DEVELOPMENT: Poor Nations Lose Billions as Commodity Prices Fall

By Thalif Deen Reprint | | Print |

Thalif Deen

UNITED NATIONS, Oct 10 2002 (IPS) - A sharp drop in the prices of primary commodities is having ”a major impact” on Third World producer nations, especially African ones, says a new United Nations report.

The cyclical nature of commodities markets and rich nations’ subsidies to their farmers have worsened the impact, according to the 13-page study titled ‘World Commodity Trends and Prospects’.

The level of commodity prices in current U.S. dollars is now comparable to that of the early 1970s, it says.

Since 1997, the fall in prices in some commodities, including coffee, cotton and sugar, has been ”dramatic”, causing large economic losses and increased poverty in several developing countries.

The countries most affected are African ones that depend heavily on commodity exports for their revenues.

Burkina Faso and Mali depend on cotton, Ghana on cocoa and gold, Kenya and Malawi on tea, and Ivory Coast on cocoa and cotton.

The combined price index for all commodities has fallen by 17 percent in real terms and by 24 percent in current dollars since 1997.

Prices for tropical beverages, including tea and coffee, have plummeted 55 percent.

Those of other agricultural commodities fell about 30 percent while minerals and metals prices dropped about 18 percent.

Prices of some commodities – including cocoa, sugar, and rubber – decreased markedly from 1998 to 2000 but recovered in 2001-2002.

According to the International Coffee Organisation (ICA), there is also a widening gap between what producers earn and what consumers pay for the same product.

At the end of the 1980s, for example, coffee producing countries received about 10-12 billion dollars out of a 30 billion dollar retail market in the United States.

But today, while the value of retail coffee sales exceeds 70 billion dollars annually, producers receive only 5.5 billion dollars, ICA said.

The U.N. study said that about 70 percent of the world’s coffee supply is provided by smallholders who are directly affected by the price fall.

Coffee growing supports more than 40 percent of the rural labour force in countries such as Nicaragua.

According to calculations made by the British charity Oxfam, farmers in the Dominican Republic growing coffee on two hectares earn only 260 dollars per year from coffee production.

The collapse of the world price for coffee directly affects 125 million people. ”This is having catastrophic consequences in terms of increased poverty,” the report said.

The study said that recent price falls in primary commodities ”have had a major impact on developing countries”.

Many of these nations, including Ghana, Nicaragua, Ivory Coast and the Dominican Republic, ”are economically vulnerable and often have to face boom-and-bust situations”, the study said.

”They have to deal with the risk of falls in foreign exchange earnings from commodity exports – which influence their capacity to import – and they are affected by rapid increases in prices of imported commodities such as oil,” it added.

The study singles out Ghana, which mainly exports cocoa and gold and imports oil.

Between 1998 and 2000, prices of cocoa and gold fell by 47 percent and 5.0 percent respectively, while oil prices increased by 116 percent.

The situation reversed itself in 2001-2002 with an estimated increase of 76 percent in cocoa prices and a fall of 15 percent in oil prices. ”Managing such cycles is a major macro-economic task," the study said.

The Geneva-based U.N. Conference on Trade and Development (UNCTAD) says that if the average prices of coffee, sugar and cotton had remained at their 1998 levels, producer nations would have earned in following years 19 billion dollars, 1.4 billion dollars and 1.0 billion dollars more than they actually did.

The report says several factors account for the recession in commodity markets: oversupply; the decline in the U.S. dollar, and the contraction in demand caused by the slowdown in the global economy.

The report also singles out an area that ”requires urgent attention” – agricultural subsidies to farmers in industrialised countries.

In June, U.S. President George W. Bush signed a new 180-billion-dollar farm bill that provides subsidies to American farmers who are flooding the world market with inexpensive corn, wheat, rice and soya beans.

These products are now being sold in the world market at half of what it costs to produce, leading to artificially low prices.

The U.S. sugar industry is also heavily subsidised, with about half of producers’ revenues coming from government support, according to ‘Global Economic Prospects’, published by the World Bank early this year.

On average, U.S. sugar producers have received 2.6 times the world market price for sugar since the mid-1980s.

The 15-member European Union is also lavish in its subsidies to its farmers, who glut the world market with sugar and coffee, forcing prices down.

”The oversupply leading to the dramatic price falls has to be eliminated," the U.N. report said.

The international community also has to take measures to improve the access of developing countries’ agricultural exports to developed-country markets.

DEVELOPMENT: Poor Nations Lose Billions as Commodity Prices Fall

By Thalif Deen Reprint | | Print |

Thalif Deen

UNITED NATIONS, Oct 10 2002 (IPS) - A sharp drop in the prices of primary commodities is having “a major impact” on Third World producer nations, especially African ones, says a new United Nations report.
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