(e) Price volatility

Security problems and disruptions in production also increased price volatility.

It was important for the international community to take action to improve their access to trade financing, protect them against the adverse effects of trade liberalization and commodity price volatility, and reduce their transport costs.

2. Expresses the urgent need for supportive international policies and measures to improve the functioning of commodity markets through efficient and transparent price formation mechanisms, including commodity exchanges, and through the use of commodity price risk management instruments

2. Expresses the urgent need for supportive international policies and measures to improve the functioning of commodity markets through efficient and transparent price formation mechanisms, including commodity exchanges, and through the use of viable and effective commodity price risk management instruments

How can measures to increase commodity price stability and returns from commodity exports contribute to achieving the Millennium Development Goals?

In particular, the volatility of food and commodity prices, including petroleum prices, is seriously denting the financing capacity of many poor countries.

13. Recognizes that developed countries account for two thirds of world non fuel commodity imports, and expresses the urgent need for supportive international policies and measures to improve the functioning of the commodity markets through efficient and transparent price formation mechanisms, including commodity exchanges, and through the use of viable and effective commodity price risk management instruments

Economists have identified six pitfalls that can afflict natural resource exporters commodity price volatility, crowding out of manufacturing, Dutch disease (a booming export industry causes rapid currency appreciation, which undermines other exporters competitiveness), inhibited institutional development, civil war, and excessively rapid resource depletion (with insufficient saving).

This is called bundling. It's bringing those externalities back into the price of the commodity.

Producing countries have also tried to contain price volatility by forming international cartels. But these have seldom worked.

Everything changed in 1971, when US President Richard Nixon, unable to contain the fiscal deficit resulting from spending on the Vietnam War and expanded social welfare programs, abolished the dollar s direct convertibility to gold. The resulting exchange rate, interest rate, and commodity price volatility continues to this day.

Speaking of risk, we have seen that price volatility of food crops in Africa is the highest in the world.

The G 20 s efforts will culminate in the Cannes Summit in November. But, when it comes to specific policies, caution will be very much in order, for there is a long history of measures aimed at reducing commodity price volatility that have ended up doing more harm than good.

Support the efforts of commodity dependent African countries to restructure, diversify and strengthen the competitiveness of their commodity sectors and decide to work towards market based arrangements with the participation of the private sector for commodity price risk management

(f) To support the efforts of commodity dependent African countries to restructure, diversify and strengthen the competitiveness of their commodity sectors and decide to work towards market based arrangements with the participation of the private sector for commodity price risk management

Commit to support the efforts of commodity dependent African countries to restructure, diversify and strengthen the competitiveness of their commodity sectors and decide to work towards market based arrangements with the participation of the private sector for commodity price risk management

CAMBRIDGE The prices of hydrocarbons, minerals, and agricultural commodities have been on a veritable roller coaster. While commodity prices are always more variable than those for manufactured goods and services, commodity markets over the last five years have seen extraordinary, almost unprecedented, volatility.

Direct and indirect measures to reduce dependence on commodity exports and to reduce the impact of commodity price instability are thus crucial if Africa is to meet the Millennium Development Goals.

Recent global economic trends called for major policy initiatives, for example for export diversification, investment in infrastructure and control of price volatility.

Commit ourselves to supporting the efforts of commodity dependent African countries to restructure, diversify and strengthen the competitiveness of their commodity sectors and decide to work towards market based arrangements with the participation of the private sector for commodity price risk management

UNCTAD is also actively working on issues related to the impact of oil price volatility on African oil importing and oil exporting countries.

It supported the recommendation to establish commodity price agreements or stabilization tools and a fast responding grant financed shocks facility for low income commodity dependent countries, to be administered by one of the Bretton Woods institutions.

Now, over the last century, we tend to think of commodity exchanges as the purview of Western industrialized countries, and that the reference prices for cotton, coffee, cocoa products produced mainly in the south are actually a reference price, or a price discovered in these organized commodity exchanges in the northern countries.

In fact, most dollar commodity prices have fallen since the first half of the year. Though a host of sector specific factors affect the price of each commodity, the fact that the downswing is so broad as is often the case with big price swings suggests that macroeconomic factors are at work.

Satellite derived early warning of unusual crop conditions allowed for price adjustments in commodity markets and helped maximize United States farmers apos returns.

But, though inflation is very low, and even negative in a few countries, something more must be going on, because commodity prices are falling relative to the overall price level. In other words, real commodity prices are falling.

We welcome the proposal to ease supply side constraints and commodity price shocks in order to take the fullest possible advantage of increased market access.

24. Recognizes also the importance of addressing seriously the concerns of commodity dependent developing countries, owing to the continuing volatility of world commodity prices and other factors, and of supporting the efforts of such countries to restructure, diversify and strengthen the competitiveness of their commodity sectors, and in this regard notes the formation of an international task force on commodities by the United Nations Conference on Trade and Development

17. Recognizes the importance of addressing seriously the concerns of commodity dependent developing countries, owing to the continuing volatility of world commodity prices and other factors, and of supporting the efforts of such countries to restructure, diversify and strengthen the competitiveness of their commodity sectors, and in this regard notes the formation of an international task force on commodities by the United Nations Conference on Trade and Development

By contrast, many emerging economies, highly dependent on commodity export earnings, have been stressed by the commodity price reset, sluggish growth in developed economies, and slower growth in China. Capital flight would materially add to their plight in some cases disastrously so.

Russia has most of the usual features of rentier states autocracy, weak political and judicial institutions, arbitrary governance, lack of the rule of law, little transparency, restraints on freedom of expression, widespread corruption, cronyism, and nepotism. Also common to rentier states are short investment horizons, vulnerability to commodity price volatility euphoria when they surge, crisis when they collapse and an underdeveloped and uncompetitive manufacturing sector.

Protectionism threatens open markets and GDP growth. And price volatility, whether triggered by drought or short sighted national policies, could deter investments in agriculture and decrease the poor s purchasing power.

Desperate to sustain their political and economic momentum, most have taken a wide variety of steps to prevent their economies from feeling the full brunt of the commodity price hikes. As a result, higher commodity prices are eating into fiscal cushions rather than curtailing demand.

It is necessary to innovate supervision methods and working methods, strengthen the propagandization of price laws and regulations for online and offline commodity retail enterprises and e commerce platforms, urge operators to improve price promotion programs, and investigate and handle illegal activities such as making up original prices, misleading price indications, non performance of price commitments and other illegal acts.

There is also the issue of the so called reserve price (the highest price a buyer is willing to pay for a good or service). The reserve price places a cap on how high commodity prices will go, as it is the price at which demand destruction occurs (consumers are no longer willing or able to purchase the good or service).

While a number of initiatives exist to address these problems, encourage diversification and reduce vulnerability to commodity price fluctuations, support for them has fallen far short of what is necessary.

Where Did Market Volatility Go?

And yet it is particularly in the US that commodity prices have been falling. The Economist s euro denominated Commodity Price Index, for example, has actually risen over the last year it is only the Index in terms of dollars which is what gets all of the attention that is down.

Admittedly, the global commodity price boom has had profound, albeit enormously complex and uncertain, effects on poverty. While surging commodity prices are helping poor farmers and poor resource rich countries, they are a catastrophe for the urban poor, some of whom spend 50 or more of their income on food.

Export restrictions in producing countries and price controls in importing countries both serve to exacerbate the magnitude of the world price upswing, owing to the artificially reduced quantity that is still internationally traded. If producing and consuming countries in grain markets could cooperatively agree to refrain from such government intervention probably by working through the World Trade Organization world price volatility might be lower.

Lowering volatility and sopping up excess liquidity can be beneficial, but there are risks here as well regulators can easily overshoot the mark, leaving financial markets with weakened capacity for price discovery and too little liquidity.

J. Morisset ( Unfair trade? the increasing gap between world and domestic price in commodity markets over the past 25 years , World Bank Economic Review, vol. 12, No. 3 (1998), pp. 503 526) notes that since the 1970s, commodity prices have fallen in international markets at the same time that consumer prices have risen.

The Fed should regard lower commodity prices, reduced inflationary pressures, changes in the labor market, and further disruptive technological shifts as sufficiently convincing arguments to postpone a rate hike. Including the risk of excessive volatility in the global financial system tips the balance even further.

A commodity price stabilization mechanism should be established and a review, by both WTO and the World Intellectual Property Organization (WIPO), of the development dimension of the global intellectual property regime was needed.