CME's Duffy: Tax On Trading Would Raise Food Prices

Levying a tax on derivatives trades would translate to higher food prices around the world, according to the executive chairman of futures exchange operator CME Group Inc. (CME).

Such a financial transaction tax, floated by Germany and France in August and formally proposed by the European Commission in late September, would force traders to build-in the added cost to their pricing and raise expenses for food producers, CME's Terry Duffy said Wednesday.

"If you want to see the price of food rise, just throw on a transaction tax," he said, speaking at a Chicago event hosted by the Futures Industry Association.

The financial services sector has faced down the specter of such taxes in the past and the current plan has little support from the governments of the United States and United Kingdom. But banks and exchanges are taking the Franco-Germany plan more seriously than previous efforts, with broader political support for taxing the financial sector and fiscal pressures mounting on the euro zone.

The European Commission has estimated the tax could bring in about EUR55 billion per year.

Spiking commodity prices in 2007 and 2008 contributed to sporadic food riots around the world, fueling efforts in Washington, D.C., to rein in speculative traders in futures markets. U.S. regulators now are working on a plan to develop so-called "position limits," required under the Dodd-Frank financial law.

Duffy said the relatively small number of trading firms that provide the lion's share of liquidity in global derivatives markets means that a transaction tax would put a "giant burden" on those participants that currently allow farmers and energy companies lay off risk in "a matter of seconds."

"That bid-offer spread will widen and it will cause the cost of business to go up all around the world," said Duffy.

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com

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