International Commodity Agreements and Cartels: Lessons and Policy Implications

What the paper says

Abstract Throughout the 20th century, countries attempted to address negative effects of boom-and-bust cycles in commodity prices through international supply management initiatives. The objectives of these agreements were usually to achieve a high and/or stable level of prices. Attempts to manage excess supplies following World War I included coffee, copper, wool, and tin, while falling prices during the Great Depression spurred agreements covering tea, natural rubber, sugar, coffee, and copper. Arrangements after World War II and in the 1970s involved producers and consumers for tropical commodities and metals. Although some agreements were successful in achieving their objectives, all ended or collapsed, often resulting in increased price volatility. OPEC may have been an exception in its longevity, but it faces similar challenges to previous agreements. We conclude that the historical experiences of these agreements caution against their use. However, during periods of significant market stress, coordinated action may be warranted. These lessons are instructive today for the energy transition. Producers of metals and minerals used in renewable technologies may be tempted to form agreements to influence prices. However, while these could have short-term successes, they would face the same issues that led to the demise of earlier agreements.