What are the long-term factors affecting the demand for primary commodities? Discuss and explain major International Commodity Agreements
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While instability in prices and volume of exports of primary products of interest to developing countries has been studied at length, the long-term factors have also been studied specially in the context of long-term movement of prices of primary products below the level of their prices in the thirties, the depressed period for commodities. These factors can be classified into three categories:
MAJOR INTERNATIONAL COMMODITY AGREEMENTS
There were seven major international commodity agreements. These international commodity agreements are presented as follows:
The agreement included three provisions: (i) Minimum price of 23 US cents and maximum price of 32 US cents per year; (ii) a quota adjustment mechanism; and (iii) a buffer stock of 250,000 tons capacity to be financed through a levy of 1 US cents per pound on exports and imports of cocoa. Third international cocoa agreement was signed in 1980 and came into operation in 1981.
The agreements did not succeed because of two major reasons (a) the absence of Ivory Coast was a factor, (b) lack of adequate resources and (c) the buffer stock was completely inactive.
i) Renegotiation of quotas was expected to be there under which Brazil the main producer would lose its quota to the new comer such as Indonesia and African countries.
ii) US had joined this agreement for a full six years period. Yet it noted funds upto 1986.
iii) The 1985 collapse of the International Tin Agreement, together with the dramatic fall in oil prices through 1985 and 1986, have considerably reduced public confidence that international control of commodity prices is feasible.
There were six international wheat agreements : in 1933, 1942, 1949, 1953, 1956 and 1959. The duration of the agreements varied from failure 1942 of the agreement to 2-4 years. The major instruments of control had been export quotas and acreage restriction in the 1933 agreement. In the 1942 agreement there were more instruments and the International Wheat Council was established. Other agreements included price and buffer stock. Wheat agreement was only one multilateral contract.
To summarize, the international commodity agreements can only be successful provided that they command consensus in their industries. Concensus may emerge when a dominant leader offers leadership. The existing agreements are expected to be poorly drafted. Yet UNCTAD has continued to contribute to commodity agreements through providing information, technical assistance and convening various conferences. For example conference on tungston, olive oil, cocoa, etc. While the UNCTAD was reorganized in 1992 at its WII conference at Castegena meeting, the Committee on commodities was undisturbed. It must also be noted that this is the only international agency studying the subject with a view to stabilize the markets for primary products.