´Boom-bust´ cycle termed bad for development; steps also urged to improve productivity, increase participation in all stages of the value chain, and diversify developing-country economies
One-day session on coffee notes that stable markets and remunerative prices can reduce poverty, spur broader economic growth
Geneva, 9 April 2009 -- Promoting stability in a system prone to cycles was the recurring message of two UNCTAD meetings on the challenges and opportunities trade in commodities -- basic agricultural products, petroleum, and industrial raw materials -- presents for many developing countries.
Large swings in prices -- the boom-and-bust pattern that has long characterized commodities markets -- destabilize the economies of vulnerable nations, participants said at a Multi-Year Expert Meeting on Commodities and Development, held from 6-7 April, and at an 8 April Multi-Stakeholder Consultation on Coffee.
Between 2002 and 2008, a boom phase in the trade of commodities -- the longest in the sector since the 1920s -- had significantly helped developing-country growth, although increasingly high prices for imports of such basics as food and petroleum were causing problems for a number of developing countries as the cycle neared its peak.
But then prices rapidly declined as the global financial crisis set in. Experts noted that current prices in general remain at 30-50% above their pre-boom levels, but added that further declines may occur as global recession continues and overseas demand for farm goods and industrial raw materials possibly weakens further.
Speakers said funding pledges made at last week´s summit of the G-20 major economies of more than US$1 trillion to assist the economies of developing and transition countries could help in part to offset the economic shock due to the sudden loss of commodity export earnings.
Mechanisms to stabilize commodity prices should be adopted, experts recommended, although there was no consensus on returning to the price-stabilization mechanisms of the commodity agreements of the past, for political and technical reasons. Such stability enables governments, businesses, and farmers to plan, rather than react, to global trends. And it can provide a foundation for two steps repeatedly termed vital for reducing poverty and promoting economic progress: countries can begin to process and otherwise provide "value added" to commodities, such as by processing, packaging, and marketing food, or by refining metal ores; and they can use profits from commodity exports to diversify their economies so that other products can be offered to world markets. That makes nations less vulnerable to dips and swings in the commodities sector.
Opening the 7-8 April meeting, UNCTAD Secretary-General Supachai Panitchpakdi said "This most recent price decline stands out for its sharpness and for the number of commodity groups affected." The fall-off "threatens to jeopardize the development agendas of many exporting developing countries that are normally dependent on one or two primary commodities for income," he added, and noted that measures are needed "to cope with the adverse effects of the ´bust´ phases in commodity cycles, such as we are now experiencing." The Secretary-General summarized the seriousness of the situation by pointing out that 70% of the world´s poor live in rural areas and depend on agriculture as a major source of revenue. Some 2 billion people worldwide are employed in the agricultural commodities sector, he said.
He and others noted that the recent upswing and decline in prices appears to have been driven in part by financial speculation -- by outside investors using commodities as an "asset class" -- and that this "financialization" of commodities markets should be regulated to prevent high volatility and destabilization of these markets.
Addressing the coffee meeting on 8 April, Mr. Supachai said "the world coffee economy must strive to attain sustainability in its economic, social, and environmental dimensions. International cooperation, under the aegis of the ICO (International Coffee Organization) is a key instrument for achieving this ambitious goal."
Nestor Osorio, ICO Executive Director, told the meeting that coffee prices had recovered considerably from a recent down cycle, but then fell again by almost 20% from August 2008 through the beginning of 2009. A recent shift towards higher quality of product and more astute marketing has helped protect the sector, he said -- and that is vital, as coffee is a major source of livelihood in rural areas, especially as its labour-intensive nature creates numerous jobs. If periodic price swings could be reduced, and stable returns at reasonable profit ensured for longer periods, he said, developing nations could diversify their economies using coffee as a foundation, as Brazil did in the 1950s and ´60s. Mr. Osorio said some 20 million families in Africa, Asia, and Latin America depend on the coffee economy and that despite the global financial crisis, demand for the product had so far proved fairly stable.
