Boom or bust. How commodity price volatility impedes poverty reduction, and what to do about it.

About two billion people, mostly in developing countries, depend on the production of primary commodities. Uncertainty induced by highly volatile prices complicates financial planning and environmental management for commodity-dependent countries and producers. Falling relative prices over the long term also contribute to their precarious position. <br /><br />Predictable incomes are critical to escape commodity dependence. However, it is important to keep in mind that: <br /> no single policy will be sufficient interventions can create moral hazards and market distortions supply-side constraints are enduring obstacles<br />Working policy options are: <br /> supply management revenue management&nbsp; market-based risk management&nbsp; compensatory finance&nbsp; alternative trade incentives such as alternative trade networks and eco-label certification programmes<br />However, except for alternative trade incentives, whose stabilising effect only holds for small niches of products, those policies fail to address social and environmental risk and distort price levels. To ensure more coherent and successful policy responses, the following guidelines should be followed:<br /> look for complementary policies engage stakeholders at all levels do not underestimate the importance of the private sector keep it as simple as possible address potential moral hazard by integrating income stabilisation into a wider rural development or diversification programme build flexibility into programmes ensure that the reach of the implementing agencies matches the scope of a policy&rsquo;s goals