mr. yium tavarolit - irco
TRANSCRIPT
-
7/29/2019 Mr. Yium Tavarolit - IRCo
1/37
by
Yium Tavarolit
Chief Secretary and Economist
International Rubber Consortium Limited (IRCo)
at
International Rubber Technology and Economic Congress
11 October 2012
One World Hotel, Petaling Jaya, Selangor, Malaysia
-
7/29/2019 Mr. Yium Tavarolit - IRCo
2/37
The Outline of Presentation
What Is Volatility ?
What Causes Volatility ?
How To Address Price Volatility ?I. International level
II. National Level Conclusion
2
-
7/29/2019 Mr. Yium Tavarolit - IRCo
3/37
What is volatility?
Volatility is a measure of price variationfrom period t-1 to period t. If there is a large
price variation from period t-1 to period t
then the return (Rt) is large without regardto whether it is positive or negative).
Variations in prices become problematic
when they are large and cannot beanticipated, and they do not reflect market
fundamentals.
3
-
7/29/2019 Mr. Yium Tavarolit - IRCo
4/37
As a result, they create a level of uncertaintywhich increase risk for producers, processors,
traders, consumers, governments, and they can
lead to incorrect decisions.
Former World Banks President Robert
Zoelick declared on 19 February 2011 that the
price spike that occurred between June andDecember 2010 pushed 44 billion individuals
below the extreme poverty line worldwide.
4
What is volatility? (cont)
-
7/29/2019 Mr. Yium Tavarolit - IRCo
5/37
What causes volatility?
Growing Population and Income in
Emerging Countries
FAO reported recently that agriculturalproductivity and low stocks in the
coming decades will grow at a slower
pace than demand for food that willresult in volatility around the uptrend.
5
-
7/29/2019 Mr. Yium Tavarolit - IRCo
6/37
What causes volatility? (cont)
A Conflict between Demand for Food andFeed Crops for the Production of Bio-fuels
As demand for oil and its price has
increased rapidly in tandem with a rapid
growth in global population and its price
has outstripped cost of bio-fuels to some
degree, that contributes to volatility in bio-fuel crops such as sugarcane, tapioca, palm
oil etc.
6
-
7/29/2019 Mr. Yium Tavarolit - IRCo
7/37
What causes volatility? (cont) Rising oil prices
Rising oil prices lead to higher cost of every sector
in global economies, including the agricultural
sector,
7
42.88
59.62
68.30
76.1778.71 78.03 76.22
85.17
94.06
102.56
86.76
94.07
102.93
93.4987.93
94.16
30
40
50
60
70
80
90
100
110
US$/Barrel
-
7/29/2019 Mr. Yium Tavarolit - IRCo
8/37
Climate changeChanges in climatic and natural conditions
such as droughts, heat waves, and floods
have caused uncertainty of global foodproduction. A combination of better
functioning and deeper markets for
agricultural commodities and improved
supply capacity and resilience will allow
countries in the most vulnerable zones to
overcome these problems.
What causes volatility? (cont)
8
-
7/29/2019 Mr. Yium Tavarolit - IRCo
9/37
Exchange Rate MovementsU.S. dollar denominated international
commodity prices against other currencies
usually rise when the U.S. dollar weakensagainst other currencies. For
example, crude oil futures on New York
Mercantile Exchange will fall if the U.S.dollar strengthens.
What causes volatility? (cont)
9
-
7/29/2019 Mr. Yium Tavarolit - IRCo
10/37
An Increase in Investment in Financial Derivative
Markets for Agricultural Commodities
There are still the pros and cons of an increase in
investment in financial derivative markets for
agricultural commodities. Some analysts argue that
non-commercial actors such as hedge funds, swap
dealers, and money managers sometimes amplify
short-term price swings, while many analysts saywell functioning derivative markets for agricultural
commodities could play a significant role in
reducing or smoothing price fluctuations.
What causes volatility? (cont)
10
-
7/29/2019 Mr. Yium Tavarolit - IRCo
11/37
The Nature of Market Structure
Focusing on agricultural products, there
are some natural characters that cause
price volatility as follows:-
What causes volatility? (cont)
11
-
7/29/2019 Mr. Yium Tavarolit - IRCo
12/37
The Nature of Market Structure
What causes volatility? (cont)
12
1. Inelastic supply: means a market
situation in which any increase ordecrease in the price of a good or
service does not result in a
corresponding increase or decreasein its supply;
-
7/29/2019 Mr. Yium Tavarolit - IRCo
13/37
The Nature of Market Structure
What causes volatility? (cont)
2. Production period: agricultural
production normally takes considerabletime. Supply cannot responds much to
price changes in the short-term, though
it can do so much more once theproduction cycle is complete;
13
-
7/29/2019 Mr. Yium Tavarolit - IRCo
14/37
The Nature of Market Structure
What causes volatility? (cont)
3. Natural shocks: agricultural
output varies from period to periodbecause of natural disasters such as
flooding, drought, diseases etc.
14
-
7/29/2019 Mr. Yium Tavarolit - IRCo
15/37
Speculation on Commodity Markets
It is known that commodity prices
sometimes do not move in tandem withmarket fundamentals but market
sentiment, which is sometimes driven
by market players on commoditymarkets.
What causes volatility? (cont)
15
-
7/29/2019 Mr. Yium Tavarolit - IRCo
16/37
To address price volatility throughinternational cooperation/international
institutions, the followings have to be
ensured that they will be adopted acrosscommodity exchanges and across
countries in order to avoid the migration
of participants and regulatory arbitrage.
16
-
7/29/2019 Mr. Yium Tavarolit - IRCo
17/37
Strengthening International Discipline
Relevant international organizations/
institutions (WTO) and global leaders have
to resolve all forms of import and exportrestrictions, as well as domestic support
schemes that distort production
incentives, discourage supply in responseto market demand, constrain international
trade of food and agriculture products.
I. International Level
17
-
7/29/2019 Mr. Yium Tavarolit - IRCo
18/37
Transparent International Financial
Systems
To develop commodity derivative
markets to function well, and asintended in terms of hedging and
price discovery, appropriate financial
regulations need to be in place acrossall relevant futures exchanges and
markets.
I. International Level (cont)
18
-
7/29/2019 Mr. Yium Tavarolit - IRCo
19/37
Transparent International Financial
Systems
A question is how to regulate non-
commercial actors such as indexfunds, swap dealers, and money managers
in financial markets to trade on futures
markets transparently without amplifyingshort-term price swings that might lead to
price bubbles in some situations.
I. International Level (cont)
19
-
7/29/2019 Mr. Yium Tavarolit - IRCo
20/37
Transparent Market Information
Reliable and up-to-date information oncrop supply, demand, stocks andexport availability could contribute toprice stability because information onthe current situation and outlook forglobal agriculture shapes expectations
about future prices and allows marketsto function more efficiently.
I. International Level (cont)
20
-
7/29/2019 Mr. Yium Tavarolit - IRCo
21/37
Transparency in Futures Markets
Producers and consumers normallyhedge on futures markets so as tolower risks from price fluctuation, butspeculators buy and sell futurescontracts and take on the risk offuture price fluctuation to gain a risk
premium.
I. International Level (cont)
21
-
7/29/2019 Mr. Yium Tavarolit - IRCo
22/37
Transparency in Futures Markets
To limit daily price changes and tolimit inventories held in deliverywarehouses by non-commercial
entities ( to limit market manipulationpossibility), compulsory guaranteedeposits, appropriate margin
calls, transparent market informationetc are the essential parts for curbingexcessive speculation on futuresmarkets.
I. International Level (cont)
22
-
7/29/2019 Mr. Yium Tavarolit - IRCo
23/37
International Safety Nets
Contingency and compulsory financing
facilities provided and organized by
international organizations/institutionssuch as the World Bank, FAO etc are
important mechanisms that assist
countries to avoid food shortage, and tolower food spikes, especially in the
poorest and most vulnerable countries.
I. International Level (cont)
23
-
7/29/2019 Mr. Yium Tavarolit - IRCo
24/37
Increase in Global Agricultural Production
to meet Global Consumption
Direct investment in agricultural research
and development in order to increase
productivity and to safeguard farmers
against natural calamities such as an early
warning system, disaster risk
assessment, development on climate
change adaptation strategies etc are a
must.
I. International Level (cont)
24
-
7/29/2019 Mr. Yium Tavarolit - IRCo
25/37
Increase in Global Agricultural Production
to meet Global Consumption
At the same time, investment in non-
agriculture to enhance rural environmentfor human well being such as
education, sanitation and clean water
supply, health care etc are also a must.
I. International Level (cont)
25
-
7/29/2019 Mr. Yium Tavarolit - IRCo
26/37
Reducing Policy Conflicts between Food
and Fuel
As a number of relevant crops such as
sugar cane, oilseeds, cassava and coursegrains could be consumed as both
energy and food/feed by utilizing the
same inputs, their prices haveskyrocketed until today.
I. International Level (cont)
26
-
7/29/2019 Mr. Yium Tavarolit - IRCo
27/37
Reducing Policy Conflicts between Food
and Fuel
The International Food Policy Research
Institute (IFPRI) estimated that around30% of growth in prices over the period
2006 2008 was attributable to the bio-
fuel sector.
I. International Level (cont)
27
-
7/29/2019 Mr. Yium Tavarolit - IRCo
28/37
Reducing Policy Conflicts between Food and
FuelTo moderate prices of these crops, it is
recommended that renewable fuels and feed
stocks should be produced where it iseconomically, environmentally, and socially
feasible, and is traded more freely. Scientific
research on alternative paths to reduce carbonemissions and to improve sustainability and
energy security should be accelerated, and more
efficient energy use is also encouraged.
I. International Level (cont)
28
-
7/29/2019 Mr. Yium Tavarolit - IRCo
29/37
Reducing Policy Conflicts betweenFood and Fuel (cont)
Jean-Christophe Bureau, professor of
economics at Agro ParisTech warnsspeculators that they have to be aware
of rising oil prices that are inducing
producers to arbitrate in favor of bio-
diesel.
I. International Level (cont)
29
-
7/29/2019 Mr. Yium Tavarolit - IRCo
30/37
Reducing Policy Conflicts betweenFood and Fuel (cont)
Furthermore, Matthew Beckwith points
out that the potential of GMOtechnology could hold the key to unlock
future development and will probably
lead to a better decoupling of food and
bio-fuel production.
I. International Level (cont)
30
-
7/29/2019 Mr. Yium Tavarolit - IRCo
31/37
National Trade Policy
To get rid of market distortions, countries haveto develop national regulatory and fiscal
policies to be legitimate and broadly owned by
relevant stakeholders, particularly thosepolicies that aim to restore trust in markets and
to avoid panic-driven behavior. The goal of the
policies is not to eliminate agricultural pricevolatility, but rather to reduce uncertainty, and
perhaps also the amplitude of variations by
smoothing out the extremes.
II. National Level
31
-
7/29/2019 Mr. Yium Tavarolit - IRCo
32/37
National Buffer Stocks
To smooth out seasonal fluctuations and
time lags in trade, stockholding is a
necessary component of a well functioning
market. Year on year variations in domestic
production can be more effectively and
much less expensively buffered by
adjustments in the quantities imported or
exported.
II. National Level (cont)
32
-
7/29/2019 Mr. Yium Tavarolit - IRCo
33/37
Cooperation between Producing and
Consuming Countries
Cooperation between producing and
consuming countries to manage supplyand demand for agricultural commodities
is necessary. Proper planed investment in
increasing agricultural productivity is inurgency to sufficient and nutritious food.
II. National Level (cont)
33
-
7/29/2019 Mr. Yium Tavarolit - IRCo
34/37
Set up Intelligence Unit (IU)Set up Intelligence Unit: the roles of IU
is to forecast prices in the medium &
long terms, design and maintain adynamic price band system, and
triggering interventions
II. National Level (cont)
34
-
7/29/2019 Mr. Yium Tavarolit - IRCo
35/37
To eliminate speculation which is aroot cause of price volatility, we have
to create an environment more
favorable to the elimination of
market imbalances and the roots
from which they grow
Conclusion
35
-
7/29/2019 Mr. Yium Tavarolit - IRCo
36/37
References
36
1. FAO, IFAD, IMF, OECD, UNCTAD, WFD, the World Bank, the WTO, IFPRI,and the UN HLTF, Price Volatility in Food and Agricultural Markets:Policy Responses, 2 June 2011.
2. Joachim von Braun & Maximo Torero, Implementing Physical and Virtual
Food Reserves to Protect the Poor and Prevent Market Failure, IFPRI
Policy Brief 10, February 2009.
3. Maximo Torero & Joachim von Braun(2009), Alternative Mechanism toReduce Food Price Volatility and Price Spikes. Available online:http://wwwagritrade.org/
4. Professor Bernard Munier, Commodity Price Volatility: Causes and
Impact on the EU Agricultural Markets. Available online:
http://www.momagri.org/5. Paris Tech Review, How to Fight Against Agricultural Price Volatility,
Available online: http://www.paristechreview, 22 March 2011.
6. SOAS Research Online, Reducing Food price Volatility for Food Security
and Development. Available online: http://eprints.soas.ac.uk/11098/
-
7/29/2019 Mr. Yium Tavarolit - IRCo
37/37
Thank You For YourAttention