Business : Commodity Agreements

Running Head: COMMODITY AGREEMENTSCOMMODITY AGREEMENTSNameInstitutional Affiliation1COMMODITY AGREEMENTS2How effective are commodity agreements?Commodity agreements involve arrangements that occur between producing andconsuming countries at an international level. The purpose of the agreements is to ensure thestabilization of markets while at the same time raising the average prices of commodities.Guaranteed minimum prices are set forth for agricultural commodities. These are referred to asfloor prices. However, governments could set the commodity prices slightly above the minimumprice to clear the market. This price is remunerative to the low income farmers and the high costmarginal producers. In this case, commodity agreements act as forceful incentives and aretherefore unavoidable. Efficient producers feel that the government has put an efficientcommodity price thus are motivated to expand the production of the commodity (Gilbert, 2011).Proper utilization of commodity agreements ensures that they stimulate dynamic growthin the participating countries. With commodity agreements, it is also possible to ensure areasonable predictability for the contracting ...


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