If you will not pay us reasonable prices for our exports, we will export ourselves
It s the kind of “it s-not-fair situation that makes poorer nations wonder where the pay-off is with free trade:
Demand for coffee, tea, cocoa, cotton, and sugar – which is what many such countries have to offer the world – has risen. Prices paid in the supermarket have risen. Yet the share paid to the farmers who grow these basic agricultural commodities has fallen. Robusta coffee producers in Cote d Ivoire, for example, received 17.5 percent of each consumer dollar spent on their product in 1980-8, but only 7.2 percent in 1999-2003. For coffee growers in Indonesia, the decline was from 19.2 percent to 7 percent.
Where is the profit accumulating and why isn t globalization working in this case to reduce poverty in poor or developing nations? Such countries are often lectured on the importance of open markets. But the process isn t delivering as advertised. For small rural farmers in developing nations, globalization isn t raising all boats.
Commodities – and not just the black, sticky, liquid variety – are extremely important for economies in Africa, Asia, Latin America, and the Caribbean. More than 2 billion people make their livings from agricultural commodities. That dependence is especially pronounced in the world s 50 Least Developed Countries, or LDCs. Global economic growth has largely left these nations behind, and it is clear that they need to expand the range of products they can offer the world. But they also have to start somewhere.
Recently, as China has grown into an economic superpower and other emerging economies such as India, Brazil, and Russia have made impressive progress, demand has jumped for what farmers in developing countries are able to export, and their production has climbed to match: trade volume of rice was up 67.5 percent between 1993-5 and 2003-5, cotton +48.8 percent, fresh and chilled vegetables +69.7 percent, and cut flowers +72.9 percent.
Profits from these exports might help LDCs and other developing nations lift their citizens out of poverty and diversify their economies, but most of the profits seem to end up elsewhere. The complexities of the value chain between production and the supermarket shelf do not work to the advantage of low-income, smallholder farmers. The process may be global, but the benefits do not reach the poorest. The higher end, where food and natural textiles are differentiated – processed in ways that appeal, packaged attractively, branded, and advertised – is where most of the money concentrates.
To change the prevailing situation, and to try to give developing nations a better return on what they do best, an international meeting was held in Brasilia from May 7-11 2007 titled Global Initiative on Commodities: Building on Shared Interests. Sponsors include the Common Fund for Commodities, the Africa, Caribbean and Pacific Group of States (ACP), the United Nations Conference on Trade and Development (UNCTAD), the United Nations Development Programme (UNDP), and the Government of Brazil.
Now is the time to act, because commodity booms do not last forever. The business is notoriously cyclical, and the best time to jump-start poverty reduction is before the next crash comes. This grace period may prevail for another five to 10 years. No one knows. But economic diversification – even if it is only within the agricultural sector – should be accomplished while it is under way for the same reason that a table that stands on four legs is less vulnerable to shocks than a table that stands on two or three. Some 85 developing countries now depend on commodities for more than half their export earnings. For 70 of them, more than half of their exports consist of three or fewer commodities.
Part of the current problem is that developing countries are still learning how best to benefit from globalization. During the 1990s, when the international financial mantra was that governments should keep their hands off and let the free market work, many developing-country governments were told to stop negotiating prices and organizing transport and marketing for thousands of small farmers. A number of them, especially in Africa and Latin America did stop, but private substitutes for these services did not appear and thousands of small producers with very limited access to market information, transport, and credit were left to fend for themselves against very large, very sophisticated international buyers such as supermarket chains. And these farmers continue to compete with colleagues in developed countries who receive generous subsidies and whose home markets are protected by high tariffs.
Investment – by governments chronically short of cash and by international donors focused on priorities other than farming – has been lacking for roads and ports that can bring crops reliably to market. If delivery is uncertain and slow, major international customers are less interested and pay less.
Both public and private investment is vital: Warehouses for groups of rural farmers, for example, can make a huge difference. If prices are low, they can store their coffee or cocoa, and sell it when prices go up. Too often now they must sell when they harvest. And the higher-end stuff – grinding, grading, standardizing, packaging – might happen in-country instead of far away, if the facilities could be built and the expertise acquired.
The original industrial revolution was fuelled by surplus income from farming. The poorer regions of today s world deserve the same chance Western Europe and the United States had a century and a half ago.
Something is wrong about the prevailing situation. It must be fixed. Otherwise the looming scenario offered by a Zambian farmer-trade unionist may become a reality: If you will not pay us reasonable prices for our exports, we will export ourselves.
Kemal Dervis, is the Administrator of UNDP. Sir John R. Kaputin, is the Secretary-General of the African, Caribbean and Pacific Group of States (ACP Group)Ambassador Ali Mchumo, is Managing Director of the CFC Supachai Panitchpakdi, is Secretary General of UNCTAD.
