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Africa: Commodity Dependence
AfricaFocus Bulletin
May 11, 2008 (080511)
(Reposted from sources cited below)
Editor's Note
"We are living in a confusing time in the history of commodity
markets. Commodity prices are currently high. Yet producers in
Africa and other parts of the developing world do not seem to be
benefiting from these high prices. ... The rich industrialised
North has set the rules of the game, but instead of holding its
producers accountable to those rules, it is distorting markets in
their favour. Meanwhile, African producers whose governments have
accepted to play by the rules are losing out.- - Dede Amanor-Wilks,
ActionAid International
The issue of commodities and development, notes Amanor-Wilks, is
far more complicated than just the price levels. And it is further
complicated by the new phenomenon of competition for use of
agricultural products for fuel. The bottom-line for commoditydependent
countries, including many in Africa, is the lack of
control and predictability, as prices fluctuate and commodity
markets are increasingly monopolized by large-scale companies.
Without some kind of check on markets and large producers, she
notes, the chances for breaking reliance on commodities and
entering higher-value sectors of production are very low.
This AfricaFocus Bulletin contains excerpts from a statement at a
side-session of the Accra meeting of the United Nations Conference
on Trade and Development (UNCTAD). The full report on which this is
based is a joint publication by Action Aid and the South Centre,
available at
http://www.southcentre.org/publications/CommodityReport/AA_SC_Commodity_Report.pdf
Another AfricaFocus Bulletin sent out today contains a statement by
Yash Tandon, director of the South Centre, also presented at the
meeting in Accra.
For previous AfricaFocus Bulletins on related issues, see
http://www.africafocus.org/tradexp.php and
http://www.africafocus.org/agexp.php
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
>@@@@@@@@@@@Editor's Picks: Crisis Updates/Background@@@@@@@
Sudan Justice and Equality Movement / Darfur Background
Sudanese Government Bombs Villages in Darfur
UN Integrated Regional Information Networks, May 6, 2008
http://www.irinnews.org/Report.aspx?Reportid=78072
Justice and Equality Movement website
http://www.sudanjem.com/en/index.php
Wikipedia Article on May 10, 2008 Attack
http://en.wikipedia.org/wiki/2008_invasion_of_Khartoum_and_Omdurman
Short, well-informed book by Julie Flint and Alex de Waal,
Darfur: A New History of a Long War
Zed Books, 2nd edition, 2008
At amazon.com http://tinyurl.com/45evg2
At amazon.co.uk http://tinyurl.com/4rwwub
Zimbabwe Updates
Morgan Tsvangirai Press Statement, May 10, 2008
http://www.sokwanele.com/thisiszimbabwe/archives/949
Hunger Drives Post-Election Violence
UN Integrated Regional Information Networks, May 9, 2008
http://allafrica.com/stories/200805091048.html
Zimbabwe Lawyers for Human Rights
Baseline Conditions for Runoff Election, May 4, 2008
http://www.kubatana.net/html/archive/hr/080504zlhr.asp
Charlie Cobb, Jr. Interview with Chenjerai Hove, May 7, 2008
http://allafrica.com/stories/200805070997.html
African Emergency Summit on Zimbabwe
Civil Society Groups meet in Dar es Salaam, April 21, 2008
http://www.osisa.org/node/11097
@@@@@@@@@@End Editor's Picks: Crisis Updates/Background@@@@@@@
South Bulletin: Reflections and Foresights
South Centre is an Intergovernmental Organization and Think Tank
of Developing Countries
1 May 2008, Issue 14
African Commodities: How Corporatization Squeezed Out Producers?
Excerpts from the statement made at the joint South Centre-Action
Aid side event at UNCTAD XII in Accra. 19 April 2008
By Dede Amanor-Wilks
[Dede Amanor-Wilks is the Director of ActionAid International for
West & Central Africa She can be contacted at:
dede.amanor-wilks@actionaid.org
The joint Action Aid-South Centre report can be downloaded from:
http://www.southcentre.org/publications/CommodityReport/AA_SC_Commodity_Report.pdf ]
We are living in a confusing time in the history of commodity
markets. Commodity prices are currently high. Yet producers in
Africa and other parts of the developing world do not seem to be
benefiting from these high prices. Instead, they are crying out
for protection.
It has been reported that in Asia, food prices rose by 70% during
2007. If the rise in food prices that we are now experiencing in
Africa is being driven by the quest of the industrialised North
for new sources of fuel, namely biofuels, then the implications
for food production are potentially terrifying.
To illustrate this point - currently, Ghana's total production of
oil palm is nowhere near sufficient to meet the demand of the
industrialised North for palm oil for the manufacture of bio
fuels. This means that if the prices being offered are raised to
attract palm products away from the Ghanaian market and towards
bio fuel producers in the North, there would be no palm oil left
for Ghanaian consumers. In a country like Ghana, where most
people prepare food with palm oil and other palm products almost
every day, that would be unthinkable. Yet if we do not act, this
is what is likely to happen.
The Three Features of Commodity Markets
The recently released joint Action Aid - South Centre report
"Commodity Dependence and Development: Suggestions to tackle the
commodities problem", at an UNCTAD XII pre-event in Accra
explains how dependence on a few primary products seals and
perpetuates poverty. It draws attention to three features of
commodity markets that will keep those that are dependent on
commodities poor forever. First is the unpredictability of
international prices. Second is the belief that over the long
term, prices of primary commodities go down (in relation to
prices of finished goods or goods to which value has been added);
and third, there is a tendency towards concentration of
production in just a few hands, internationally.
On the first point, the report says:
'Commodity price fluctuation is anathema to economic development
for commodity-exporting developing countries: it translates into
export earning fluctuations. These in turn lead to fluctuations
in domestic income, savings and in government revenues. As a
result there is an adverse effect on domestic investment in
productive as sets. Therefore....the report says.... 'Commodity
price volatilities lead to macroeconomic instability, which is
detrimental to economic development.'
This is the macroeconomic instability that we are seeing all over
Africa. One of the biggest sins of the neo-liberal paradigm - the
gravest errors of judgement in the so-called Washington Consensus
- was to advise African countries to do away with their state
marketing boards. Many Asian countries managed to avoid the
crisis currently facing African agriculturalists because they did
not fall into the debt and structural adjustment trap, and
because the state refused to withdraw from taking the lead in
development.
But in Africa, the IMF and World Bank told African producers to
get rid of state marketing boards and that agriculture would
flourish. The state is kleptocratic and parasitic; the state is a
vampire. So let us throw the state out of development and without
these parasitic marketing boards, we would all be better off. Yet
what we are seeing is that in countries where the marketing
boards have been privatised, producers are in trouble.
Historically, the marketing boards were established during the
colonial period, ironically, to protect African producers from
the price crash during the great depression of the 1930s. They
were further strengthened to protect African producers from the
effects of World War II. In the settler colonies, the marketing
boards were usually set up by settler farmers themselves.
In countries where these marketing boards have now been abolished
in the names of structural adjustment, liberalisation and fair
trade, we are seeing a worrying picture. Producers have been left
without state protection and are defenceless in international
markets, which favour the strong. Yet our producers are weak. No
wonder then that countries like Senegal, that liberalised their
groundnuts sector, are facing a crisis. It is the crisis of
overdependence on a narrow band of commodities.
The joint Action Aid - South Centre study is a cautionary tale
about the effects of trade liberalisation on sensitive African
commodities.
In relation to the Senegalese experience, during the 1960s,
groundnuts were seen as the engine of the Senegalese economy.
With structural adjustment in the late 1970s - Senegal was one of
the first countries in Africa to liberalise - groundnuts
production began to decline as the government's support to
farmers by way of inputs, fertilizer and technical support
started to decline. The final step of liberalisation came in 1996
when state marketing of groundnuts was privatised. Liberalisation
has seen a rise in prices, yet Senegalese farmers do not seem to
benefit from these rising prices as trade monopolies have become
a feature of the sector.
No wonder then that Senegal's President, Abdoulaye Wade has
emerged as a vocal champion of the Stop-EPAs campaign. Unlike
Ghana, Senegal has refused to sign the Economic Partnership
Agreement (EPA) despite tremendous pressure from the European
Union, to which in West Africa Ghana, Cote d'Ivoire and Cameroon
have succumbed.
Corporate Concentration: Profits over Producers
The worst aspect of the removal of state marketing boards is that
market power has been transferred to private hands. This resulted
in market concentration. The report draws attention to the
quickening pace of concentration in the hands of a few
processors, traders and retailers.
In 1994, 80% share of the global pesticides market was in the
hands of 12 companies. By 2002 just six companies controlled the
same share. By that time just two companies controlled 65% of the
world's maize seed market.
In relation to food manufacturing and processing, the report says
that two companies controlled close to 60% of the world market
for roasted and instant coffee in 2002. Currently, three
companies control 85% of the world's tea market.
In Africa, the effects of such corporate concentration are being
felt in different ways. Let us consider the case of a very
African example, coffee, which was first given to the world by
Ethiopia. Of 23 robusta producing countries, 17 are African. Yet
the large supplying countries are currently in Asia and Latin
America. During the 10-year period from 1995 to 2005, Africa's
share in global coffee exports fell from 14% to 7%. For LDCs as a
whole, the share fell from 9% to 5%. In the 1970s, exporting
countries retained a mere $5 for every $10 of coffee exported. By
2006, they retained just 20%.
Corporate concentration has changed the nature of commodity
markets. Corporates are unlike the state marketing boards, which
were the buyer of last resort (and this means that they had a
duty to buy grain or cocoa or coffee or groundnuts from the last
producer on the margin of the last region in a country). By
contrast, the companies that now rule the market in countries
where the state marketing boards have been abolished think only
about company profits and not the economic development of poor
producers.
There is a strong positive correlation between dependence on
primary agricultural commodities and poverty. What it means is
that as long as we are dependent on primary agricultural
commodities, we will always be poor.
There is no country in the world that grew rich on agriculture
alone. We in Africa cannot be an exception to this economic
truth. The industrialised North grew rich because of the
industrial revolution in Britain 200 years ago. This was quickly
imitated in all the countries of Western Europe. When we look at
the more recent experience of East Asia, South-East Asia and
South Asia, we can confirm that it is the added value through
manufacturing processes that separates the rich countries from
the poor.
So when agricultural commodity production is concentrated in a
few hands, it means that those who are already rich will get
richer, and those on the margins will be further squeezed out.
They will never have the opportunity to build up their cash
income, or to diversify their sources of income, or to add value
to their products.
This is not a major surprise. The tendency towards monopolies is
a fact of economic life that is well known to economists. That is
why in the industrialised countries you find institutions that
regulate the growth of monopolies. In developing countries on the
other hand, these institutions are not well developed. It is for
this reason that we need to have an institution like UNCTAD that
insists on having the market regulated on behalf of poor
producers and not rich producers.
Need to Defend Policy Space of UNCTAD
Commodities crisis is forcing the question of commodity pricing
back onto the international agenda. Let us recall briefly the
history of UNCTAD. The first Secretary General of UNCTAD was Raul
Prebisch, a renowned Argentinian economist. During the 1950s,
Prebisch belonged to the school of structural economists that
spawned the dependency theory. Dependency theory, which argues
that a small core of rich countries keep the bulk of peripheral
countries in a dependent relationship, was popular until the
1970s. It has been out of fashion with mainstream economists
since the era of structural adjustment from the 1980s.
However, the pendulum seems to be swinging again. It is evident
from testimonies by representatives of farmers' movements and by
individual producers of poultry products, rice, groundnuts and
shea butter. Some of the stories are desperate. African farmers
are not benefiting from the current high prices. They are facing
unfair competition from an overwhelming influx of illegally
subsidised imports. Their States seem unable to prevent this
onslaught. They are being forced to play by the WTO's rules. Yet
they are being squeezed out of business by powerful forces that
appear to follow their own rules.
There is a need to recall the ideals of the original advocates of
international trade. The classical theory of international trade
was developed by giants like Adam Smith and David Ricardo. It is
not usually remembered that Adam Smith was a passionate defender
of the rights of the poor. He pointed out the folly of
beggar-thy-neighbour policies.
By contrast, the neo-classical ('neo-liberal') paradigm that
informs mainstream economists today seems to have no such
concern. In pursuing free market policies, that sound good in
theory but in practice are only free on one side of the poor-rich
divide, we are creating the conditions for a global, social and
political catastrophe.
What we are sensing today is a moral outrage that the game is not
being played fairly. That the rich industrialised North has set
the rules of the game, but instead of holding its producers
accountable to those rules, it is distorting markets in their
favour. Meanwhile, African producers whose governments have
accepted to play by the rules are losing out.
UNCTAD is still one of the international spaces where we expect
serious attention to be paid to the cause of producers in
developing countries. We cannot give up this space.
We need UNCTAD to be strengthened for the enormous task of
defending the rights of farmers in developing countries to a fair
share of the market. Given the terrible constraints facing
producers in developing countries, the space occupied by UNCTAD
is the space we want to defend. This is our understanding of the
situation facing producers in developing countries who wish to
trade their goods with consumers in developed countries on terms
that are transparent and fair and that do not encourage the rise
of monopolies.
As there do not seem to be any strong initiatives on behalf of
commodity producers in developing countries, UNCTAD must take
steps to strengthen institutions of producers in developing
countries.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues,
with a particular focus on U.S. and international policies.
AfricaFocus Bulletin is edited by William Minter.
AfricaFocus Bulletin can be reached at africafocus@igc.org.
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