[co-authors: Adrian Aw, Joy-Emma Martin, Sandra Wang]
Financial institutions could face regulatory scrutiny related to concerns about unstable food prices. In particular, regulators in several jurisdictions are being pressured to investigate whether speculative investors have the power to inflate food commodity prices, and whether this occurred in response to the war in Ukraine. In April 2023, UK food prices saw their steepest annual rise, at a rate of 15.7%.1
Commodity traders who speculated on food commodities such as grain and soya beans, when their prices increased immediately after Russia’s invasion, now face the spotlight over concerns that this played a role in the rapid rise in food and commodity prices.
In the UK, activist groups are calling on the government to respond, through measures aimed at mitigating the increase in food prices. These include further limiting the positions commodity traders can take, and the introduction of requirements on reporting to the Agricultural Market Information System. Regulators in the United States are keenly investigating the link between price speculation and food prices. The position is slightly different in the EU and Singapore. In this article, we explore the different approaches taken by the governments in these countries, to curb escalating food prices.
Existing and potential control measures by jurisdiction
EU MiFID 2
The European securities legal framework is largely found in the Markets in Financial Instruments Directive 2014 (2014/65/EU) (EU MiFID 2). Through the EU MiFID 2 reforms of 2016, the European Commission took steps to reduce price speculation in commodities markets by introducing stricter position limit standards.2
Article 57(2) of EU MiFID 2 outlines that position limits in respect of exchange traded commodity derivatives and economically equivalent OTC contracts should “specify clear quantitative thresholds for the maximum size of a position in a commodity derivative that persons can hold”.
In February 2021, the position limit regime was amended to exclude new commodities markets from its requirements,3 as the restrictions proved difficult for the development of such markets. However, agricultural commodity derivatives would remain within the scope of the rules given their “critical importance” for citizens. Since then, EU regulators have not imposed further restrictions on price speculation for these products, and it is unclear what steps they may take in this regard. Despite this, measures have been introduced to alleviate the pressure on European farmers.
In March 2023, the United Nations (UN) announced the extension of the Black Sea Grain Initiative,4 a deal reached last July between Russia and Ukraine, brokered by the UN and Turkey, to allow Ukrainian exports of grain via Black Sea ports to global markets, to support price stabilisation. However, the Kremlin recently threatened to walk away from the agreement by 18 May 2023, casting uncertainty over food security in the region and the surrounding regulatory landscape. At a meeting held in Istanbul on 11 May 2023, leaders from Russia, Ukraine, Turkey and the UN discussed proposals to extend the deal, but it is unclear whether or not they reached an agreement.5
In response to the war-related food price hikes, the European Commission has announced plans to compensate farmers in five countries bordering Ukraine – Bulgaria, Hungary, Poland, Romania and Slovakia – as much as €100 million, along with restricting Ukrainian grain exports to the same countries until June, unless they are set for import into EU countries or elsewhere globally.6
It is not yet clear whether the EU will take regulatory action to further restrict speculation of food commodities.