Commodity risk management and development
In 1995, 57 countries depended on three commodities for more than half their exports, reports UNCTAD. And commodities, fuels, grains, and oilseeds are important imports for several countries. The notorious volatility of commodity prices is a major source of instability and uncertainty in commodity-dependent countries, affecting governments, producers (farmers), traders, processors, and financial institutions. Further, commodity price instability has a negative impact on economic growth, income distribution, and poverty alleviation. Early attempts to deal with commodity price volatility relied on buffer stocks, buffer funds, government intervention in commodity markets, and international commodity agreements to stabilize prices. These were largely unsuccessful--sometimes spectacularly so. Buffer funds went bankrupt, commodity agreements were suspended, buffer stocks proved ineffective, and government intervention was both costlyand ineffective. As the poor performance of such stabilization schemes became more evident, academics and policymakers began distinguishing between programs that tried to alter price distribution (domestically or internationally) and programs that used market-based approaches for dealing with market uncertainty. This change in approach coincided with a significant rise in the use of market-based commodity risk management instruments--aided by the liberalization of markets, the lowering of trade and capital control barriers, and the globalization of commodity markets. by the mid-1990s, several governments, state companies, and private sector participants began using commodity derivatives markets to hedge their commodity price risks. Participation in those markets is growing, but important barriers to access remain including counterparty risk, problems small groups (such as farmers) have aggregating risks, basis risks (no correlation of local and international prices), no local reference prices, low liquidity, no derivatives markets for certain products, and low levels of know-how. International institutions, local governments, and the private sector could facilitate developing countries access to derivatives markets and the use of risk management tools to solve public sector problems.
|Date of creation:||31 Aug 1998|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Morgan, C. W. & Rayner, A. J. & Ennew, C. T., 1994. "Price instability and commodity futures markets," World Development, Elsevier, vol. 22(11), pages 1729-1736, November.
- Behrman, Jere R., 1987. "Commodity price instability and economic goal attainment in developing countries," World Development, Elsevier, vol. 15(5), pages 559-573, May.
- Glezakos, Constantine, 1973. "Export Instability and Economic Growth: A Statistical Verification," Economic Development and Cultural Change, University of Chicago Press, vol. 21(4), pages 670-78, Part I Ju.
- Ricardo Hausmann & Michael Gavin, 1996.
"Securing Stability and Growth in a Shock Prone Region: The Policy Challenge for Latin America,"
Research Department Publications
4020, Inter-American Development Bank, Research Department.
- Ricardo Hausmann & Michael Gavin, 1996. "Securing Stability and Growth in a Shock Prone Region: The Policy Challenge for Latin America," IDB Publications (Working Papers) 5919, Inter-American Development Bank.
- Lam, N. V., 1980. "Export instability, expansion and market concentration : A methodological interpretation," Journal of Development Economics, Elsevier, vol. 7(1), pages 99-115, February.
- Gilbert, Christopher L, 1985. "Futures Trading and the Welfare Evaluation of Commodity Price Stabilisation," Economic Journal, Royal Economic Society, vol. 95(379), pages 637-61, September.
- Angus Deaton, 1989.
"Saving and Liquidity Constraints,"
NBER Working Papers
3196, National Bureau of Economic Research, Inc.
- Robert S. Pindyck & Julio J. Rotemberg, 1988.
"The Excess Co-Movement of Commodity Prices,"
NBER Working Papers
2671, National Bureau of Economic Research, Inc.
- Grilli, Enzo R & Yang, Maw Cheng, 1988. "Primary Commodity Prices, Manufactured Goods Prices, and the Terms of Trade of Developing Countries: What the Long Run Shows," World Bank Economic Review, World Bank Group, vol. 2(1), pages 1-47, January.
- Sakong, Yong & Hayes, Dermot J. & Hallam, Arne, 1993. "Hedging Production Risk with Options," Staff General Research Papers 559, Iowa State University, Department of Economics.
- Palaskas, Theodosios B. & Varangis, Panos N., 1991. "Is there excess co-movement of primary commodity prices? A co-integration test," Policy Research Working Paper Series 758, The World Bank.
- Wright, Brian D. & Williams, Jeffrey C., 1990. "The Behavior of Markets for Storable Commodities," 1990 Conference (34th), February 13-15, 1990, Brisbane, Australia 145482, Australian Agricultural and Resource Economics Society.
- Larson, Donald F. & Coleman, Jonathan, 1991. "The effects of option hedging on the costs of domestic price stabilization schemes," Policy Research Working Paper Series 653, The World Bank.
- Timmer, C. Peter, 1989. "Food price policy : The rationale for government intervention," Food Policy, Elsevier, vol. 14(1), pages 17-27, February.
- Morduch, Jonathan, 1999. "Between the State and the Market: Can Informal Insurance Patch the Safety Net?," World Bank Research Observer, World Bank Group, vol. 14(2), pages 187-207, August.
- Mundlak, Yair & Larson, Donald F, 1992. "On the Transmission of World Agricultural Prices," World Bank Economic Review, World Bank Group, vol. 6(3), pages 399-422, September.
- Reardon, Thomas & Matlon, Peter & Delgado, Christopher, 1988. "Coping with household-level food insecurity in drought-affected areas of Burkina Faso," World Development, Elsevier, vol. 16(9), pages 1065-1074, September.
- Kletzer, Kenneth M. & Newbery, David M. & Wright, Brian D., 1990. "Alternative instruments for smoothing the consumption of primary commodity exporters," Policy Research Working Paper Series 558, The World Bank.
- Claessens, Stijn & Varangis, Panos & DEC, 1994. "Oil price instability, hedging, and an oil stabilization fund : the case of Venezuela," Policy Research Working Paper Series 1290, The World Bank.
- Ronald I. McKinnon, 1967. "Futures Markets, Buffer Stocks, and Income Stability for Primary Producers," Journal of Political Economy, University of Chicago Press, vol. 75, pages 844.
- Newbery, David M, 1989. "The Theory of Food Price Stabilisation," Economic Journal, Royal Economic Society, vol. 99(398), pages 1065-82, December.
- Peter B. R. Hazell, 1992. "The appropriate role of agricultural insurance in developing countries," Journal of International Development, John Wiley & Sons, Ltd., vol. 4(6), pages 567-581, November.
- Pinckney, Thomas C., 1993. "Is market liberalization compatible with food security? : Storage, trade and price policies for maize in Southern Africa," Food Policy, Elsevier, vol. 18(4), pages 325-333, August.
- Mario J. Miranda & Joseph W. Glauber, 1997. "Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 206-215.
- Arrau, Patricio & Claessens, Stijn, 1992. "Commodity stabilization funds," Policy Research Working Paper Series 835, The World Bank.
- Jan Gunning & Paul Collier, 1996. "Policy towards Commodity Shocks in Developing Countries," IMF Working Papers 96/84, International Monetary Fund.
- Knudsen, Odin & Nash, John, 1990. "Domestic Price Stabilization Schemes in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 38(3), pages 539-58, April.
- Deb, Partha & Trivedi, Pravin K & Varangis, Panayotis, 1996. "The Excess Co-movement of Commodity Prices Reconsidered," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(3), pages 275-91, May-June.
- Hughes Hallett, Andrew & Ramanujam, Prathap, 1990. "Market Solutions to the Problem of Stabilising Commodity Earnings," CEPR Discussion Papers 481, C.E.P.R. Discussion Papers.
- Hill, Catherine B., 1991. "Managing commodity booms in Botswana," World Development, Elsevier, vol. 19(9), pages 1185-1196, September.
- O'Hara, Maureen, 1984. " Commodity Bonds and Consumption Risks," Journal of Finance, American Finance Association, vol. 39(1), pages 193-206, March.
- Leith, J Clark, 1970. "The Decline of World Export Instability: A Comment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 32(3), pages 267-72, August.
- MacBean, A I & Nguyen, D T, 1980. "Commodity Concentration and Export Earnings Instability: A Mathematical Analysis," Economic Journal, Royal Economic Society, vol. 90(358), pages 354-62, June.
- Massell, Benton F, 1970. "Export Instability and Economic Structure," American Economic Review, American Economic Association, vol. 60(4), pages 618-30, September.
- Varangis, Panos & Larson, Don, 1996. "Dealing with commodity price uncertainty," Policy Research Working Paper Series 1667, The World Bank.
- 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.
- Cuddy, John D A & Della Valle, P A, 1978. "Measuring the Instability of Time Series Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 40(1), pages 79-85, February.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1963. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.