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.
Robusta coffee producers in Cote d’Ivoire, for example, received 17.5 per cent of each consumer dollar spent on their product in 1980-88, but only 7.2 per cent in 1999-2003. For coffee growers in Indonesia, the decline was from 19.2 per cent to 7 per cent.
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 two billion people make their living 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 per cent between 1993-95 and 2003-05, cotton jumped 48.8 per cent, fresh and chilled vegetables by 69.7 per cent, and cut flowers by 72.9 per cent.
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.
Now is the time to act, because commodity 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 underway 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 limited access to market information, transport, and credit were left to fend for themselves against large, sophisticated international buyers. These farmers continue to compete with colleagues in developed countries who receive generous subsidies and whose home markets are protected by high tariffs.
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.”
*Ali Mchumo is managing director of the Common Fund for Commodities (CFC); John R. Kaputin is secretary general of the ACP Group of States,; Supachai Panitchpakdi is secretary general of UNCTAD; and Kemal Dervis is an administrator at the UNDP.
The East African
