José Manuel Barroso, President of the European Commission, and the President of the French Republic, Nicolas Sarkozy, delivered keynote speeches in Brussels, Tuesday, at the ‘Commodities and Raw Materials: Challenges and Policy Response’ conference.

Central to their propositions, and echoed by many of the event's guest speakers, was the need for transparency and effective regulation of global commodity markets. The voice most strongly heard was a call for action against speculators driving up commodity prices and risking global economic strength.

The increasingly high costs and volatility of raw materials and commodity markets was said by the expert panellists to be the fruit of imperfect data, economic migration to less regulated regions, and poor infrastructure which would otherwise have allowed more open markets for commodities such as gas. Physical and legislative bottlenecks have compounded the capacity for free and open markets, while providing excessively opportunistic trading positions for hedge funds and speculators.

President Sarkozy focused on the need for urgent action, noting the horizon of a global population approaching nine billion by 2050, but little serious effort to manage the world’s natural resources to facilitate a more densely populated world. He highlighted his scepticism of a commodity market system which could trade 35 times the actual physical volume of a commodity in any one year. He questioned a trading system which shifted prices by 10% in one week while no fundamental economic scenario justified such an increase. It was this divergence between fundamentals and derivative values which attracted much attention, and led to discussion of the roles of hedge funds and speculators in today’s market.

President Barroso emphasised the critical need for more transparency in trading systems. Both Barroso and Sarkozy were careful to state the need for a balanced approach, a regulatory system which limited excesses, but enabled profitable trading and liquid markets.

The availability of cheap money in global markets was pronounced as a causative factor in the capacity of large trading institutions to move markets so quickly. However, the inflationary pressures now visiting many economies are a direct result of commodity trading detached from the fundamentals. Rising corn and oil prices, soaring from base positions in 2008, now threaten economic and political stability in Western nations.

Panellists, including economists, financiers, representatives of commodity associations and trading exchanges were essentially harmonised in support of a more carefully regulated global trading system; a system requiring greater transparency from participants, and political initiatives to ensure supply side mechanisms, including infrastructure, are less pressured, more able to access wider markets. The quantum leap, repeatedly discussed, is the capacity for new technologies to alleviate some of the supply side and speculative pressures. In particular, the opportunities presented by solar and wind to offset oil dependency, but also the intervention of governments to open alternative energy markets and enable the physical transfer of energy, from solar-rich Spain, for example, to less luminous Germany.