Wednesday, March 13, 2013

Poor countires hit hard by low price of commodity

For decades, the basic farm goods and industrial raw materials that underpin the economies of many poor countries sold at low and volatile prices on world markets.
Development experts and government officials lamented that these low returns kept nations in Asia, Africa and Latin America from expanding their economies and reducing poverty. Since the end of 2002, however, commodities prices have staged an unprecedented and long-lived boom – yet the windfall, while contributing to notable increases in gross domestic product (GDP) in a number of countries, especially in Asia, has been less significant in other countries, and has not led in those cases to other economic progress that was hoped for like economic diversification.
In the countries that have done less well, there have been disappointingly small declines in poverty rates. Experts will gather on March 18-19 at the UNCTAD Global Commodities Forum 2013 to review what happened, and to discuss how the commodities boom can be harvested to yield better benefits for the poor as well as more durable, broad-based economic growth for developing countries.
The theme of this year’s Forum is 'Recommitting to commodity sector development as an engine of economic growth and poverty reduction'. Since the 2008 food crisis, when prices rose sharply, major food commodities like wheat, maize and rice have registered significant additional price increases. Prices for wheat and rice climbed by 170 per cent between 2000 and 2012, and the price of maize rose by more than 200 per cent. Likewise, non-oil commodity price indices remained at historic heights in 2012, some 2.4 times their average during the period from 1960 to 2012. The price index for minerals, ores and metals was at about three times the average level for 1960–2012, and crude petroleum and gold prices continued to break records in 2012. Crude oil averaged $105 per barrel, and gold sold at an average of $1,670 per troy ounce.
World commodity exports increased fivefold from 1995 to 2011, and world commodity trade as a share of total merchandise trade reached 33 per cent in 2011, compared to 24 per cent in 1995. Given that low-income countries have registered an average growth rate of about five per cent per annum over the decade 2002–2012, the commodities boom since the end of 2002 has certainly benefited these countries.
However, the impact of the boom on poverty levels remains questionable. Among the commodity-dependent developing countries (CDDCs), gross domestic product (GDP) tripled between 2000 and 2011, and poverty levels from 2002 until 2008 – the latest year for which conclusive figures are available – fell by 28 per cent. But those figures mask less encouraging performance in some nations. Many commodity-dependent developing countries are also classified as least developed countries (LDCs), and even during the global economic boom, the rates of extreme poverty in LDCs only declined from 58 per cent in 2002 to 53 per cent in 2007 – and that was before the world food and financial crises.
The World Bank (WB) has since estimated that the recent resurgence in food prices, which in 2011 reached levels approaching their 2008 peaks, pushed an additional 44 million people worldwide into extreme poverty. It is an irony that a number of commodity-dependent developing countries are net food importers. In addition, it appears that much of the growth experienced by these countries has been jobless. The boom in prices does not appear to have led to much economic diversification in commodity-dependent developing countries, either.
From 2002 to 2010, their number increased from 85 to 91.
UNCTAD secretary-general Supachai Panitchpakdi had told the opening session of the 2012 Global Commodities Forum that "while we have been trying to find ways to advise countries to be less commodity-dependent, of commodity-dependent developing countries have actually become more heavily dependent on commodity exports."
Experts say that one of the lessons of the commodities boom is that high prices aren’t enough. Governments must combine the returns they get from commodities with astute and well-coordinated strategies to diversify the goods that their countries produce and to upgrade basic farm goods and raw materials into finished products that command higher prices and create greater numbers of jobs.
Economists and development specialists also contend that developing countries and the international community must devote greater attention – including research and development – to agriculture, after years of neglect of the farming sector. They say that particular emphasis should be placed on crops and on methods that can be used by smallholder farmers.
In addition, cooperative efforts, perhaps led by governments, must be re-established to help smallholder farmers band together to obtain inputs and to market their harvests. Reforms carried out in the 1980s and 1990s under the laissez-faire economic doctrine of the time abolished many government programmes for farmers. More efficient free-market substitutes for these institutions did not arise as had been predicted. Frequent fluctuations in commodities revenues do not allow for long-term planning and management that is compatible with sustained growth and development and with reductions in poverty.
The extractive sector, in particular, is technology-intensive, and therefore has limited capacity for job creation and poverty reduction. To address this in their energy sectors, many companies have implemented social and community investment programmes in the areas in which they operate. Corporate commitments to enhancing shared prosperity and sustainable development for commodity-dependent developing country populations are considered important for attracting investment and for creating greater employment, including a broader variety of jobs. Because it takes time to demonstrate sustained impacts, such companies have stressed the importance of seeking a balance between small, tangible outcomes in the short term, and longer-term, sustained positive impacts on living standards. The energy industry is seen as having the potential for helping host countries create greater linkages between extracted raw materials and their upgrading along domestic supply chains. Steps are envisaged that can foster local entrepreneurs and local enterprises and can help in the transfer of skills and technology.
The Global Commodities Forum will open on March 18 with addresses by UNCTAD secretary-general Supachai Panitchpakdi, World Trade Organisation (WTO) director-general Pascal Lamy, and UNCTAD Trade and Development Board president Jüri Seilenthal of Estonia.

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