Explain Major Commodities Agreements.
The major commodities agreements are:
- International Natural Rubber Agreement.
- International Sugar Agreement.
- International Tin Agreement.
- International Cocoa Agreement.
- International Coffee Agreement.
- International Olive Oil Agreement.
- International Wheat Agreement
International Natural Rubber Agreement:
International Natural Rubber Agreement was the first agreement signed under the UNCTAD integrated programme of commodities. It was concluded on 6th October, 1979 and came into operation in November, 1981 when the buffer stock manager started buying natural rubber in order to stabilize prolonged decline in natural rubber. This agreement uses a buffer stock.
The agreement managed to keep prices within the specified range in 1981 and 1982, but then had to adjust the range downwards. The agreement got the support of producers and consumers. The International Natural Rubber Agreement used buffer stock operation to maintain prices at specific level.
This was expected to be regular review of prices at every 18 month. Sale from buffer stock and purchase by buffer stock agency was made on the basis of stipulated price. This agreement met with mixed success during its operations. The agreement was partially successful in holding the price within the limit.
International Sugar Agreement:
There have been four international sugar agreements in post-war period. The first agreement came into force in January 1954, the second in 1959. The economic provisions of the latter were suspended in 1962 following the 1960 Cuba crisis, although the remaining provisions were extended until 1968.
The next agreement, also without economic provisions, was signed in 1968, introduced in 1969 and abandoned in 1973. The next agreement, again without economic provisions, was agreed in 1977, came into operation in 1978, and ran with an extension, until the end of 1984 (without the participation of the European community).
It has been argued that it both reduced the export earnings of the developing country compared to a free trade situation and increased the instability of prices. MacBean and Snowden have stated: “This is one market where free competition would in all likelihood bring the best results in terms of stability, efficiency and inquiry.
The ISAs were palliatives diverting attention from the much greater priority of persuading the rich nations to reduce their protection of best sugar.” The International Sugar Agreement has probably the worst record of all. Sugar agreement could not achieve much success due to following reasons:
- Sugar is produced by developed and developing countries.
- There was differences of opinions on holding stocks.
International Tin Agreement:
International Tin Agreement was concluded in 1954, but became effective only in 1956. It is the mixture of buffer stock and exchange controls. It was renewed regularly in essentially unchanged, form until 1982, when United States and other two countries withdrew. The agreement was unable to cope with the major price fluctuations that occurred when prices went above the ceiling. The controlling authority (the Tin Council) ran out of money in 1985 and was finally dissolved in 1990.
International Cocoa Agreement:
International Cocoa Agreement was signed in 1973 and extended in 1976. It involved a buffer stock and export quotas. The agreement included following provisions:
- Minimum price of 23 US cents and maximum price of 32 US cents per year.
- A quota adjustment mechanism.
- A buffer stock of 2,50,000 tons capacity to be financed through a levy of 1 US cents per pound on exports and imports of cocoa.
The agreements could not succeed due to following reasons:
- Ivory Coast a major producer did not participate.
- There was lack of adequate resources.
- The buffer stock was completely inactive.
International Coffee Agreement:
This agreement was first established in 1963. This agreement employed, an export quota system. There was second agreement in 1968 which was terminated in 1972 because there was frost damage to the Brazilian crop leading to major price increases and the mechanism collapsed. After gap of three years the third agreement came into force in 1976 the high prices of the late 1970s meant that the export quota provisions were applied only near the end of 1980.
The fourth agreement (1983) in similar to its predecessor, quotas were suspended in 1986 because of high prices, but reintroduced in 1987. There have been considerable and highly discounted sales outside the agreement. The differences of interest (between large and small procedures, and between producers and consumers) make it unlikely that it will be very effective.
International Wheat Agreement:
International Wheat Agreement a multilateral contract system. The First International Wheat Agreement was signed in 1949 and was revised or extended in 1953, 1956, 1959 and 1962. It was replaced with a new agreement which consisted of the Wheat Trade Convention and Food Aid Convention in 1967.
The current Wheat Trade Convention was sighed in 1971. It has been renewed regularly. The current Wheat Trade Convention contains no provisions on prices or on rights and obligations. The Food Aid Convention does still provide for annual contributions of various grains by a group of developed and grain exporting nations.
International Olive Oil Agreement:
There were two International Olive Oil Agreements. The first agreement was signed in 1959. When under the auspices of the UN, 11 members participated of which 9 were exporting countries and 2 were importing countries. The duration of the agreement was 4 years.
The second agreement was signed in 1963, when 11 members participated of which 7 were exporting countries and 4 were importing countries. The duration of the agreement was 4 years. An International Olive Oil Council was established in 1963, to make studies of the olive oil market, production and prices etc. These agreements aimed at price stabilization through price control.
These agreements have not been successful to the extent. Except a few, all agreements could not achieve their objectives due to following reasons:
- 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 agreement.
- Commodity agreements covered only seven commodities cocoa, tin, coffee, olive oil, rubber, sugar and wheat.