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Commodity agreements
This document discusses international commodity agreements which are intergovernmental arrangements to stabilize prices of primary commodities like coffee, tea, and sugar. It describes three types of agreements: 1) Quota agreements which regulate production and exports to prevent price falls through quotas. 2) Buffer stock agreements which stabilize prices by maintaining supply and demand balance through government stockpiling. 3) Bilateral/multilateral contracts where major exporters and importers agree to buy/sell certain quantities within an upper and lower price range. The objective is to stimulate developing country export earnings and consider interests of both producers and consumers.
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Introduction by Karthik R from PG Department of Commerce, 3rd sem M.Com, Mysore.
Commodity agreements are arrangements to stabilize markets and prices for primary products like coffee and sugar.
The goal is to ensure predictable export earnings for developing countries, aid in economic development, and stabilize prices.
Quota agreements set limits on goods traded to prevent price drops and stabilize markets, mainly used for commodities such as coffee and sugar.
Buffer stock agreements involve buying and storing commodities during excess supply to stabilize prices when supply is low.
These contracts involve binding agreements between parties for trade, specifying upper and lower price limits for commodities.
Contracts specify price limits; if prices exceed or fall below agreed levels, obligations arise for both exporter and importer.
Commodity agreements
- 1. Presented by, Karthik .R, PG Department of Commerce, 3rd sem M.com, Mysore.
- 2. Introduction: Commodity agreements arearrangements between producing and consuming countries to stabilise markets and raise average prices. Such agreements are common in many markets, including the market for coffee, tea, and sugar. Meaning: International Commodity Agreements which are inter- governmental arrangements concerning the production of & trade in, certain primary products with a view to stabilizing their prices.
- 3. The basic objectiveis to stimulating a dynamic & steady growth & ensuring reasonable predictability in the real export earnings of the developing countries so as to provide: Expanding the resources for economic & social development. Consider the interest of the consumers in importing countries Considering the remunerative & equitable & stable prices for primary commodities. Considering the import purchasing power Increased imports & consumption & also coordination of production & marketing policies
- 4. 1. Quota agreements:In international trade, a government- imposed limit on the quantity of goods and services that may be exported or imported over a specified period of time. Limits on the amount of a goods produced, imported, exported or offered for sale. International quota agreements seek to prevent a fall in commodity prices by regulating prices. This agreement undertake to restrict the export or production by a certain percentage of the basic quota decided by the Central Committee or Council. This type of agreement mostly in the case of the commodities like coffee, tea & sugar This agreement avoids accumulation of stocks require no financing & do not call for continuous operating decisions.
- 5. 2. Buffer StockAgreements: A practice in which a large investor, especially a government, buys large quantities of commodities during periods of high supply and stores them so they do not trade or circulate. The investor then sells them when supply is low. This is done to stabilize the price. It is to stabilizing the prices by maintaining the demand & supply balance. It is more useful for the commodities like tea, sugar rubber, copper. This arrangements only for those products which can be stored at relatively low cost without the danger of deterioration & this is one of the limitation of this agreement.
- 6. 3.Bilateral or MultilateralContracts: Bilateral agreements may be formed as business or personal agreements between individuals or companies. They may also be formed between sovereign countries in the form of trade agreements or agreements in other areas. In either case, a bilateral agreement is a binding contract between the two parties that have agreed to mutually acceptable terms. International sale & purchase contracts may also be entered into by two or more major exporters & importers. Bilateral contract to purchase & sell certain quantities of a commodity at agreed prices. In this agreement, an upper price & a lower price are specified.
- 7. If themarket price, throughout the period of the agreement, remains within these specified limits the agreement becomes inoperative. If the market price rises above the upper limit specified, the exporter country is obliged to sell to the importing country a certain specified quantity of the upper price fixed by the agreement. On the other hand, if the market price falls below the lower limit specified, the importer is obliged to purchase the contracted quantity at the specified lower price.