OPTIMAL PORTFOLIO ANALYSIS OF MULTICOMMODITY STOCKING ARRANGEMENTS
| Author | WALTER C. LABYS |
| Published date | 01 August 1977 |
| DOI | http://doi.org/10.1111/j.1468-0084.1977.mp39003004.x |
| Date | 01 August 1977 |
OPTIMAL PORTFOLIO ANALYSIS OF
MULTICOMMODITY STOCKING ARRANGEMENTS
By WALTER C. LABYS
INTRODUCTION
Developing countries through concerted action within and without the confines
of the United Nations General Assembly have shown renewed interest in a system
of international commodity arrangements. UNCTAD (1974, 1975 and 1976) has
responded by proposing an integrated programme dealing with a system of inter-
national commodity stocks together with a central fund for stock financing, a
system of multilateral purchase and supply commitments in commodity trade,
compensatory financing for export shortfalls, and international assistance for
export diversification.
The purpose of this paper is to examine the process whereby commodities are
selected for that part of the integrated programme dealing with the international
stocking systemthe multicommodity buffer stock. Until now, selection by
nations within UNCTAD has been based on traditional commodity criteria such as
degree of price instability or origin from developing countries, but even these
criteria have been superceded to accommodate political trade-offs. There has been
a general neglect of the price-returns aspects of holding commodities, i.e. con-
sidering the commodity holdings as a 'portfolio' of commodity assets with expected
positive returns.
Blankmeyer (1971) as well as Brainard and Cooper (1968) have pointed to the
need to consider international commodity problems in the context of optimal port-
folio analysis, with different commodity groups providing a given yield at different
levels of risk. This approach is examined here; the yield-risk characteristics of the
UNCTAD 'selected' portfolio are compared to those of a number of alternative
commodity portfolios embodying various commodity strategies.
MULTICOMMODITY STOCKING ARRANGEMENTS
The idea of a multicommodity buffer stock is not a new one. At the Bretton-
Woods conference in 1943 Keynes produced a number of supportive arguments,
and suggested that such a stock could be managed by a single organization drawing
upon a common capital fund. (See the reprint of his key document provided in the
Journal of International Economics, 1974.) Stocks would be established for a wide
range of commodities by purchasing them when their prices were at an agreed floor
price. Table 1 summarizes the characteristics of the major stockable commodities
such as their relative value to developing countries, their relative price instability,
and some estimates of required buffer stock size. The accumuláted stocks would
serve as an international reserve of foodstuffs and industrial raw materials which
would help to assure an uninterrupted flow of world consumption and world in-
dustrial production. They would be released to the market or to participatory
countries when prices moved above an agreed ceiling. This machinery operating
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