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WHAT'S BEHIND SOARING COMMODITY PRICES
By Jose Graziano da Silva*
 SANTIAGO, Apr (IPS) The deterioration of terms of trade is
one of the historic factors behind underdevelopment, which should be
understood not as a stage of development but rather a specific and
distorted form in which peripheral economies are inserted into the
world capitalist system.
For the majority of these economies, colonial relations built around
the export of raw materials were the primary cause of this trait.
Now, in the 21st century, some of these countries have slightly
greater control over their economies thanks to the expansion of the
evolving industrial base. But these few exceptions only prove the
rule: internal patterns of wealth distribution dominate and this
expansion is limited for the most part to nuclei of mineral or
agricultural exports. Thus income is concentrated in productive
systems that remain subject to the ups and downs of global trade in
raw materials.
For instance, the economic trajectory of Latin America and the
Caribbean is marked by cycles that are both ephemeral and intense:
silver, gold, sugar, and coffee, to cite a few examples from the past,
and today soy, iron ore, and copper. Neither peripheral area has been
able to escape this cyclical trap, which demonstrates the persistence
of patterns of trade that transfer control over a country's development abroad.
The recurrent nature of the losses caused by this trade model was
first analysed in the 1950s at the dawn of the Economic Commission for
Latin America (CEPAL) by Raśl Prebisch of Argentina and later studied
by the Brazilian Celso Furtado, who explained in detail the structural
limitations generated by this model which have perpetuated economic
and political subordination throughout the history of the region.
In the last five years, the explosion of raw material prices began to
effect one of the factors that cause underdevelopment, but it was
insufficient to break the logic of the pattern identified by Furtado.
Since 2003, according to the Commodity Research Bureau (CRB), the
average price of 24 agricultural raw materials on world markets has
increased by 50 percent. However, widening the time frame to the
period from 1974 to 2004, The Economist magazine found an overall decline
of 75 percent in the price of these products. In other words, only a
part of this decline has been reversed since 2003.
It is also important to evaluate on a yearly basis the factors behind
this recent price increase in order to differentiate structural
elements from those related to speculation.
Between 2002 and 2004 there was a rise in the consumption of high-protein
foods, primarily meat and milk products, by the poor in developing
countries, including China, India, and Brazil. At almost exactly the
same time, the United States dramatically increased its consumption of
ethanol, which drove up the demand for wheat.
This period of growth in demand was followed by a phase in which there
was a scarcity of supply. Between 2004 and 2006 world cereal production
dropped significantly as a result of climatic factors, whether
droughts in China and Australia or hurricanes in Central America and
the Caribbean. This decreased the world cereal reserves at a time that
consumption was on the rise.
Then in 2007 speculation emerged as the factor responsible for the
sustained increase in prices: in a climate of economic uncertainty,
many investors sought shelter in commodity funds, agricultural and
non-agricultural.
There are thus two distinct elements driving the current price
increases: one is financial; the other is the hitherto unheard of
shift in demand: the expansion of consumption in poor countries. The
former is transitory, while the latter could result in a structural
change of the flux and intensity of the trade in foods and raw materials.
Though these dynamics are still underway, certain lessons can already
be drawn. The first regards the risks implicit in dependence on
exports of raw materials, as Prebisch and Furtado have warned for
decades. The second is the necessity of having a counterweight to
economic policy to broaden the range of producers that benefit from
cyclical increases in the demand for food. The strengthening of small
agricultural producers and farmer cooperatives, for example, would
widen the distribution of wealth in a way that would increase the
chances of sustainable growth.
A propos, it is worth remembering that hundreds of millions of poor in
the countries of the South live in rural areas. For them, the rise in
prices is an opportunity to escape poverty, as long as they are
guaranteed a market for their goods, in addition to traditional credit
and technical assistance policies. This can be accomplished, for
example, through government purchasing of their production to form
reserves and provide meals in schools.
The current crisis is a clear refutation of the neomalthusian thesis
that agroenergy is primarily responsible for increases in commodity
prices, which minimised the considerable speculative component,
recognised even by the U.S. government, which has proposed joint action
by the Commodity Futures Trading Commission (which oversees the
futures markets for these products) and the Security Exchange
Commission (which regulates financial markets). In contrast,
agroenergy emerges from the current financial crisis as a safe haven
of real consistency and strategic continuity. Even if global demand
for commodities declines in the short term, the challenge of remaking
the energy network for the 21st century has just begun. Agroenergy can
help sustain the expansion of poor countries and usher in a new
dynamic of trade independence by industrialising biofuel crop farming
and creating bridges between family agriculture and a peak sector of
the global economy that is here to stay. (END/COPYRIGHT IPS)
(*Jose Graziano da Silva is the regional representative for Latin
America and the Caribbean at the UN Food and Agricultural Organisation.)
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