Developing The Regulatory Environment for Competitive Commodity Markets

In 1992, LATAD initiated a regional activity aimed at assessing the relative merits of various initiatives to deal with price instability and price risk management in general. Analytical work in price bands (Quiroz and Valdés) and the joint FAO/World Bank workshop in Santiago in October 1993 were part of this effort. Simultaneously, we initiated a few case studies of the status of commodity markets in the Latin America and the Caribbean region. The focus of these studies has been to identify the requirements for development of (domestic) private commodity markets for the major grains, with a clear specification of the areas where government regulations serve a facilitating role and areas of private sector responsibility. This report by Professor Lowell Hill and Karen Bender identifies the minimum requirements for the development of private commodity markets. Their analysis is based on their extensive experience in Latin American and Caribbean countries as well as in the United States and other regions. In recent years, Professor Hill has been a consultant on this topic in Brazil, Chile, Colombia, and Mexico. This paper evaluates the advantages and disadvantages of public vs. private responsibility for the most important elements of the development of a market system. An explication of the criteria on which to judge performance will be followed by a description, classification, and discussion of the regulations and policies that affect market performance. These will provide the basis for evaluating the role of government in controlling and encouraging efficient markets (including comparisons among countries with contrasting allocations of responsibilities). The substitution of market forces for central planning, requires that certain regulations be in place to facilitate the development of an operational market. The minimum set of regulations required will be identified and prioritized according to sequential implementation.