Transparency on agricultural markets
The Federal Ministry of Agriculture supports all efforts for more transparency on the agricultural markets in order to curb extreme price fluctuations and their consequences for the supply of food.
In the summer of 2011, against the background of high global commodity prices, the agriculture ministers of the G20 states adopted an action plan with specific measures to improve the global food situation. These include the Agricultural Market Information System AMIS which is to contribute towards improving market transparency and thus strengthening the ability of the markets to function properly. Is also includes measures to increase sustainable agricultural production and to reduce post-harvest food losses.
An increase in production requires sustainable and intelligent investments - especially in developing countries. This was also the main topic at the 5th Berlin Agriculture Ministers' Summit in January 2013. In the Summit's final communiqué, the participating ministers from around 80 countries from all over the world emphasised the special significance of responsible public and private investments in the agricultural sector.
Improving market transparency is intended to contribute towards mitigating price swings and supply crises. AMIS is currently still in the development phase, but is already capable of delivering remarkable information and is thus also making a positive contribution to the political sphere. Under AMIS, the G20 countries can quickly coordinate policy action if the market situation calls for it.
Transparency on the financial markets for agricultural commodities
In addition to transparency on the actual agricultural markets (regarding volumes, stocks and prices) it is also necessary to create transparency on the financial markets for agricultural commodities. Agricultural financial markets are becoming increasingly important. They serve actors in the agricultural sector as a means of hedging price fluctuation risks and provide signals in respect of pricing. A certain amount of speculation - also by investors without a direct connection to the agricultural sector - is necessary for the proper functioning of these markets as this provides liquidity for the markets which brings together supply and demand. However it is necessary to avoid excessive speculation which would then undermine the proper functioning of these markets.
It is planned to introduce reporting requirements to create more transparency on the activities undertaken by financial investors on the agricultural financial markets. The aim would be to record who buys or sells what securities when. It is planned to lay down an upper limit for the actors in respect of these securities in order to prevent the actors being able to manipulate the markets using overly large positions.
With the adoption of the new Market in Financial Instruments Directive (MiFID) in summer 2014 the EU implements the decisions made by the G20 heads of state and government to strengthen transparency and to have an appropriate regulation of agricultural futures markets. The necessary implementation rules are currently being developed by the Commission and the EU financial supervisory authority ESMA. Implementation is planned for January 2017. The Federal Ministry of Food and Agriculture (BMEL) is actively involved in the elaboration in the area of agricultural raw materials.
The entry into force of the Market in Financial Instruments Directive marks another major step forward in the battle against excessive speculation with food. The directive will emphasise the positive characteristics of agricultural futures markets for consumers and producers and limit harmful activities. This will enable the farming sector to continue hedging against unexpected price fluctuations in the future whilst putting a stop to wild speculation with hunger.
Rising food and agricultural commodity prices
Since 2007, the agricultural commodity markets experienced extreme price fluctuations more and more frequently. This often caused severe supply problems, especially in the least developed countries. In some cases, the price increases have a dramatic impact in emerging and developing countries where people have to spend up to 80 percent of their income on food due to low self-sufficiency.
The main reasons for this were changes in fundamental supply and demand factors. These include the population growth rate, and changed dietary habits (especially in emerging countries) along with the resulting increases in the consumption of feed grain and food. Weather-induced harvest losses in important producing countries - such as the 2012 harvest in the USA - have a major impact on price development. The extent to which speculations by financial investors are responsible for the development on the agricultural futures market is the subject of debate. The proportion of investors with no direct commercial link to agricultural commodities has increased significantly in the last decade.
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