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Tuesday, 18 December, 2001, 14:39 GMT
World Bank backs commodity hedging
Cocoa growing in Ghana
For many poorer countries commodities like cocoa are the primary export
The World Bank is on the verge of setting up a mechanism to cushion developing countries from wild price shifts in commodities markets.

A dependence on raw materials - metals, oil, rubber, cocoa, coffee and other agricultural products - is a characteristic of many poorer countries.

But prices of most commodities have slumped in recent years, and in any case the volatility of commodities markets has a huge effect both on developing economies and on the people that produce the materials.

Since 1999, the Bank has been trying to find a way of flattening out the markets' peaks and troughs.

And by February next year, according to the head of a task force working on the issue, it should have a hedging mechanism ready to go before the Bank's board.

"I personally hope to see something functional on the ground during 2002," said the task force head, Roy Leighton.

Same as corporations

The scheme Mr Leighton and the task force are developing is intended to allow both individuals and organisations within poor countries access to the same means of protecting against risk that richer countries and large corporations use.

The tool is hedging: the process of making deals which guarantee a price for a commodity at a future date.

By buying options - the right, although not the obligation, to sell a specific quantity of a good on a particular date at a preset price - the risk is lessened.

That way, Mr Leighton said, the risk becomes one of production rather than finance.

During trials - of copper, cocoa, rubber and crude oil in Uganda, Tanzania, Mongolia, Thailand, El Salvador and Mexico - financial institutions have been prepared to fund the premium needed by producers to take out the options, often through a local co-operative.

See also:

11 Dec 01 | Business
Insurance boost to African business
05 Dec 01 | Business
World Bank: more globalisation
18 Nov 01 | Business
World Bank faces 'great challenges'
03 Oct 01 | Business
Return of the gold bugs
02 Oct 01 | Business
US to act on cocoa slavery
24 Sep 01 | Business
Ivory Coast protects cocoa farmers
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