Post 2015: Global Action for an Inclusive and Sustainable Future

fair access to and equitable distribution of benefits
from trade to all participants, which is not the case.
addressing the economic vulnerabilities
associated with commodity dependence will
require combining the advantages of leveraging the
power of commodity markets while also addressing
its underlying causes. Since commodity prices are
determined in world commodity exchanges, it is
critical to examine the factors behind price dynamics
before designing policy responses to counteract any
negative impacts on development. these include
two interrelated phenomena: (a) structural changes
affecting demand–supply fundamentals; and (b) the
increasing financialisation of commodity markets.
based on analysis of the available evidence of these
factors as determinants of the types of vulnerability
associated with commodity dependence, both for
exports and imports, two potential areas for policy
measures are:
• Schemes to reduce excessive price volatility in
world commodity exchanges; and
• Contingent facilities for mitigating income
shocks from volatility in commodity prices.
the Eu, along with other international actors, could
play both a direct and an indirect role regarding such
measures. Indeed, the Eu could use its formidable
weight at the multilateral level as a means to engage
other relevant actors. Since such issues are also
related to investment and finance, the Eu and other
development actors should consider such traderelated
and macroeconomic vulnerabilities within the
broader context of existing fragilities that need to be
addressed in the current globalisation process.
(b) Reducing price volatility
In order to dispel ‘excess’ volatility from markets
by inducing a swift change in trading behaviour
away from destabilising ‘noise’ trading by purely
financial investors, a new generation of schemes
could include, for example, a virtual reserve
holding of individual commodities or a multitier
transaction tax. these are referred to here
as ‘virtual’ interventions since they relate to
commitments made by a global public agency to
contest moves by noise traders either by entering
into counterbalancing contracts in futures markets
or by imposing a finely differentiated transaction
tax in light of market development. these and
other innovative schemes to counter the costs of
global commodity market volatility would require
political will and strong government commitment
to achieve the more sustainable development of
commodity markets.
recent discussions in this respect include the
need to create the right investment frameworks
and incentives to channel finance from commodity
markets into the productive sector. Some proposals
under discussion and being led by the common
Fund for commodities (cFc) include a public–
private initiative on market volatility intended to
‘address the sustainability impact of commodity
derivative trading’. Some of the agreed principles
emerging from this process include recognition 123
that (a) investment remains the only sustainable way
to address the fundamental causes of global volatility
in commodity markets; (b) there is considerable
scope for banks to be involved in improving the
coordination and effectiveness of international
measures to support poor people affected by
volatility in commodity markets; and (c) banks
have the instruments and experience necessary to
make financial resources available for investment in
physical commodity-production capacity.
these principles to some extent refine the policy
debate on how to address the issue of financialisation
in commodity markets. they recognise that futures
markets are by definition financial, which means
that the question is not the penetration of financial
123 taken from cFc un commodities project context and Scope for agreement, available at: http://www.common-fund.org/uploads/tx_cfc/
cFc_un_commodities_project_context_and_Scope_for_agreement_Final.pdf.
poSt-2015: Global actIon For an IncluSIvE anD SuStaInablE FuturE
Since commodity
prices are
determined in
world commodity
exchanges,
it is critical to
examine the
factors behind
price dynamics
before designing
policy responses
to counteract any
negative impacts
on development.
165