Problems faced by the commodity agreements

  • Conflicting interests of the members undermine the effectiveness of the scheme. Besides, the producers are always interested in increasing prices whole consumers are after reducing prices.
  • It is difficult to include all the major producers of the commodity into the agreement.
  • If the members control a small share of total world output, they cannot effectively stabilize output and price.
  • The conflict between traditional dominant large producers and emerging small producers reduces the effectiveness of the scheme,
  • It is difficult to maintain the quota assigned to each producer due to rapid changes in supply to frictions.
  • Differences in the efficiency of the producers also weaken the agreement whereby the more efficient producers tend to demand low prices whereas the inefficient ones desire higher prices.
  • There is a lack of effective supervision of the quota system.
  • Disagreements always emerge when setting up the quotas for each country.
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