Commodity risk management and development

Abstract

Many developing countries depend to a large extent on commodities for their exports and government revenues. According to statistics from UNCTAD, in 1995 fiftyseven developing countries depended for over 50 % of their exports on three commodities. Commodities, fuels, grains and oilseeds, are also very important imports for several developing countries. Commodity prices are notoriously volatile which is a major source of instability and uncertainty for commodity-dependent developing countries. Commodity price volatility affects governments, producers (farmers), traders, processors, and local financial institutions financing commodities in these countries. Studies have also found that commodity price instability has a negative impact on economic growth, income distribution and poverty alleviation. In the past, there have been several attempts to deal with commodity price volatility. A number and variety of international and national institutions and programs were designed for this purpose. Most of the earlier attempts concentrated in trying to stabilize prices through the use mainly of buffer stocks, buffer funds, government intervention in commodity markets, and international commodity agreements. These