Analytical Note, November 2004

Commodity market stabilisation and commodity risk management: Could the demise of the former justify the latter?.

The objective of this paper is to cautiously analyse whether leaving commodity markets to operate in unfettered fashion while hedging commodity price risks through the use of commodity risk management instruments is a viable and better alternative than market stabilisation policies. The rest of the paper is organised as follows: section II thoroughly analyses the objectives, instruments, designs, operations and the demises of the ICAs.

Section III briefly looks into the characteristics of commodities under neoliberal markets with a particular emphasis to the welfare consequences of commodity market liberalisation.

Following that, section IV outlines the benefits and limitations of the commodity risk hedging instruments in the context of their suitability and adaptability to the conditions that producers in developing countries encounter.

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