Maintenance of a Perfect Relationship Between the Traders - Research Paper Example

Commodity trade Introduction (objectives of international commodity trade organizations) International commodity agreements cartels became common in early 1930s immediately after the great economic depression. International commodity trade organizations are state agreements to have a special class of trade and promote international cooperation in a commodity of interest. The agreements set by these organizations affect both parties that are the consumers and the producers. International trade organizations are formed in order to; promote cooperation among nations over a certain commodity (Sarris and Hallam 2006:18). These organizations have a basic role to promote mutual relation between its component parties. The agreement aims at covering the bulk of the world trade in the commodity concerned and seeks to ensure corporative nature of the association. The associations also aim at safeguarding through participation, the interest of the producers and the consumers and insert provision that cater for all other entities (21). Any organization aims at implementing its provisions by carrying out specific functions that establish and strengthen their international accord. Challenges faced by the organizations International commodity agreements have been difficult to run and administer due to the current global economic crisis. There has been difficulties in the arranging and administering agreements partly due to technological problems surrounding the production and trading of products(27). The organizations have been facing the problem of conflicting interest between the importers and exporters where the importers want low quality products but of high prices. On the non-competitive imports, the importers require commodities of low prices and their respective quantity determined by demand. The international distribution of products is directly affected by government policy and the manner of trade restrictions within national bounds. Commodities transferred from the rich to the poor countries have an impact of accelerated economic impact. Large capitals are required to fulfill growth targets for the organizations and their payments are from the exchange earnings (29). For commodities that are largely produced in poor countries but consumed at the rich countries the agreement price set might be above the market levels or inelastic. These incidences give the market organizations to make negotiations with the producers who end up incurring losses or failing to strike a deal (31). The international trade organization having been facing another major challenge in the price stabilization, meant to implement support purchases. Theoretically, prices are set by the long term interlink of the supply and demand to bring the equilibrium price and commodity. However, stabilization effect is not achieved in buffer stocks without heavy financial commitment (37). Failure to obey these, upward price fluctuations or heavy accumulation of inventories and burdensome will ultimately result. Currently (in order to reduce the risk of market volatile global markets) the international commodity trades are giving loans to the less developed countries. These loans are available to countries that have an annual shortage in annual shortage in the foreign exchange earnings due to commodity price declines. These loans are for compensatory effect to these countries (41). The compensatory financial scheme is operated strictly as a program to offset short-term market instability and global volatility. The recipient countries are to repay within five years. In order to curb the risk of volatility in the global market the terms of finances should be liberalized and the repayment made contingent upon recovery of the exports of a certain country (43). This makes the loan doable in all season unlike now where it can be taken only if the trading prices are high enough. ICC INCOTERMS Inco terms are international rules that are accepted rules accepted by governments, legal authorities, as well as practitioners in the worldwide interpretation of international terms. These terms reduce or remove the uncertainties that arise from different interpretation of the terms across the globe. These rules mainly describe the tasks, costs, and risks involved in the delivery of goods that are mainly tangible from sellers to buyers (48). These rules are delivered with the seller bearing all the costs and the risks involved as well of bringing the goods to the intended destination. The INCOTERM CIP stands for Carriage and Insurance Paid to. The term DAF stands for Delivered at Freelance, EXW stands for Ex workers, DDP stands for Delivered Duty Paid, And finally FAS stands for Free Alongside Ship (87). FOB Free On Board is the most preferred pricing terms by exporters. It indicates that the price quoted on a material includes all the cost of a product until it is loaded onto a ship. The responsibility over the product shifts from the seller to the buyer immediately the product goes on board or simply is loaded (112). The exporter or the buyer for that matter is responsible to obtain other requirements like export clearance and other on-sea documents. Free on Board is applicable only when the mode of transportation is sea or inland waterway. Coffee trade The bulk of the world coffee production comes from the tropical hemisphere and some parts of Africa and Asia. South and Central America produce the largest share of the world produce. Other world’s major producers of coffee are Brazil, Vietnam, Colombia, and Indonesia. Coffee occurs in two forms that is it can either be Arabica or Robusta. Arabica coffee occurs in Brazil and Colombia wile Robusta coffee majorly occurs in Vietnam (312). The demand of coffee is very inelastic for it does not reduce proportionally with market changes but rather remains constant. When the consumer price for coffee falls the market demand remains rather constant as it does not increase to any greater extend. Growing of coffee provides employment for many individuals across the globe. Coffee, there fore is an important monetary source to people living both in rural and urban areas (367). Some countries also depend on coffee for income generation. Elements of risk The executive management of any business needs to consider some elements of risk when deciding on the best way to implement a risk. The four basic elements of risk are the process of risk evaluation, integration, culture, and infrastructure. These four processes should be flexible in application for in order a certain risk to be effective whenever implemented. Elements of risk include all activities of identification, funding, and evaluation of a certain risk. In evaluation of any risk, one must; mitigate the risk (394). This is the first element risk meant to reduce the probability of the impact of the risk. Mitigation of a risk reduces by action the probability of the risk brining an impact. The other key element of risk is planning for emergencies in order to know when a risk or project is likely to go wrong. Another important element of risk is the measure and control of a risk. The owner of any project should measure the appropriate action to prevent it from going off (397). The risk taker should also measure the schedule, cost, and satisfaction of the risk before putting it into action. Rubber trade in the world Rubber trade associations regulate, supervise, and regulate the development and trade of rubber across the world. These rubbers associations are composed of experienced personnel who guarantee supply of the rubber as requested by the customer. The organizations protect the commodity and are liable until it reaches the intended customer especially if the goods go oversea. These organizations carry stocks and they have links to each other in the various countries. These organizations fill in shipments for the customer incase he falls short due to unavoidable circumstances (412). The rubber organizations make generally agreeable arrangements then bind the customer to the material. Incase the respective organization has long term fixed contract it then helps the customer to structure a fresh contract that will enable him meet his needs. Global energy continuity Some huge strides must be made by the energy producing countries to ensure continued global energy security. The energy producing countries are likely to face great challenges because of the increasing demand for energy as the populated world continues to prosper (418). The energy producing countries should make collaboration among the industry and look for crucial methods to meet the future demands in energy requirements. In order to cater for these demands the energy producing countries must switch to alternative oil sources, which are generally more costly than the conventional oil in the markets. This will pressurize the oil prices to hike (458). The pace of new investment in oil will ultimately lower the cost of the oil alternatives. Conclusion The superintended and the analysts play an integral role in ensuring accuracy in commodity trade and in maintenance of a perfect relationship between the traders. They ensure trade continuity and take advantage of price discrepancy in the markets in order to support commodity trade (496). They also look for market options for the agricultural products and ensure that all stakeholders protect the rights of farmers. They arrive at through advocating for better commodity prices and presenting the farmers interest to the political levels. Bibliography Sarris, A. and Hallam, D. 2006. Agricultural commodity markets and trade. United Kingdom: Edward Elgar Publishing. Read More