L21Nov09.306

L21Nov09.306 - Lec 22 Commodity Agreements FRE 306...

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Lec 22: Commodity Agreements FRE 306
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Lec 21: Commodity Agreements 2 Introduction International commodity market control began as early as 1954 (International Sugar and Tin Agreements) Why? Motivated by concern for very low prices as was experienced in 1930s, and high price instability ( today?) Original instruments: export quotas (supply control) to keep P high, plus buffer stocks to keep P stable 1962, 1972: Coffee agreement, Cocoa agreement 1970s: agreements inspired by OPEC Int. Natural Rubber Agreement introduced 1980
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Lec 21: Commodity Agreements 3 Economics of commodities These agreements apply to a variety of agricultural and natural resource commodities, usually adopted in cases w/ substantial price fluctuations especially when there are extended low P periods Supply elasticity is typically quite low, at least for increases in supply, such as in agricultural tree crops, the extraction of minerals, or the processing of commodities where expansion of capacity is slow and costly A related characteristic: there is a long gestation period for the expansion of production These long gestation period conditions (as we know) lead to price cycles like in the cases of beef and hogs On top of this, LR price trends are often downward due to ongoing technical change in production (maybe more important?)
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Lec 21: Commodity Agreements 4 Response to these conditions: Two solutions often proposed that require producing farms or firms and/or producing countries to get together in the form of a commodity agreement: 1. To agree to limit production, as in a cartel, or
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This note was uploaded on 03/09/2010 for the course LFS FRE 306 taught by Professor Barichello during the Winter '09 term at UBC.

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L21Nov09.306 - Lec 22 Commodity Agreements FRE 306...

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