Commodity agreements

Introduction: -An international commodity agreement is an undertaking by a group of countries to stabilize

trade, supplies, and prices of a commodity for the benefit of participating countries. An agreement usually
involves a consensus on quantities traded, prices, and stock management. A number of international
commodity agreements serve solely as forums for information exchange, analysis, and policy discussion
Commodity agreements are arrangements between producing and consuming countries to stabilize markets
and raise average prices. Such agreements are common in many markets, including the market for
coffee, tea, and sugar.
Example - The International Cocoa Agreement
In 2003, an agreement was made between the seven main cocoa exporting countries, Cameroon, Ivory Coast,
Gabon, Ghana, Malaysia, Nigeria and Togo, and the main importing countries including the EU members,
Russia, and Switzerland. The main purpose of this agreement was to promote the consumption and
production of cocoa on a global basis as well as stabilize cocoa prices, which had been falling steadily. The
agreement was planned to continue until 2010.
Commodity agreements often involve intervention schemes, such as buffer stocks, and usually only last for a
few years, whereupon they are re-negotiated. They differ from cartels such as OPEC, largely because
discussions and negotiations involve both producer and consumer countries, unlike cartels, which are
established to protect the interest of producers only.

Commodity market – It refers to markets that trade in primary rather than manufactured products. Soft
commodities are agricultural products such as wheat, coffee, cocoa and sugar. Hard commodities are mined,
such as (gold, rubber and oil
Commodity trading in India has a long history. In fact, commodity trading in India started much before it
started in many other countries. However, years of foreign rule, droughts and periods of scarcity and
Government policies caused the commodity trading in India to diminish. Commodity trading was, however,
restarted in India recently. Today, apart from numerous regional exchanges, India has four national
commodity exchanges namely, Multi Commodity Exchange (MCX), National Commodity and Derivatives
Exchange (NCDEX), National Multi-Commodity Exchange (NMCE) and Indian Commodity Exchange (ICEX).
The regulatory body is Forward Markets Commission (FMC) which was set up in 1953.
 Different types of trade agreements
There may be different kinds of integration process, with different degrees of depth and agreements between
the countries involved.

Customs Preference Agreement – assures preferential customs levels for the

group of countries that sign the agreement.

Free Trade Treaties (FTT) - eliminating customs and non-customs barriers on

trade between two or more countries.

Customs Union – provides for free trade between member countries, a common
free trade policy and consequently adopts a Common External Tariff (CET) – that is,
a single group of tariffs for imports from countries that do not belong to the bloc),
as well as standard customs codes, integrating the collection of the CET, common
phyto-sanitary policy. Examples: Mercosur, CAN

Common Market – it is an agreement in which a customs union is complemented

by eliminating all barriers against movements of production factors between the
member countries – not only goods and services circulate freely but also capital and
workers; integration of economic, productive, labour and social policies;
supranational and coordination of macroeconomic policies. An example is the
European Union.

Economic Union – An Economic Union is an agreement for economic integration in

which the members integrate all their economic policies. An example is the
European Union (the block managed to unify the currency and entire financial and
tax system, but so far it was unable to complete the approval process of a single
Constitution).