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Abstract

This paper utilizes linear demand and supply models, with additive independent shocks, to derive producer price and income variances of a typical commodity during and after a buffer stock control. It proceeds to use the models to evaluate International Cocoa Organization's (ICCO) Buffer Stock's decision to purchase excess stock from the market a floor price and re-sell it, in periods of low supply, at the ceiling price. The results show that cocoa producer prices and incomes were more stable during periods of ICCO buffer stock intervention than after the demise of the buffer stock. The results further indicate that stock-buying operations induced greater stability in producer incomes than buying stock-selling operations.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 33 (2011)
Issue (Month): 3 (May)
Pages: 361-369

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Handle: RePEc:eee:jpolmo:v:33:y:2011:i:3:p:361-369

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Web page: http://www.elsevier.com/locate/inca/505735

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Keywords: Buffer stocks Price stabilization Cocoa Africa Cote d' Ivoire;

References

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1. Hommes, Cars & Sonnemans, Joep & Tuinstra, Jan & Van De Velden, Henk, 2007. "Learning In Cobweb Experiments," Macroeconomic Dynamics, Cambridge University Press, vol. 11(S1), pages 8-33, November.
   
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   • Hommes, C.H. & Sonnemans, J. & Tuinstra, J. & Velden, H. van de, 2002. "Learning in Coweb Experiments," CeNDEF Working Papers 02-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
2. Athanasiou, George & Karafyllis, Iasson & Kotsios, Stelios, 2008. "Price stabilization using buffer stocks," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1212-1235, April.
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   • Paul Cashin & Hong Liang & C. John McDermott, 2000. "How Persistent Are Shocks to World Commodity Prices?," IMF Staff Papers, Palgrave Macmillan, vol. 47(2), pages 2.
5. Zant, Wouter, 1997. "Stabilizing prices in commodity markets: Price bounds versus private stockholding," Journal of Policy Modeling, Elsevier, vol. 19(3), pages 253-277, June.
6. Hua, Ping, 1998. "On Primary Commodity Prices: The Impact of Macroeconomic/Monetary Shocks," Journal of Policy Modeling, Elsevier, vol. 20(6), pages 767-790, December.
7. Chavas, Jean-Paul, 2000. "On information and market dynamics: The case of the U.S. beef market," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 833-853, June.
8. Larson, Donald F. & Varangis, Panos & Yabuki, Nanae, 1998. "Commodity risk management and development," Policy Research Working Paper Series 1963, The World Bank.
9. Turnovsky, Stephen J, 1976. "The Distribution of Welfare Gains from Price Stabilization: The Case of Multiplicative Disturbances," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(1), pages 133-48, February.
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    • Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
11. Massell, Benton F, 1969. "Price Stabilization and Welfare," The Quarterly Journal of Economics, MIT Press, vol. 83(2), pages 284-98, May.
12. Palaskas, Theodosios & Varangis, Panos, 1989. "Primary commodity prices and macroeconomic variables : a long run relationship," Policy Research Working Paper Series 314, The World Bank.
13. Raymond Swaray, 2007. "How did the demise of international commodity agreements affect volatility of primary commodity prices?," Applied Economics, Taylor and Francis Journals, vol. 39(17), pages 2253-2260.
14. Rolfo, Jacques, 1980. "Optimal Hedging under Price and Quantity Uncertainty: The Case of a Cocoa Producer," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 100-116, February.
15. Gilbert, Christopher L., 1995. "International commodity control : retrospect and prospect," Policy Research Working Paper Series 1545, The World Bank.

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