Higher prices for agricultural goods fail to lead to economic diversification

Ways must be found for poor nations to retain more of the value derived from the farm goods and natural resources that are the mainstays of many of their economies, experts said at the third Global Commodities Forum.
Speakers said that despite a decade’s worth of oscillating but largely rising prices, the so-called commodity dependent developing countries (CDDCs) – countries whose commodities exports represent more than 60 per cent of their merchandise exports – have been unable to use the higher profits earned from exports to diversify their economies and broadly raise living standards.
The Forum — hosted by UNCTAD and based on the theme 'Harnessing development gains from commodities production and trade', continues through Tuesday.
UNCTAD secretary-general Supachai Panitchpakdi, opening the meeting, said that there has been ongoing debate on diversification for CDDCs. "From 2002–2010, the number of CDDCs increased from 85 to 91," he said, adding, "While we have been trying to find ways to advise countries to be less commodity dependent, CDDCs have actually become more heavily dependent on commodities exports, and the number of countries that are dependent has increased."
"The issue is how to use the benefits that come from higher prices so that they serve “long-term development purposes”, he said. Royalties and wages earned by developing countries from commodities frequently are only a small portion of the final sales prices of the finished goods made from them.
The bulk of the profits accrues overseas.Supachai said the mining of natural resources in developing countries, for example, often results in 'enclave economies' that do not generate broad economic spillover benefits for the host nations. Ways should be found "to spawn wider economic activities" coming from mining, he said, so that more of the upgrading of these natural resources occurs domestically, creating jobs — and jobs that pay higher wages.Vice president of the UNCTAD Trade and Development Board Ibrahim Al-Adoofi said that the Forum is part of broad efforts preparing the way for the UNCTAD XIII quadrennial conference to be held in Doha on April 21-26.
The theme of the Forum reflects the theme of UNCTAD XIII, which is 'development-centred globalisation'.
"New developments in the global economy have exposed the limitations in our current development model," Al-Adoofi said, adding that it was necessary to steer commodities development efforts in new directions.
On the occasion, director of the Agricultural and Commodities Division of the World Trade Organisation (WTO) Clem Boonekamp said commodities trade is directly connected to the issue of food security — "a fundamental responsibility of all of us. The irony is that almost a billion people a day go to bed hungry, yet there is enough food. There are a number of problems that get in the way. "While not the solution in itself, trade must be part of a comprehensive effort to ensure food security, he said.
Negotiations at WTO, including those under the Doha Round, are part of an effort to 'level the playing field' for trade in farm goods, he said, so that the system is efficient and food is able to move smoothly from where it is grown to where it is needed.
One challenge 'is trade-distorting domestic subsidies' for agriculture in developed nations that enable farmers there to 'outcompete' farmers in developing countries who otherwise would produce food that is price competitive, he said, adding that it hinders a potential for developing countries to grow their economies.Similarly, director of the Trade and Markets Division of the Food and Agriculture Organisation of the UN David Hallam said that there was increasing recognition of the importance of the connection of agricultural markets with other markets, for example with energy markets, because of climbing biofuel production, and with financial markets. "But one thing that has remained constant is the continuing poverty of many small commodities producers around the world.
The 'financialisation' of commodities markets — meaning the increasing use of such goods as food as an asset class for speculative investment — was mentioned by several of the morning’s speakers.
Supachai said the issue 'is not settled yet'. "There is a need to study the matter to ensure that speculation in commodities 'does not result in excessive movements in prices," he added.
Following the opening plenary, the Forum began a series of more topical debates, beginning with a review of 'recent developments in international commodities trade – their impacts and implications'.
Panellists said the long-standing problem of price volatility had been a noteworthy feature of commodities markets once again in 2011, driven in part by political and financial developments, as well as by the various effects of weather on harvests and by varying demand for raw materials for industrial production in keeping with the uneven recovery from the global recession.
Steps that might reduce price volatility include boosting transparency in markets; building a level playing field for trade and investments, and making sure that sufficient and affordable financing is available for commodities trade despite the fallout from the Euro region debt crisis, speakers said.
Other topics to be addressed in plenary sessions and panel debates over the next two days include the sovereign debt crisis and its impacts on commodities production and trade, trade-related financial innovations, key challenges facing commodity-dependent developing countries, expanding access to markets and trade-enabling tools, and practical examples of harnessing gains from commodity value chain development.