Commodity stabilisation : the case of rubber

Abstract

Stabilisation of the natural rubber price, with the particular goal of stabilising revenue of small scale producers, has been a major recent goal of government in Malaysia. Indeed almost from the beginning of the natural rubber industry early this century, successive attempts of price stabilisation, often with the additional goal of price enhancement, have been made. In this study some of the relevant literature dealing with commodity price stabilisation is reviewed, and the actual measures of stabilisation adopted by rubber producer from early 1900 to the current rubber agreement (International Rubber Agreement 1979) are scrutinised. Two main techniques of trading, forward trading and hedging, are examined as means of stabilising producer revenues. An analysis is made for the period 1972 to 1975, using prices on the London Commodity Exchange. The results of the analysis show that forward trading and hedging on futures market actually lead to destabilise producers' revenues. Further investigations are nonetheless suggested, since the conclusion is based on a limited period, and on futures trading figures from a rather thin market. Show more