Food speculation: need for regulation

The popular initiative is being handed over in march 2014.
Speculation with food generates huge price swings, which can have dramatic consequences especially for the poorest in the global South.

A popular initiative launched by the Young Socialists (Jusos) called for a stop to food speculation. Alliance Sud too called on the Federal Council for new regulations that would attenuate devastating fluctuations in the prices of food staples. Commissioned by Alliance Sud, economist and freelance publicist Markus Mugglin in 2014 produced a study on the consequences of food speculation. Food commodity prices have doubled since the beginning of the 2000s, with peaks in 2006/2007 and 2011.

Harmful speculation

This price increase had extremely dire repercussions on the food security of poor population groups in the global South. Volatile prices jeopardize the livelihoods of producers (when prices fall quickly and sharply) and of consumers (with quick and sharp price rises). The countries of the North, Switzerland being prominent among them, fail to recognize this fact. They are still convinced of the need for "useful" speculation, which did at times have a stabilizing influence on prices in the 1990s. At the same time they refuse to acknowledge that certain food speculation practices have changed fundamentally since then. Examples are derivatives trading by banks and trading platforms that can handle thousands of transactions in seconds, using by means of sophisticated IT.

Five proposals for re-regulation

Alliance Sud deems the re-regulation of food speculation to be pivotal to ensuring food security for the entire planet. It therefore puts forward the following five proposals:

  1. Over-the-counter derivatives trading may take place only under supervision, so that full transparency is guaranteed for all stakeholders and the authorities.
  2. Speculators must adhere to position limits. This means that their share in the trading volume may not exceed a certain percentage (for example, 15%). Until the late of 1990s, position limits were the most important regulatory instrument.
  3. High frequency trading should at least be limited, if not prohibited.
  4. When prices begin to fluctuate too wildly in a short space of time, platforms should suspend trading. Thought should be given to introducing a graduated tax, which would be increased as of a certain price level.
  5. Lastly, it would make sense for food traders and speculators to be institutionally separate from one another.

Aim of the initiative still topical

In Switzerland, the Federal Council is opting for self-regulation. The USA and the European Union have already decided to restrict food speculation and re-regulate derivatives trading. Switzerland has therefore chosen to go it alone.

For all these reasons, Alliance Sud has supported the concern of the Young Socialists' popular initiative against food speculation, launched on 24 March 2014. The initiative was shared by the SP, the Greens and several development organizations (including, Swissaid and Solidar Suisse) and was aimed at prohibiting financial institutions and asset managers from investing in financial instruments that are based on agricultural commodities or foodstuffs.

Lively campaign

During the referendum campaign, Alliance Sud underscored how little Switzerland had so far done to combat financial speculation. "The Federal Council itself has missed the opportunity to take needed action. The initiative against food speculation is therefore the only possible political alternative", said Mark Herkenrath of Alliance Sud.

The initiators also recalled that the UN is demanding steps to reduce food price volatility, which is at times uncontrollable and was one of the causes of the hunger crises of 2007 and 2011. "If you have to spend 80% of your income on food, then the smallest price increase can already mean hunger", said Swissaid's Caroline Morel, one of the initiators.

A serious signal

Opponents had predicted a crushing defeat for the initiative. Instead, it garnered the support of over 40% of voters on 28 February 2016. This shows that food speculation is of major concern to the Swiss people and that sooner or later the Federal Council will have to take action that goes beyond merely appealing for self-regulation. It would not take much: the Federal Council could issue an ordinance instituting position limits for traders with a business office in Switzerland. The Federal Council and Parliament already laid the groundwork for this by including position limits in Article 118 of the Financial Market Infrastructure Act.