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International commodity agreements


A number of international commodity agreements have been signed in the past. They include coffee, olive oil, sultanas, sugar, wheat and tin. It has been a feature of the markets in primary commodities that imbalance between supply and demand gives rise to wide fluctuations in prices. Primary commodities often have long production cycles which are difficult to adjust to bring into equilibrium with relatively short-run fluctuations in demand. At the same time, the development of the economies of the primary producing countries depends heavily on the export earnings of these commodities, with the result that, in response to a fall in demand, there is a tendency to increase supply to maintain total earnings in the face of intensified competition, thereby forcing prices down even further. There are two features, therefore, of commodity agreements. They may be concluded (a) for the stabilization of prices, or (b) for the raising or maintenance of prices. The first Coffee Agreement signed in 1962, covering the five years to 1968, was designed to halt the long decline in prices by fixing export quotas for each producing country. The agreement has since been regularly renewed. The International Tin Agreement is an example of a 'price stabilization' agreement. The first operated for five years from July 1956. A 'buffer' stock of tin was created and a manager appointed who had the responsibility of buying and seiling tin such as to keep the price within a 'ceiling' at which point he sold, and a 'floor' when he bought, tin. In 1973 an International Cocoa Agreement was concluded which was renewed in 1980. At the end of 1976 an agreement was concluded between Indonesia, Malaysia, Singapore, Sri Lanka and Thailand for the stabilization of the prices of natura! rubber by means of a buffer stock and controls on production. An International Natural Rubber Council was set up. The agreement was renewed in 1980. The Multi-Fibre Arrangement regulates world trade in textiles and clothing. The first M.F.A. was signed in 1974, renewed in 1978 and the third concluded in 1982. There has been some debate that 'price sup­porting' agreements could be used to raise developing countries' incomes to offset the deterioration in their terms of trade.

Reference: The Penguin Dictionary of Economics, 3rd edt.