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MEANING
A

commodity agreement is an undertaking by a
group of countries to stabilize trade, supplies, and
prices of a commodity for the benefit of
participating countries.
 Commodity agreement usually involves a consensus
on quantities traded, prices, and stock management.
 It serves solely as forums for information exchange,
analysis, and policy discussion.
In other words, International Commodity
Agreements (ICA’s) are essentially
multilateral instrumentalities of government
control that support the international price of
individual primary commodities, especially
through such arrangements as export quotas
or assured access to markets.
OBJECTIVES
 Stimulate

a dynamic and steady growth in
developing countries.
 Ensure reasonable predictability in the export
earnings to provide them with expanding resources
for their economic and social development.
 The market for commodities is particularly
susceptible to sudden changes in supply conditions,
called supply shocks (bad weather, disease, and
natural disasters) and cause commodity markets to
become highly volatile. In order to avoid these
situations, commodity agreements helps the supply
to be stable.
CONDITIONS TO MAKE AN
AGREEMENT
Inelastic Demand
 Reasonably stable market share
 Mixed producer-consumer interest
 Distress price levels
 Equal representation for importing and exporting
countries
 The assurance of increasing market outlets for supplies
originating in the regions of most efficient production.

FORMS OF COMMODITY
AGREEMENTS
1.Quota Agreements: This prevents a fall in
commodity prices by regulating their supply. In this
type of agreement, allocation of export quotas to
participating countries according to a mutually
agreed formula takes place. They also restrict
export or production by a certain percentage of basic
quota decided by Central Committee or Council .
Merit: Avoid accumulation of stocks
Demerit: Misallocation of resources
2.Buffer Stock Agreements: Buffer Stock is a
stockpile of commodities held by an international
organization that aims to stabilize world market
prices by buying for and selling from its stockpile.
They release stocks of commodities onto the market
when prices rise to a certain level and build them up
when they fall.
Merit: They stabilise price by balancing demandsupply.
Demerit: Not applicable to goods which is in danger
of deterioration.
3.Bilateral Agreements: An agreement is entered
between major exporter and a major importer of a
commodity. Two kinds of prices called upper price
and lower price is fixed. When the prices exists
within this limit throughout the period of
agreement, the business is inoperative.
If it raises than the upper price, then the exporting
country is expected to sell a specified quantity at
upper price fixed. On the other hand, if price falls
below the lower limit specified, the importer is
obliged to purchase contracted quantity at fixed
lower price.
Merit: Free market conditions are preserved.
Demerit: Creation of two price system.
IMPERATIVE COMMODITY
AGREEMENTS

The International Cocoa Agreement
 In 2003, an agreement was made between the seven
main cocoa exporting countries, Cameroon, Ivory
Coast, Gabon, Ghana, Malaysia, Nigeria and
Togo, and the main importing countries including
the EU members, Russia, and Switzerland.
 The main purpose of this agreement was to promote
the consumption and production of cocoa on a global
basis as well as stabilise cocoa prices.
1.
International Coffee Agreement




The
International
Coffee
Organization (ICO) is the main
inter-Governmental
organization for coffee in the
year 1962.
ICO exporting members account
for more than 97% of world
coffee production, and its
importing
members
are
responsible for around 80% of
world coffee consumption.
The main object is increasing world coffee
consumption
through
innovative
market
development activities by means of statistics and
market study and also promoting the
improvement of coffee quality.
 The United States led recent efforts to
renegotiate the ICA, and seventh International
Coffee Agreement (ICA 2007) was adopted by
the International Coffee Council on September
28, 2007



Features of new agreement is a first-ever
"Consultative Forum on Coffee Sector Finance" to
promote the development of innovations and best
practices that enables coffee producers to better
manage financial aspects of the inherent volatility
and risks associated with evolving markets.



Other features include strengthening efforts to
develop, review and implement capacity building
projects that are particularly important to smallscale farmers in key developing country trading
partners.
International Tropical Timber Agreement
 The

International Tropical Timber Agreement
(ITTA), established International Tropical
Timber Organization (ITTO), an intergovernmental organization with 59 members, with
an objective of sustainable management of tropical
forests.
 The

agreement was signed in the year 1994 and it
was re-negotiated in the year 2006 for implementing
better policies.
 ITTO promotes market transparency by collecting,
analyzing and disseminating data on the production
and trade of tropical timber.
 It facilitates intergovernmental consultation and
international co-operation on issues relating to the
trade and utilization of tropical timber and the
sustainable management of its resource base.
International Sugar Agreement
 International

commodity agreements, in their
modern form, may be dated from the Brussels
Sugar Convention (1902), the major contemporary
exporters of beet sugar undertook to support the
international market by abandoning national
systems of export subsidies.
 Floor and ceiling prices were established and
enforced essentially by regulating the permissible
exports of member countries.
Other Agreements
 International

Natural Rubber

Agreement
 International Tin Agreement
 International Wheat
Agreement
 A case on The Organization of
Petroleum Exporting Countries
(OPEC) is also notable.
DISADVANTAGES

ADVANTAGES






Such agreements tend to
be strongly favored by the
less developed countries as
a means of “stabilizing”
the foreign exchange
A place for overseas
suppliers within the
Common Market.
Reduce the budgetary
burden resulting from a
combination of direct
payments, unrestricted
domestic production.







Stabilization of the price
paid for only a portion of
world export sales trends.
The price swings
experienced by these
commodities have by and
large been reversible.
The important virtue of
taking into account
fluctuations in export
volume rather than
responding exclusively to
variations in commodity
prices.
CONCLUSION
This is to conclude that commodity agreement aims in
bringing stabilized price as allocator of resources
and indicator of trends. Although there are some
difficulties in terms of technology, it is manageable
to make agreements more effective. It is advisable
that the appropriate forms are combined to control
the losses and make the best use of the agreement to
become a self reliant and develop ourselves rather
than using a single technique.
Ib ppt

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Ib ppt

  • 1.
  • 2. MEANING A commodity agreement is an undertaking by a group of countries to stabilize trade, supplies, and prices of a commodity for the benefit of participating countries.  Commodity agreement usually involves a consensus on quantities traded, prices, and stock management.  It serves solely as forums for information exchange, analysis, and policy discussion.
  • 3. In other words, International Commodity Agreements (ICA’s) are essentially multilateral instrumentalities of government control that support the international price of individual primary commodities, especially through such arrangements as export quotas or assured access to markets.
  • 4. OBJECTIVES  Stimulate a dynamic and steady growth in developing countries.  Ensure reasonable predictability in the export earnings to provide them with expanding resources for their economic and social development.  The market for commodities is particularly susceptible to sudden changes in supply conditions, called supply shocks (bad weather, disease, and natural disasters) and cause commodity markets to become highly volatile. In order to avoid these situations, commodity agreements helps the supply to be stable.
  • 5. CONDITIONS TO MAKE AN AGREEMENT Inelastic Demand  Reasonably stable market share  Mixed producer-consumer interest  Distress price levels  Equal representation for importing and exporting countries  The assurance of increasing market outlets for supplies originating in the regions of most efficient production. 
  • 6. FORMS OF COMMODITY AGREEMENTS 1.Quota Agreements: This prevents a fall in commodity prices by regulating their supply. In this type of agreement, allocation of export quotas to participating countries according to a mutually agreed formula takes place. They also restrict export or production by a certain percentage of basic quota decided by Central Committee or Council . Merit: Avoid accumulation of stocks Demerit: Misallocation of resources
  • 7. 2.Buffer Stock Agreements: Buffer Stock is a stockpile of commodities held by an international organization that aims to stabilize world market prices by buying for and selling from its stockpile. They release stocks of commodities onto the market when prices rise to a certain level and build them up when they fall. Merit: They stabilise price by balancing demandsupply. Demerit: Not applicable to goods which is in danger of deterioration.
  • 8. 3.Bilateral Agreements: An agreement is entered between major exporter and a major importer of a commodity. Two kinds of prices called upper price and lower price is fixed. When the prices exists within this limit throughout the period of agreement, the business is inoperative.
  • 9. If it raises than the upper price, then the exporting country is expected to sell a specified quantity at upper price fixed. On the other hand, if price falls below the lower limit specified, the importer is obliged to purchase contracted quantity at fixed lower price. Merit: Free market conditions are preserved. Demerit: Creation of two price system.
  • 10. IMPERATIVE COMMODITY AGREEMENTS The International Cocoa Agreement  In 2003, an agreement was made between the seven main cocoa exporting countries, Cameroon, Ivory Coast, Gabon, Ghana, Malaysia, Nigeria and Togo, and the main importing countries including the EU members, Russia, and Switzerland.  The main purpose of this agreement was to promote the consumption and production of cocoa on a global basis as well as stabilise cocoa prices. 1.
  • 11. International Coffee Agreement   The International Coffee Organization (ICO) is the main inter-Governmental organization for coffee in the year 1962. ICO exporting members account for more than 97% of world coffee production, and its importing members are responsible for around 80% of world coffee consumption.
  • 12. The main object is increasing world coffee consumption through innovative market development activities by means of statistics and market study and also promoting the improvement of coffee quality.  The United States led recent efforts to renegotiate the ICA, and seventh International Coffee Agreement (ICA 2007) was adopted by the International Coffee Council on September 28, 2007 
  • 13.  Features of new agreement is a first-ever "Consultative Forum on Coffee Sector Finance" to promote the development of innovations and best practices that enables coffee producers to better manage financial aspects of the inherent volatility and risks associated with evolving markets.  Other features include strengthening efforts to develop, review and implement capacity building projects that are particularly important to smallscale farmers in key developing country trading partners.
  • 14. International Tropical Timber Agreement  The International Tropical Timber Agreement (ITTA), established International Tropical Timber Organization (ITTO), an intergovernmental organization with 59 members, with an objective of sustainable management of tropical forests.
  • 15.  The agreement was signed in the year 1994 and it was re-negotiated in the year 2006 for implementing better policies.  ITTO promotes market transparency by collecting, analyzing and disseminating data on the production and trade of tropical timber.  It facilitates intergovernmental consultation and international co-operation on issues relating to the trade and utilization of tropical timber and the sustainable management of its resource base.
  • 16. International Sugar Agreement  International commodity agreements, in their modern form, may be dated from the Brussels Sugar Convention (1902), the major contemporary exporters of beet sugar undertook to support the international market by abandoning national systems of export subsidies.  Floor and ceiling prices were established and enforced essentially by regulating the permissible exports of member countries.
  • 17. Other Agreements  International Natural Rubber Agreement  International Tin Agreement  International Wheat Agreement  A case on The Organization of Petroleum Exporting Countries (OPEC) is also notable.
  • 18. DISADVANTAGES ADVANTAGES    Such agreements tend to be strongly favored by the less developed countries as a means of “stabilizing” the foreign exchange A place for overseas suppliers within the Common Market. Reduce the budgetary burden resulting from a combination of direct payments, unrestricted domestic production.    Stabilization of the price paid for only a portion of world export sales trends. The price swings experienced by these commodities have by and large been reversible. The important virtue of taking into account fluctuations in export volume rather than responding exclusively to variations in commodity prices.
  • 19. CONCLUSION This is to conclude that commodity agreement aims in bringing stabilized price as allocator of resources and indicator of trends. Although there are some difficulties in terms of technology, it is manageable to make agreements more effective. It is advisable that the appropriate forms are combined to control the losses and make the best use of the agreement to become a self reliant and develop ourselves rather than using a single technique.