High Time to Look Seriously at Commodities…Again
Geneva, 27 April 2007 - In an effort to take commodities from a long period of virtual oblivion to the centre of poverty reduction strategies, a "Global Initiative on Commodities" is being taken that will bring together governments, NGOs and private sector representatives at a conference in Brasilia from 7 to 11 May.
The initiative is spearheaded by the Common Fund for Commodities (CFC), the United Nations Conference on Trade and Development (UNCTAD), the United Nations Development Programme (UNDP) and the African, Caribbean and Pacific Group of States (ACP Group).
Out of 144 developing countries 86 depend on commodities for more than half of their export earnings. Half of the total export income of 38 countries derives from a single commodity, while another 48 countries depend on only two commodities.
New opportunities - but also new challenges - opened up for developing countries with the rapidly increasing demand witnessed in recent years for oil, other minerals and agricultural products. This phenomenon stems in large part from the growing needs of the most dynamic developing economies, notably China, India and Brazil that have seen the emergence of a new geography of international trade. While this has helped pull some of the commodity-dependent countries in Africa and elsewhere out of economic stagnation, the gains are unequal and do not automatically translate into poverty reduction.
The challenge is both to sustain the momentum of growth and to improve the conditions facing commodities producers - particularly in agriculture.
Hosted by the Brazilian Ministry of Agriculture, Livestock and Food Supply, the Global Initiative on Commodities will discuss and identify measures and steps at national and international levels to help commodity-dependent countries reduce poverty and hunger by shedding new light on the problems developing countries face, using commodities as a tool to reduce poverty. The conference will seek to identify a global strategy centered on raising the profile of commodities at key forums - whether UN, regional or other major events - as well as on seeking to maximize gains in commodity-dependent countries.
More than two billion people in the developing world, over a third of humanity, make their living from agricultural commodities. Trade volumes of products that LDCs (Least Developed Countries) and other commodity-dependent developing countries are able to export are booming: chicken (up 97.8% in 2003-05 compared to 1993-95), cocoa (+44.3%), coffee (+16.9%), tea (+54%), rice (+67.5%), corn/maize (+25.6%), sugar (+38.8%), cotton (+48.8%), natural rubber (+45.2%), bananas (+39.7%), fresh and chilled vegetables (+69.7%), and cut flowers (+72.9%).
The huge demand for raw materials has sharply raised the prices of such basic agricultural products as coffee, tea, cocoa, sugar and cotton in supermarkets and elsewhere.
Profits from increased exports ought logically to help the 50 LDCs and other developing countries to lift themselves out of poverty, but somehow the profits too often end up elsewhere. Most of it accumulates at the higher end of the market where the food and textiles are processed in appealing ways, attractively packaged, branded and advertised. The share paid to smallholder farmers who labor hard to produce these products has in many cases sharply fallen.
Farmers generally receive only 4 to 10 percent of the end prices paid for their products. For example, Robusta coffee producers in Cote d´Ivoire received 17.5% of each consumer dollar spent on their product in 1980-1988, but only 7.2% in 1999-2003. For coffee growers in Indonesia the decline was from 19.2% to 7%.
Farmers in developing countries do not have much say in this development. In fact they have to compete with farmers in industrialized nations who receive substantial subsidies from their governments and whose domestic markets are protected against imported commodities by high tariff walls.
In order to achieve higher economic growth and poverty reduction, several issues stand in the way of commodity-dependent countries. Supply-side issues, including inadequate infrastructure, low productivity, untapped economies of scale and lack of support services account for one type of barrier for farmers to reap the benefits of the current high commodity prices.
Another factor limiting the poverty reduction effects of the flourishing commodities market is the steady decrease in agricultural finance over the past 20 years. This leaves the potential of these markets in developing countries largely untapped. Access to efficient and innovative financing is essential to achieve such potential.
During the conference, sessions will examine the current commodity situation and outlook, address supply-side and value-chain issues, and debate financing methods for commodity development and diversification.
The stalemate of the Doha Round of World Trade Organization negotiations demonstrates the importance of revitalizing interest in commodities. Developing nations have called for the elimination of market distorting subsidies and the reduction of stringent market access conditions, which undermine the competitiveness of developing country producers of commodities such as cotton, maize and sugar.
The lack of serious discussion and debate about commodities in the 1980s and 1990s led President Jacques Chirac of France to speak of a "conspiracy of silence," especially on the necessary actions to be undertaken. This was in sharp contrast to the prominent attention given in the 1960s and 1970s to commodity issues by universities, governments and international organizations. Commodities ranked high on the development agenda in those years.
However, there have been signs of a revival of interest in commodities in the last few years. For instance, in 2004 the European Commission launched an Action Plan on Commodities which focused on the commodity dependence of ACP countries.
Bringing the issue to the table, however, is not enough. Debate and policy changes must also incorporate a mechanism for reducing poverty.
Some newly industrialized countries that have become the most dynamic importers as well as exporters of commodities need to be more fully integrated into core poverty reduction strategies and initiatives at national and global levels.
Indeed, from a human development point of view, especially with regard to achievement of the Millennium Development Goals, it is clear that if poverty - largely linked to subsistence production and commodity dependency - is to be tackled effectively, commodity-related issues deserve to be put high on the international agenda.
Now is the time to act on commodities while the situation is favorable and we are reaching the mid-point to the Millennium Development Goals deadline of 2015 by which poverty should be halved according to the commitment made at the UN in 2000 by virtually all governments. That is what makes the event in Brazil so important.
The meeting objectives are clear:
First, raise the profile, awareness and understanding of commodity issues by influencing the global community, including governments, international organizations, civil society, ordinary citizens and the private sector. Along with both exporting and importing countries, each of these groups will attend the conference. Governments will be represented by ministers or high officials.
Second, re-launch the commodities agenda from a poverty reduction and development perspective, taking into account technological changes and recent developments in commodity markets, including the changing geography of international trade.
Third, identify a global strategy for commodities and a coherent approach to capacity building.
The common problems of all commodities (with the exception of oil) will be covered, namely agriculture, extractive industries, fisheries and forestry.
During the five-day conference, the Brazilian Agricultural Research Corporation (EMBRAPA) will organize side events, which will include showcasing the Brazilian experience of commodity sector development.
While the conference is not a decision-making forum, it is expected to generate strong momentum that will put commodities back where they belong, i.e., high up on the global poverty reduction and development agenda.
Clearly, the stakes are high. If developing country farmers continue to be disadvantaged and exploited, a different dynamic may emerge. As some of them have warned, "if you don´t take our exports, we may export ourselves to your countries."