Geneva, Nov 17 - Rules on trading in commodities must be tightened to prevent a recurrence of the food crisis that saw prices soar over the past two years, according to a report released by a fair-trade think tank on Friday.
The report, by the Institute of Agriculture and Trade Policy (IATP), was issued on the eve of a summit of the Group of 20 rich and poor countries in Washington to discuss the global finance crisis.
The IATP study said that deregulatory measures that brought on the Wall Street collapse also contributed to the food security crisis in which global food prices rose 85 percent between April 2007 and April 2008.
"Only prudential regulation and tough enforcement will repair the damage caused by crony capitalism to these markets and the people markets are supposed to serve," said the IATP, which is based in U.S. city of Minneapolis.
The surge in food prices led to riots in several developing countries and forced many governments to restrict exports of food, exacerbating the problem.
In recent months commodity prices have fallen back, partly because financial investors have liquidated speculative positions in the financial crisis.
The IATP study said that the elimination of position limits for speculators and the rise of commodity fund indexes had undermined the traditional role of commercial speculation.
This served as a form of insurance, allowing traders and processors to hedge against short-term price volatility through speculators betting on sharp price moves.
As of July this year, $317 billion had been invested in commodities index funds.
Because these funds "bundle," or combine, futures contracts for different commodities, ranging from farm produce such as soy or wheat to oil and metals, price movements in metals could trigger the sale of a contract regardless of the underlying supply and demand in the agricultural commodities, it noted.
Price rises in 2007 and early 2008 for agricultural commodities were far in excess of what could be explained by supply and demand.
The report recommends creating an independent global commodities exchange regulator, establishing speculative position limits for specific commodities, and comprehensive, transparent reporting of all futures and options trades carried out in the United States.