By Ali Mchumo
ROME, May 30 2008 (IPS)

Biofuels are being criticised for contributing to the rise in commodity prices, but their energy potential can be developed too, on condition "that the poor are part of the production chain."

Ali Mchumo Credit: Charles Jama/CFC

CFC is an intergovernmental financial institution based in Amsterdam in The Netherlands. Its members include the European Community, the African Union, the East African Community and the Common Market for Eastern and Southern Africa, the Caribbean Community, the Andean Community, and the Southern Africa Development Community. Its mandate is to support commodities production and trade, particularly in developing countries that are commodity dependent.

The UN Food and Agriculture Organisation (FAO) says high food prices have hit vulnerable populations in many countries that spend a substantial part of their income on food. Its latest food outlook indicates that the food import bill of the Low Income Food Deficit Countries is expected to reach 169 billion dollars in 2008, 40 percent more than in 2007. The report says that by the end of 2008 the annual food import basket of most vulnerable countries could cost four times as much as in 2000.

IPS: Many experts have voiced concern about biofuels' contribution to rising food prices, arguing that these respond to rich countries' energy demand rather than to feed people in the South.

Ali Mchumo: Rising food prices are primarily a symptom of insufficient production capacity to meet the demand. On the supply side, this is mainly due to limited investments in agriculture in developing, and especially African countries; and on the demand side, the phenomenal increase in demand by the huge markets such as China, whose consumption patterns have greatly increased.

Of course, the new market for biofuels is stimulating global demand for agricultural products, but the current and future effect on food prices depends principally on feedstocks used in emerging biofuels technologies.

The biofuels sector is still undergoing rapid development, and most of the effects we see at the moment are likely to recede in the longer term. Furthermore, rising oil prices not only spill into rising prices for food products; they also stimulate more research and development for alternative, non-edible feedstocks, where the biofuels sector could face less stringent resistance.

As a matter of policy, one should be vigilant about fundamental trends in the biofuels sector having any persistent negative factors affecting food markets.

IPS: Commodity dependent developing countries constitute the majority of the Common Fund's membership. What threats does bioenergy pose to these countries?

AM: We find that for commodity dependent developing countries (CDDCs) it is better to view the biofuels-energy issue not as a threat but as the emergence of new opportunities and challenges.

The Common Fund believes that balancing the opportunities and challenges in the context of national interests is the essential element in any sound policy response to the rising importance of biofuels and bioenergy.

The balance considerations may include diversification, environmental sustainability, rural development, food security, better utilisation of marginal lands for increased commodity production, and reduced dependence on fossil fuels.

IPS: The Common Fund has recently released a study analysing biofuels policies and strategies that should be adopted to diversify the agri-sector. What is the main outcome of this study?

AM: The key point of agreement in the report was that the fundamental goal of biofuels development, in the context of commodity dependent developing countries, was to promote the link between poverty reduction and the development of the biofuels sector.

Secondly, the report cites the following factors: flexibility, country specificity, and pro-poor orientation in the development of national biofuels policies.

More significantly, the study contains a Decision Tree identifying the core policy goals and substantive factors to be considered in formulating a broader national development strategy for biofuels development. The Decision Tree identified four broad goals for biofuels development policy, namely energy security, rural development, export development and climate change mitigation.

IPS: What factors should policymakers consider to make these policies viable?

AM: They should give due consideration to critical factors such as feedstock choice, food security, the environment, social acceptability, economic effectiveness and market competitiveness.

IPS: What policies could protect the poor from the pressures created by the growth of the biofuels markets?

AM: The policy measures are laid out in the study's Decision Tree for strategic national choices on biofuels development. The graphic representation covers all the major areas, and is a kind of road map for national policymakers. Essentially, what we have here is a cost-benefit analysis, mapped out across the lifecycle of biofuels.

Obviously, we expect each country to take into account all factors when formulating or implementing policy that are unique to each given member country.

IPS: Large-scale investment in biofuels is primarily the prerogative of the private sector. How can we limit the risk that big corporations take advantage of the food crisis at the expense of poor countries, as experts say is happening with rice?

AM: What is happening with the food crisis may be evidence that there is a breakdown in the global agricultural market. To address the problem will require a review of current support measures that curtail the economic competitiveness of developing countries in the open market.

In the case of rice, which reportedly has risen in price by 85 percent, there are indications that many producing countries are restricting exports, and thus contributing directly to the uncertainty and chaos over food shortages in many food-importing countries.

IPS: What is the long-term solution beyond emergency food aid?

AM: The surge in food prices has created rising uncertainties about global food security and food accessibility.

Climate change, environmental degradation, high transaction costs arising from spiralling energy costs, high input expenses, and diversion of grains to the biofuels sector are some of the important factors responsible for this adverse and alarming development.

Our position is that the major long-term underlying factor has been a combination of neglect of investment in agriculture, as well as a consequence of the impact of subsidies and domestic support measures, which have been disincentives for food production in developing countries. No one can argue any more that these measures have any redeeming social or economic value.

We deem it regrettable that in the past developing countries had been advised to leave agriculture to the exigencies of the market, which resulted in neglecting investment in agriculture.

IPS: Have you undertaken any action to address this situation?

AM: We've attempted to redress this situation by focusing public attention on this issue. The Common Fund and three leading international partner organisations launched the Global Initiative on Commodities (GIC) at a major conference held in Brasilia last year. Among the main policy issues deliberated on at the meeting were trade-related infrastructure, lack of finance for investment, and diversification.

As the UN Secretary General Ban Ki-Moon said recently, unless there is forthright action on a 'global commodity agenda for development', we may not be able to endure the precarious nature of protracted food supply deficits if current trends are not reversed.

Promoting sustainable agricultural production and productivity, particularly the productivity of food staples, is the central element in economic growth that determines the price of food, wage costs, and competitiveness of all major commodity sectors.

Obviously, to achieve higher agricultural productivity in developing countries requires among other things, more financial investment in agriculture, nationally and internationally, including enhancing the financial capacity of commodity related organisations.

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By Ali Mchumo and - -
AMSTERDAM, Apr 12 2008 (IPS)

Since 2001, the prices of many commodities and other natural resources have soared, providing commodity-dependent developing countries with an opportunity to use the increased revenues to combat poverty and make real economic and social gains, writes Ambassador Ali Mchumo, Managing Director of the Common Fund for Commodities (CFC). However, the author writes in this article, for this to happen adequate policy measures need to be implemented and the international community needs to take swift action to address the challenges that commodity-dependent countries face in the intensely protectionist global environment. Also, adequate financing for small stakeholder farmers remains one of the major development obstacles. When rural financing is available, it tends to be provided to large borrowers, excluding the majority of small producers from the formal credit system. The micro-finance revolution should be expanded to reach rural communities where the need is greatest. If the international community is to meet the agreed international development commitments, including those contained in the Millennium Development Goals, it needs to reverse the current trend in Official Development Assistance (ODA) and allocate more resources to agriculture investments and commodity development.

According to current projections, several least developed countries (LDCs), the majority of which are commodity dependent, are unlikely to meet this goal. It is impossible to eliminate poverty, achieve sustainable development, and achieve the MDGs without improving the conditions and prospects of global commodity producers. Two and a half billion people in the world make their living through the production and trade of commodities, including agricultural goods, forestry products, and minerals.

Since 2001, the prices of many commodities and other natural resources have soared partly as a result of increased demand in emerging economies, mainly China and India. This provides an opportunity for commodity-dependent developing countries, which could use the increased revenues to combat poverty and make real economic and social gains. But for this to happen, adequate policy measures need to be implemented and the international community needs to take swift action to address the challenges that commodity-dependent countries face in the intensely protectionist global environment.

The Common Fund for Commodities (CFC) is an inter-governmental financial institution established within the framework of the United Nations in 1989. The Fund focuses on commodity development measures using market-based approaches and on assisting developing countries to strengthen and diversify the commodity sector as a way of contributing to the economic growth and development of society as a whole.

It is important to note that the backdrop of the CFC’s commodity policy work is advocating for the 70 percent of the world’s poor who live in rural areas and depend directly or indirectly on commodity production for income. Many developing countries, particularly in Africa, depend on commodities for more than half of their merchandise export earnings.

In 2007, the CFC realised that to change the prevailing situation within the international commodity sector, and to be able to advocate more effectively, action at the highest level was needed. The Fund, together with other international organisations, convened an international meeting last May in Brasilia to launch the Global Initiative on Commodities (GIC).

The GIC process has been proceeding well and figured prominently at the recent UNCTAD XII meeting in Accra, Ghana. It is expected that the GIC will be pursued further at other international fora, such as the UN General Assembly, high-level review processes for development financing, and civil society consultations.

The CFC is presently pursuing and financing major initiatives and projects in Africa, Asia, Latin America, and the Caribbean Basin that focus primarily on several key areas in commodity development to improve structural conditions in markets and enhance the long-term competitiveness and prospects for specific commodities. Many of these actions also include applied research and development, productivity and quality improvements, transfer of technology, diversification and processing, and improvements in marketing and accessibility to regional and global markets.

Adequate financing for small stakeholder farmers, who work in rural areas, remains one of the major development obstacles for international financial organisations such as the CFC. Farmers need to have access to finance to make investments to meet challenges such as more stringent market requirements, adaptation to new technologies, and stiffer domestic and international competition. When rural financing is available, it tends to be provided to large borrowers, excluding the majority of small producers from the formal credit system. In this regard, the micro-finance revolution should be expanded to reach rural communities where the need is greatest.

If the international community is to meet the agreed international development commitments, including those contained in the MDGs, it would need to reverse the current trend in Official Development Assistance (ODA) and allocate more resources to agriculture investments and commodity development, as outlined by the recent World Development Report 2008.

There is legitimate concern that the momentum could slip away unless sustained efforts are made to honour pledges made at the G8 Summit in July 2005. In this regard, the importance of commodities to development was reinforced at the 2007 G8 Summit in Heiligendamm. This is the right time for the international donor community to seize the opportunity and increase assistance to commodity-dependent developing countries, so that they have the capacity and conditions to benefit from the upswing in commodity prices and set a course for growth, sustainable development, and fulfilment of the MDGs. (END/COPYRIGHT IPS)

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By Ali Mchumo and - -
AMSTERDAM, Sep 4 2007 (IPS)

(By Ali Mchumo, John R. Kaputin, Supachai Panitchpakdi, and Kemal Dervis) – It\’s the kind of unfair situation that makes poorer nations wonder where the payoff 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, writes Ali Mchumo, Managing Director of the Common Fund for Commodities; John R. Kaputin, Secretary General of the ACP Group of States, Brussels ; Supachai Panitchpakdi, Secretary General of UNCTAD, Geneva ; and Kemal Dervis, Administrator at the UNDP. In this article the authors ask, where is the profit accumulating and why isn\’t globalisation \”working\” in this case to reduce poverty in poor or developing nations? Such countries are often lectured. The complexities of the \”value chain\” between crop and supermarket shelf do not work to the advantage of low-income, smallholder farmers. The process may be global, but it\’s not fair. 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 accumulates. 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 \”off\” 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.\”

Robusta coffee producers in Cote d’Ivoire, for example, received 17.5 percent of each consumer dollar spent on their product in 1980-88, 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 globalisation “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, globalisation 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 juggernaut 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 1993-95 and 2003-05, cotton jumped 48.8 percent, fresh and chilled vegetables by 69.7 percent, and cut flowers by 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 crop and supermarket shelf do not work to the advantage of low-income, smallholder farmers. The process may be global, but it’s not fair. 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 accumulates. That division of rewards goes on behind the scenes, while on the international stage agricultural commodities haven’t received much attention lately.

To change that, and to try to give developing nations a better return on what they do best, an international meeting was held in Brasilia in May this year titled: Global Initiative on Commodities: Building on Shared Interests. The lead sponsor of the conference was the Common Fund for Commodities, along with three partner organisations: 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. (The Brasilia Conference Outcome Document prepared at the conclusion of the conference is now available at www.common-fund.org.)

Now is the time to act, because commodities booms don’t last for ever. The business is notoriously cyclical, and the best time to jump-start poverty reduction is before the next crash comes. This grace period may continue 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 the globalisation game. 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 organising transport and marketing for thousands of small farmers. They did stop, but private substitutes for these services did not appear and thousands of little guys 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.

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 if the facilities could be built and the expertise acquired, the higher-end processes — grinding, grading, standardising, packaging — might happen in-country instead of far away.

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 “off” 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.” (END/COPYRIGHT IPS)

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