Boom or bust. How commodity price volatility impedes poverty reduction, and what to do about it.

Guidelines to reduce commodity price volatility and ensure predictable incomes for producers

About two billion people, mostly in developing countries, depend on the production of primary commodities. Uncertainty induced by highly volatile prices complicates financial planning and environmental management for commodity-dependent countries and producers. Falling relative prices over the long term also contribute to their precarious position.

Predictable incomes are critical to escape commodity dependence. However, it is important to keep in mind that:

no single policy will be sufficient
interventions can create moral hazards and market distortions
supply-side constraints are enduring obstacles

Working policy options are:

supply management
revenue management
market-based risk management
compensatory finance
alternative trade incentives such as alternative trade networks and eco-label certification programmes

However, except for alternative trade incentives, whose stabilising effect only holds for small niches of products, those policies fail to address social and environmental risk and distort price levels. To ensure more coherent and successful policy responses, the following guidelines should be followed:

look for complementary policies
engage stakeholders at all levels
do not underestimate the importance of the private sector
keep it as simple as possible
address potential moral hazard by integrating income stabilisation into a wider rural development or diversification programme
build flexibility into programmes
ensure that the reach of the implementing agencies matches the scope of a policy’s goals

How good is this research?
Assessing the quality of research can be a tricky business. This blog from our editor offers some tools and tips.
Read now

Related content

Document
COVID-19 Impacts Cross Border Traders in East Africa
J. Klopp, A. Krueger, M. Trimble / Global Integrity Anti-Corruption Evidence (GI-ACE), 2020
Highlights the implications of COVID-19 on small scale cross-border trading in Kenya and Uganda. They find that Kenya-Uganda border restrictions are also reducing the work of informal border traders. This will have a knock on effect on the Ugandan economy, where informal trade accounts for 25-40% of intra-regional trade.
Document
Open data for agriculture and nutrition: A literature review and proposed conceptual framework
T. Roberts, K. Hernandez / Institute of Development Studies UK, 2021
This paper begins by locating the Global Open Data for Agriculture and Nutrition project (GODAN) in the context of wider debates in the open data movement by first reviewing the literature on open data (OD) and open data for agriculture and nutrition (ODAN).
Document
At the table, off the menu? Assessing the participation of lower-income countries in global tax negotiations
R. Corlin Christensen, M. Hearson, T. Randriamanalina / Institute of Development Studies UK, 2020
For half a century, the most influential international rules and standards for taxing multinational corporations have been formulated by a select group of developed countries, the OECD, with lower-income countries on the outside. Since 2013, this has changed: decision making at the OECD has moved to the ‘Inclusive Framework’ (IF), which today encompasses 137 jurisdictions.
Document
Economic transformation in Vietnam
United Nations University World Institute for Development Economics Research, 2020
During the last three decades Vietnam has undergone a considerable economic transformation. However, little research has considered the role that financial reform has played in the development of small and medium size enterprises (SMEs).
Document
COVID-19 and the African energy sector: Energy insight
W. Shen, S. Ayele / Oxford Policy Management, 2020
As elsewhere in the world, COVID-19 continues to ravage Africa, causing thousands of deaths and an unprecedented health crisis that is damaging to every aspect of the social and economic lives of millions of people.

Eldis

Boom or bust. How commodity price volatility impedes poverty reduction, and what to do about it.