Bl.4.2 Impact of collapse of supply management schemes on commodity prices

COMMODITY MARKETS CHAPTER 1 99

BOX 1.4 The rise and collapse of international supply management (continued)

FIGURE B1.4.2 Impact of collapse of supply management schemes on commodity prices

The collapse of supply management schemes has most often led to declining prices. Prices of commodities subjected to supply management are characterized by a high degree of nonlinearity.

A. Change in prices after agreements collapse B. Real commodity price decomposition

C. Long-term trend of commodity prices subjected to supply management D. Long-term trend of commodity prices not subjected to supply management

Source: World Bank. A. The change is based on the three-year nominal average before and after the year of the collapse of the agreement. The year of collapse is noted in the parenthesis and is excluded from the comparison. B. RMSE = root mean square error, which is a proxy for nonlinearity. Yellow line denotes group averages.

to switch to alternatives, which may lead to a permanent reduction in demand for the commodity.

Some international organizations that originated with the intention to manage supply have shifted focus to become providers of market information as a public good. Looking forward, ongoing efforts to substitute environmentally friendly energy sources for fossil fuels could benefit from the sharing of information among producers and consumers on technical research.