Evaluate the role of International Commodity Agreements in stabilizing prices of primary products.
International trade in commodities has been facing the problem of instability of prices from the very beginning. Many, economists have been suggesting a number of methods to minimize the impact of violent fluctuations in the prices of the commodities. One of the methods is commodity agreement. A commodity agreement is a form of economic operation designed to stabilize and raise the price of a commodity. International commodity agreements may be international quota agreement or multilateral contract, agreement. Quota agreement seeks to keep prices within an agreed band by the operation of quotas when prices move outside the band.
Such agreements specify the ceiling and foot prices and quotas for either production or exports in the producing countries and for imports in the consuming countries. The multilateral contract agreement also specifies minimum and maximum prices accompanied by contracts to buy and sell specified quantities.
Since 1920, there has been international interest in stabilizing commodities prices. After World-War II, United Nations initiated the idea of international commodity agreements. Before the inception of UN, there were agreements signed by the interested parties, but there was no supervision of a world body and there was not participation of consumers in these agreements.
After the World-War II, all international commodity agreements have been under the supervision of United Nations. In 1947, the United Nations Economic and Social Council established a special branch known as Interim Coordinating Committee on International Commodity Agreements (ICCICA). ICCICA deals specifically with the commodity agreements. In 1965 the United Nations Conference on Trade and Development was set up to deal with the commodity agreements.
International commodity agreements are expected to have the following components depending upon the agreements:
- To make international commodity agreement successful, 90% of producers and 90% of consumers must participate in the negotiations.
- Objectives of agreements should be clearly spelt out.
- International commodity agreements should aim at buffer stock operations.
Following international commodity agreements have been negotiated:
- International Rubber Agreements.
- International Sugar Agreements.
- International Tin Agreements.
- International Cocoa Agreements.
- International Coffee Agreements.
- International Wheat Agreements.
- International Olive Oil Agreements.
International rubber agreement met with mixed success during its operations. It has managed to hold the price within the specialized stabilization range despite a very severe recession in rubber demand.
Sugar agreement operated through export controls. Sugar agreement did not achieve much success. The primary reason for this has been that sugar is produced by developed as well as developing countries and holding of stock created problems. International tin agreement was moderately successful.
International cocoa agreement could not succeed because of the following reasons:
- Ivory Coast was not present.
- There was lack of adequate resources.
- Buffer stock was completely inactive.
There have been four international coffee agreements with little success. There have been considerable and highly discounted sales outside the agreement. International olive oil agreements were partially effective. International wheat agreements have been partially successful. These agreements were multilateral in nature. These agreements did not have the provisions on prices or on rights and obligations. The history of operation of wheat agreements has not been encouraging.
In general, it maybe concluded that international commodity agreements could not perform their role in stabilizing prices of primary products. Besides the specific reasons mentioned above, a number of factors were responsible for this:
- The agreements were poorly drafted.
- There was lack of consensus in implementing the agreement Many countries continued their operations violating the agreement.
- Holding of buffer stocks has been the point of conflict between countries.
- Many important countries refused to join the agreements.
- Commodity agreements covered only seven commodities cocoa, tin, coffee, olive oil, rubber, sugar and wheat.