France on Monday focused on supply transparency to curb wild swings in food prices as it unveiled new proposals on commodities regulation, a target seen more achievable than a deep overhaul of derivatives markets.
-- No G20 consensus seen for US-style market position limits
President Nicolas Sarkozy targeted commodity price volatility as he laid out plans for France's G20 presidency, saying there should be no market without rules and that shortage fuels speculation. Sarkozy over past months has narrowed the focus of proposals on commodities to agriculture and observers said a deal on improved exchanges of information on production and stocks between G20 countries was achievable.
"More visibility should be the priority and not the regulation," said Eugen Weinberg, commodity analyst with Commerzbank.
In zeroing in on boosting information - such as a global database on commodities stocks - Sarkozy seemed to be seeking to sidestep stark differences among producing and consuming countries over how far any new global regulation should go, analysts said. "All these proposals are realistic. They are not grandiose but targeted goals of which some are achievable," Philippe Chalmin, economist and commodities specialist at Dauphine University, said.
Sarkozy said he would propose to create a database such as the one used for oil products to gather data on agricultural commodities markets and said the world needed an organisation, which could be the FAO, to provide transparent data on agricultural stocks.
"We need to increase transparency on physical markets to give foreseeability. We need to know production, consumption and stock forecasts," Sarkozy said. France is the European Union's largest agricultural producer and exporter.
So far there has not even been agreement among G20 countries over the role of hedge funds and other financial investors in pushing up prices for food or metals like copper, a G20 source said after Sarkozy's press conference.
"There is no clarity on what is a speculative position and what is a hedging position," the source said. "It's going to be difficult to have a global consensus on position limits until the case is better made. The emphasis is on creating better transparency both in derivatives and underlying cash or physical commodities markets," the G20 source said.
A top official in Brazil's Finance Ministry said his country had been worried about possible price controls.
"That is the worry we have as a starting point, (we) don't want it to go in the direction of controlling prices," Carlos Marcio Cozendey, who the ministry's secretary of foreign affairs, told Reuters. Brazil was keen to discuss how to target speculation and distortions, he added.
Regulators in Britain, the centre of European commodities trading, already oppose introducing position limits as new EU derivatives regulation is being drafted.
"The producing countries are aware there is a problem but are concerned that position limits would hamper price discovery in these markets and distort market signals that are important for attracting capital to production and extraction," the G20 source said. "Commodities consuming countries would rather see full information established, a move some traders and countries feel could harm prices"
Regulators are already working on improving three strands of data on commodities - those traded on exchanges, those traded off exchanges (OTC) and the physical market.
The International Organization of Securities Commissions (IOSCO), which comprises securities regulators from over 100 countries, reports on physical commodities markets in March.
The aim is to build a picture so that derivatives and physical market volumes can be reconciled to indicate how much trading activity is directly linked to real demand and supply.