's policy paper on raw materials had angered Paris because it reportedly stated that speculation played no part in rising commodity prices.

The commission delayed the release of the report last week and said the controversial phrase had not been cleared yet.

In the version to be released later Wednesday, the commission calls for curbs in the derivatives market and admits a link between prices and speculation.

"The prices of commodity derivatives and underlying physical commodities are interlinked," the document says.

"The integrity and transparency of commodity derivative markets needs to be enhanced and the Commission considers there is a need to promote greater understanding of these developments," it says.

Institutional investors increased positions in commodities markets from 13 billion euros ($18 billion) in 2003 to between 170 billion and 205 billion euros in 2008, the paper says.

Last week, the EU's financial services commissioner, France's Michel Barnier, said he was "convinced" of the existence of "a type of speculation that sharpens, follows and accelerates price volatility" of raw materials.

© 2011 AFP

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