Agricultural markets transparency the way forward

Transcription

1 Agricultural markets transparency the way forward Raluca Rusu Market Officer Unit C.5 - Arable crops, sugar, fibre plants, animal feed DG for Agriculture and Rural Development European Commission C Olof S.

2 Outline 1. Volatility of agricultural markets 2. Transparency of the agricultural commodity physical markets G20 process 3. Transparency of the agricultural commodity derivatives markets EU level 4. Other EU market transparency initiatives 2

3 Long term price developments for key agricultural commodities USD/mt in current USD Wheat (HRW) Soybeans Maize Soybean oil Rice 3

4 World cereal prices May August 2011 ($/tonne) Wheat - Black Sea Milling - $ 285 Wheat - US SRW Gulf - $ 298 Maize - US 3YC Gulf - $ 328 Wheat - FR Rouen - $ 308 Maize - FR Bordeaux - $ no quotation Barley - FR Dlvd Rouen feed - $ /05/ /05/2011 7/06/ /06/ /06/ /06/2011 5/07/ /07/ /07/ /07/2011 2/08/2011 9/08/ /08/ /08/ /08/2011 quotation in or $ / tonne

5 Price Volatility in Agricultural Markets Strong turbulence on agricultural commodity markets since 2007 combined with increased volatility in commodity prices. Volatility, an inherent feature of the markets, allows for price adjustments and transmits market signals and changes in fundamentals. Agricultural price volatility increased faster in the EU than in the world (due to CAP reform process of market orientation). Nevertheless, world price volatility remains higher than EU price volatility. 5

6 Price Volatility...continued Price volatility, a vital issue for the world economy puts challenges for: Economic growth price fluctuations foster uncertainty, Food security food crisis 2007/2008, Financial stability and regulation the lack of regulation for the agricultural commodity derivative markets. Causes are multiple, solutions not EU level: focus on risk management and mitigating impacts on farm income, as well as reinforcing regulation of derivative markets, seem the most international level: coherence and coordination are key=> G20 process. 6

7 Why market top of the political agenda because: high commodity prices and excessive daily / hours variation in prices; high prices are the response to market fundamentals; excessive volatility is the result of biased and uncertain economic information; global challenge which requires a global answer, but also a country level approach. 7

8 ...of agricultural markets? Characterised by a certain degree of variability (seasonality, weather, delay in supply response, etc). Other structural factors which increase tension in markets (demographic growth, pressure on agricultural land, climate change). Price volatility has increased in recent years: In futures and spot markets, In world markets, In the EU, as CAP reforms enhanced linkages with world markets. Financialisation of agricultural commodity markets. 8

9 World cereal balance sheet: IGC World Ending Stocks of which 8 major exporters World Production World Consumption Source: IGC Aug. report MMT MM T (est.) 2011 (fcst.)

10 EU Cereals Balance Sheet 2010/2011 EU-27 Cereals balance sheet:marketing year: 2010/2011 août-11 Common (Mio t) wheat Barley Durum Maize Rye Sorghum Oats Triticale Others EUR 27 Beginning stocks ( ) Market 14,6 12,8 1,2 14,5 1,3 0,4 1,5 1,4 0,5 48,4 Intervention 0,3 5,5 0,0 0,2 0,0 0,0 0,0 0,0 0,0 6,0 Total 14,9 18,3 1,2 14,7 1,3 0,4 1,5 1,4 0,5 54,3 Usable production 126,4 52,8 8,8 57,5 7,5 0,5 7,2 10,1 4,6 275,4 Import 2,4 0,2 2,0 7,5 0,0 0,9 0,0 0,0 0,1 13,2 TOTAL AVAILABILITIES 143,6 71,3 12,1 79,7 8,9 1,9 8,7 11,5 5,3 343,0 USE - Human 47,1 0,4 8,5 4,8 3,0 0,2 1,1 0,1 0,0 65,1 - Seed 4,7 2,3 0,5 0,4 0,5 0,0 0,5 0,5 0,3 9,8 - Industrial 10,1 9,0 0,1 8,1 1,6 0,0 0,1 0,5 0,1 29,6 of which alcohol 10,7 o.w. bioethanol/biofuel 4,1 0,5 3,2 0,9 0,4 9,1 - Animal feed 49,3 39,9 0,3 51,5 3,1 1,5 5,7 9,3 4,6 165,2 TOTAL USE 111,3 51,5 9,4 64,8 8,2 1,7 7,4 10,4 5,1 269,7 Losses (excl on-farm) 0,9 0,4 0,1 0,6 0,1 0,0 0,1 0,1 0,0 2,2 Solde disponible 31,5 19,4 2,6 14,3 0,6 0,2 1,2 1,0 0,3 71,1 Export 20,1 7,6 2,1 1,8 0,1 0,0 0,1 0,0 0,0 31,8 Ending stocks ( ) 11,4 11,8 0,5 12,5 0,5 0,2 1,1 1,0 0,3 39,3 10

11 Transparency of the agricultural commodity physical markets - G20 process - 11

12 Agricultural physical markets Market information is good (main international information providers: FAO, IFPRI, IGC, USDA), but... Improvement is needed on quality and timeliness of Stocks - weak links between providers, countries and private sector; Global projections of demand and supply; Price developments. 12

13 Agricultural physical markets : Challenges Official data often not available, therefore need for commitment for greater coordination many countries have little capacity to collect data Need for capacity building weaknesses in relation to market information provision and policy coordination Need for coordination of alerts and coherence in international policy response (situation post summer 2010 following Russian drought) 13

14 G20 in action 2009 Pittsburgh summit «improve the regulation, functioning and transparency of financial and commodity markets». G20 process addressed food price volatility and identified 5 key priorities: market information and transparency, (AMIS) agricultural production and productivity, risk management, international policy coordination and the good functioning of agricultural commodities derivatives markets Stems from JODI (oil and gas) approach Joint Organisations Data Initiative 14

15 AMIS Structure Secretariat: FAO, IFPRI, OECD, UNCTAD, the UN High Level Task Force, WFP. WTO, World Bank National data submission, gaps identification and review of analysis Analysis, global market outlook Global Food Market Information Group Markets experts A l e r t Rapid Policy Response Forum Policy makers Enhanced information products Capacity building (manual, training and projects) Links with private sector 15

16 AMIS Deliverables AMIS objective => publication of market data (production, consumption, stocks) on a regular basis (if possible, monthly) Information Deliverables Global Food Market Information Group Identify problems and gaps in collection of data Build capacity in food market outlook information collection Issue global food price alerts when needed Policy Deliverables Rapid Response Forum Promote early exchange of key information and discussion of prevention and responses to crises; Work closely with the Committee on World Food Security 16

17 The functioning of AMIS Use existing mechanisms and institutions; Start with a small number of crops wheat, maize, rice, soybeans; Initially, focus on a limited number of countries and build capacity; New costs will be mainly limited to country capacity needs; EU role in AMIS: 4 EU Member States (DE,FR,IT,UK) in G20, therefore full members in AMIS (ES observer). Moreover, EU full member in G20, therefore as well in AMIS. 17

18 AMIS in 2011/2012 June AMIS Secretariat was set-up (led by FAO Trade and Markets Division). 15 th & 16 th September Inception workshop data needs, collection methodologies, analytical capacities, questionnaire design, market indicators and scheduling. September Data collection methodologies are identified and assessed training and capacity building needs are identified. November Report to the G20 Heads of States objectives, progress and future work plan. 18

19 Transparency of the agricultural commodity derivatives markets EU developments 19

20 Agricultural commodity derivatives markets Background: the ongoing debate on the financialisation of agricultural commodity markets, including the role of excessive speculation the need to maintain the original purpose of futures markets: price discovery and hedging. Several European initiatives aimed at improving the oversight and overall transparency of EU commodity markets, both on trade exchanges and over-the-counter. 20

21 OTC Regulation 15 th September 2010 Proposal for an Over-the-Counter Regulation (OTC) Aims to make OTC derivative markets safer, through clearing, and more transparent, through mandatory reporting and the future creation of Trade Repositories. 21

22 MIFID Ongoing review of the Markets in Financial Instruments Directive (MiFID) - aims to improve the transparency of commodity derivatives trading, including specifying the conditions under which these products will be traded on organised trading systems. Addresses the need for more systematic and detailed information on the trading activities of the different types of market participants in commodity derivatives, and more comprehensive oversight by regulators of commodity derivative positions, including the imposition of position limits. Will give more and equal power to supervisors and regulators in all EU Member States to intervene in all kinds of commodity derivatives trading. 22

23 MAD Ongoing Review of the Market Abuse Directive (MAD) to be completed by autumn 2011 => a new Regulation to cover insider dealing and market manipulation (market abuse) + a new Directive to impose criminal sanctions for the most serious market abuse offences. Aim : To increase market integrity and investor confidence, To clarify what constitutes market abuse in the case of commodity derivatives and To ensure uniform rules in the entire EU for combating abusive practices. ESMA stronger role : cooperate and coordinate with national supervisors 23

24 ESMA 1 st January 2011 the European Securities and Markets Authority (ESMA) became operational, replacing the Committee of European Securities Regulators. Mandate to safeguard the stability of financial markets in emergency situations and to ensure the consistent application of EU rules by national supervisory authorities. Challenges: Effective supervision - already EU s supervisor for credit rating agencies, but still meant to become the EU s supervisor for trade repositories; Act as a rule maker ESMA as the centre of EU securities supervisors; Active surveillance of the markets. 24

25 Other EU market transparency initiatives DG AGRI s role 25

26 DG AGRI s role EU doing its share in the transparency work: Publication of main EU market prices Eurostat Food Prices Monitoring Tool Medium-term prospects for EU agricultural markets Development policy DG AGRI will be fully participating in AMIS on behalf of EU 26

27 Future work As of autumn 2011 DG AGRI will publish on EUROPA website the short-term market forecast for the main cereals and oilseeds; Regular (monthly) updates of the current marketing year cereal balance sheet and production estimates; Implement stocks reporting mechanism - to be discussed with all EU MS later this year. 27

28 Difference to 5 year trimmed average: < -10 % -10 to -5 % -5 to 5 % 5 to 10 % > 10 % All cereals production 2011 ( mio t ) (est.) Calculations and cartography: European Commission DG AGRI C EuroGeographics for the administrative boundaries EU27 production : ( mio t ) Difference to 5 year trimmed average: 1 % 28

29 Agricultural Monitoring - MARS A tool for strengthening market transparency => provides data and information about crop status, crop-yield forecasts and foodcommodity supply predictions; EC JRC MARS project (Monitoring of Agriculture with Remote Sensing) => independent and timely information on crop areas and yields; Coverage: EU & neighbouring countries (notably Croatia, Serbia, North Africa, the European part of Russia and some areas in Eastern Africa notably Ethiopia, Eritrea, Somalia and Sudan). Crops: cereals, oilseeds, sugar beets and potato crops. - free agro meteorological analysis and weather forecast bulletins 29

30 MARS map An example 30

31 Agricultural Monitoring - GLOBCAST Improve JRC/MARS project by extending it to other countries as well => via GLOBCAST (Global Crop Monitoring and Forecasting System) to cover the Black Sea area, China, South America, Australia, etc. Main crops to be covered: wheat, maize, soybean, rice, sugarcane, barley, rape seed, sorghum and other cereals. 31

32 Thank you for your attention! C Olof S.