Introduction:Commodity agreements are arrangements 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.

The basic objective is 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

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.

2. Buffer Stock Agreements: 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.

3.Bilateral or Multilateral Contracts: 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.

If the market 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.

International Grain Agreement Association of National Rubber Producing

Countries International Coffee Agreement International Cotton Advisory Committee International Cocoa Agreement International Jute Council OPEC International Sugar Agreement

OPEC was formed in Baghdad in 1960 to coordinate and unify the policies of petroleum exporting nations

The main objective of OPEC is to ensure the “stabilization of oil prices in international markets” and securing a steady income to oil producing nations

In order to achieve these objectives, the OPEC nations meet at least bi-annually to decide whether to raise or lower their collective oil production in order to maintain “stable” prices

The main factors in their formulating of petroleum policy are the forecasts for economic growth rates and petroleum demand and supply

The 11 OPEC member countries produce about 40% of the world’s crude oil, and therefore have a strong influence on the oil market

OPEC sets individual production quotas for each member country that serve as “production targets” to ensure that there supply isn’t greater than demand

These “production targets” for each country add up to a “ceiling” that OPEC desires not to exceed (However they rarely stay under their proposed ceiling)

The graph to the right shows the quota set by OPEC for the millions of barrels to be produced per day during Oct. 22 compared to the actual amount. (As you can see, the quota has been surpassed by over 3 million barrels per day)

Iraq is not included in the quota system because their exports are controlled by the U.N. based on the “food for oil” program

CountryCountry Oct. Oct. 20022002 QuotaQuota

AlgeriaAlgeria 0.950.95 .693.693

IndonesiaIndonesia 1.11.1 1.1251.125

IranIran 3.593.59 3.1863.186

IraqIraq 2.452.45

KuwaitKuwait 1.981.98 1.7411.741

LibyaLibya 1.361.36 1.1621.162

NigeriaNigeria 1.991.99 1.7871.787

QatarQatar .69.69 .562.562

Saudi Saudi ArabiaArabia 7.97.9 7.0537.053

UAEUAE 2.022.02 1.8941.894

VenezuelaVenezuela 2.92.9 2.4972.497

TotalTotal 26.9326.93

OPEC 10OPEC 10 24.4824.48 21.721.7

While OPEC still has considerable influence in determining the price per barrel of petroleum by restricting output, their success has greatly diminished since the 1970’s

Despite the overall increase in worldwide demand for petroleum, OPEC nations have not received the brunt of this increased demand. Rather, it has gone to Non-OPEC nations

As a result, over the past few years both production and revenues in the OPEC nations have declined significantly

Successful oil production in the OPEC nations is tied to the political and economic status of the volatile Middle East, which serves as a deterrent to potential importers