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Commodities in International Trade: Commodities in International Trade: Current Trends and Policy IssuesCurrent Trends and Policy Issues
Implications for Caricom CountriesImplications for Caricom Countries
Olle Östensson, UNCTADOlle Östensson, UNCTAD
www.unctad.org/infocomm
www.natural-resources.org/minerals
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Commodities: an attempt at a typology
• Physical characteristics– Homogeneous quality– Can be shipped in bulk– Low degree of processing
• Economic characteristics– Few barriers to entry– Productivity gains tend to be passed on– Fluctuating prices
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Commodity groups
Shares of world exports, 1997
- manufactures: 75.1%
- food items: 8.6 %
- fuels: 7.8 % (1980: 24%)
- ores and metals: 3.3 %
- agricultural raw materials: 2.4%
- non-classified, including non-monetary gold: 2.8%
Growth rates, 1980-97
8.1 %
4.5 %
-0.8 %
3.8 %
3.4 %
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Change of shares in world commodity exports
• Developed countries 59% 66%
• Developing countries 33% 29%
• United States 12% 12-13%
• European Union 28% 39%
1970-72 1998-991970-72 1998-99
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• Developed countries 75% 70%
• Developing countries 16% 26%
• United States 12% 12-13%
• European Union 46% 42%
Change of shares in world commodity imports
1970-72 1998-991970-72 1998-99
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As a group, developing countries have become less reliant on
commodity exports
However, out of 140 developing countries, 83 depend on
commodities for more than half of their export income, almost the
same number as in 1990.
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Nonfuel commodities’ share of exports, %
90-92 97-99Antigua and Barbuda 6 44Barbados 28 31Belize 88 84Dominica 67 47Grenada 66 74Guyana 88 65Jamaica 80 74Saint Kitts and Nevis 47 48Saint Lucia 66 65Suriname 95 82
Trinidad and Tobago 7 10
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Share of export earnings of three most important commodities, 97-99
Antigua and Barbuda 2.6 Fish, Alc beverages, WoodBarbados 19.4 Sugar, Alc beverages, FuelsBelize 52.5 Sugar, Bananas, FishDominica 34.1 Bananas, Oil of coconutsGrenada 23.2 Spices, Fish, Wheat+flourGuyana 91.0 Gold, Sugar, BauxiteJamaica 61.2 Alumina, Sugar, BauxiteSt Kitts and Nevis 36.6 Sugar, BeveragesSt Lucia 55.7 Bananas, Fresh fruit, PepperSt Vincent and Gren 68.5 Bananas, Wheat+flour, RiceSuriname 84.5 Alumina, Rice, FuelsTrinidad and Tobago 51.2 Fuels, Non-alc bev, Sugar
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Dynamic and stagnating sectors
• Changing consumption habits• Improved storage and transportation
– For example, tropical fruits, fishery products
• Changes in the organization of trade– Direct contacts between exporters and retailers allow
adaptation to consumer preferences
• Technological change and substitution– Mainly for raw materials
• Agricultural protectionism– Dynamic sectors least protected
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Changing consumption habits - food
In rich countries– Health concerns– Convenience - less time to cook and prepare– Desire for variety– Environmental awareness– Rising incomes– Tourism
In poorer countries– Increasing incomes– Current low levels for basic foods– Increased calory intake– Also, “globalization” of consumption
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Example of a dynamic specialty item:“Organic products”
• Markets less than 2 % in general but in Austria, Switzerland, Denmark, 5 to 10 %
• Increasing rapidly – in UK by 40 % per year• Import demand likely to remain high• 80 per cent of organic products imported into the UK
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Commodity prices in constant US$, 1980-2002
0
20
40
60
80
100
120
Combined index Tropical beverages Food Agricultural raw materials Minerals and metals
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Commodity prices in current U$, 1980-2002
0
50
100
150
200
250
300
Minerals and metals Tropical beverages Food Agricultural raw materials Minerals and metals
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Margin increasing between international and retail prices
• Widened since 1970s, and at an accelerating rate since 1980s
• Margin greater in countries where there is more concentration
• Cannot be attributed to costs
• Also, for same products, with similar retail prices, producers in developing countries receive less
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Developing countries and agricultural commodities
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Why is agriculture important to developing countries?
• 2,500 million people in developing countries depend on agriculture, and most of them are poor
• Comparative advantages are clear
• A window of opportunity in a new round?
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0% 5% 10% 15%
1970-72
1996-97
Main developing country agricultural exports (% of
agricultural exports)
Traditional commodities are losing importance
New dynamic sectors have emerged
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Obstacles to increasing food exports
Border measures• Tariffs• Seasonal limits• Minimum import prices• Health and safety
standards
Other obstacles• Domestic support• Oligopolistic markets• Importing firms’ standards• Exporters’ (un)competitiveness
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Agricultural tariffs:
- Agricultural tariffs (average 62 %) much higher than for manufactured products (average 5 %)- Complicated – mixed with TRQs, ad valorem and specific tariffs, complex technical relationships- Multitude of preferential rates- Tariff escalation especially for meat, sweeteners, vegetable oils
High tariff sectors
• Tobacco, meat, dairy and sugar
Low tariff sectors
• Fruit, vegetables and fish BUT
• Few TRQs, minimum prices, vary with prices
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How important a barrier are tariffs?
• 1970-72 to 98-99, successful countries had few, if any preferences: share increased from 9 to 12 %
• ACP countries and LDCs had preferences: shares declined from 8.4% to 2.4% and from 4.7% to 1%, respectively
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Health and safety standards
Official• SPS and TBT bring
discipline• HACCP generally
accepted• Implementation costly• Management skills
required
Unofficial• Importing firms’
requirements• Determined by consumers’
tastes and public opinion• Quality, traceability• Implementation costly• Standards vary
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Subsidized exports from developed countries displace developing
countries in their own and third country markets
Total support to agriculture in OECD in 2001 was $311 billion; support per farmer was US$ 33,000 in Switzerland, US$ 20,000 in the E.U., Japan and the United States
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A useful comparison (billion US$, 2000)
0
50
100
150
200
250
300
350
1
Support toOECDagriculture
OECDagriculturalexports
FDI indevelopingcountries
Developingcountries' debtservice (1998)
ODA
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Increasingly, traditional developing country products are processed and/or branded in developed countries, and
re-exportedDeveloped countries are accounting for larger shares of tropical product exports. US exports of coffee and coffee products continue increasing and reached a record level of $250 million from about $175 million five years ago. (Largest exporter Brazil and all of sub- saharan Africa - about $2 billion each)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1970-72 1990-92 1998-2000
Sh
are
in v
alu
e co
coa
trad
e
Chocolate
Cocoa beansCocoa products
Developing country exports
Developed country exports
Losing out in the value-added:the example of the cocoa sector
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The evolution of productivity:Change in yield 1980-2001, %
-10
0
10
20
30
40
50
Fruits
Rice
Sugar
can
e
Tobacc
o
Veget
ables
Developedcountries
Developingcountries
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The gap is closing:Yield in developing countries in
% of developed
020406080
100
1980
2001
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Changing market structures• At the national level:
– liberalization: foreign entrants, foreign product competition, increased price risk exposure
– pressure to meet exigencies (eg. HACCP)
• At the level of international trade– growing concentration of trade: mergers
– cheaper finance and good logistics are now key factors
– need for greater capital resources and more skills
• At the level of consumer demand– increasing importance of supermarkets
– globalization of consumption patterns
– new demands linked to production technology (e.g. organic foods)
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Value chains are changing• International trade:
– Firms becoming larger and vertically integrated– Mergers and acquisitions– Disappearance of traders
• Retail sector– Global supermarket chains
• Liberalization of agriculture in developing countries
• Closer integration of trade and production– Impact on not only WHAT to produce but HOW and
by WHOM
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Policy issues• International community
– Reduce agricultural protectionism and subsidies– Harmonize standards– Allow protection of crucial sectors for single commodity exporters and
food importing countries – Establish safety nets against catastrophic price falls– Provide market information
• Governments– Integrate subsistence farmers in the monetary economy– Facilitate access to credit, regulatory frameworks– Improve transportation and storage– Complement liberalization with institution building– Improve information flows
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Policy issues, continued
• Enterprises– Identify dynamic markets– Upgrade business skills and product quality– Raise productivity, particularly in small-scale
farming– Build competitive marketing and distribution
networks– Use market-based risk management techniques
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Market issues and prospects
• Bananas– Stagnation of demand in traditional consumer
countries, new markets becoming important
– Organic bananas
– EU banana regime ends in 2006
– No tariffs for LDCs in EU in 2006
• Fish– Rapid growth in demand
– Compliance with standards costly
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Market issues and prospects, continued
• Sugar– Falling prices (countries exporting to free market lost
1.4 billion US$ 1998-2002)
– Subsidized production and exports in developed countries
– No tariffs for LDCs in EU in 2006
• Spices– Rapid growth in demand
– Easy to enter market, risk of oversupply
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Developing countries and mineral commodities
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Why is mining important to developing countries?
• Little employment - but 13 million people work in small scale mining
• Production-consumption linkages weak – but locally important
• Fiscal linkages provide opportunities for funding development
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Developing countries’ share of world minerals and metals
exports, %
0
5
10
15
20
25
30
35
40
45
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Share non-precious metalsand minerals
Share gold
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Developing countries’ share of world minerals and metals
imports, %
0
5
10
15
20
25
30
35
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
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Some success in the last decade, taking into account
• The share of developing countries in production is higher than in exports (increasing imports)
• Their share in investment is higher than in production
• Their share in exploration is higher than in investment
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Factors behind the success
• Comparative advantages are allowed to work
• Changed investment climate in developing countries
• Changed financing methods
• Security of supply issues politically dead
• Environmental concerns
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International trade regime for minerals
• Developed countries apply zero or near zero tariffs on mineral commodities, developing country tariffs decreasing
• However, anti-dumping actions are common
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Investment climate
• Most developing countries have updated legislation on FDI, on mining or on both
• Nationalizations unlikely
• Political stability
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Financing methods
• Project lending
• Gold loans, commodity bonds (not very common now)
• Equity capital (easy until a few years ago)
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Political factors in developed countries
• No subsidies to domestic mining
• Privatization of state owned mining companies
• Zero environmental tolerance
• Mining banned on large areas of land
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Policy issues: mineral commodities
• For mature mineral economies: diversification• For new mineral economies: attract and retain
investment• For both groups:
– ensure an equitable distribution of revenue
– channel government income to investment in human capital
– maintain macro-economic stability in the face of price and volume variations
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Market issues and prospects
• Bauxite/alumina– New bauxite mines in new places
– Chinese competition on bauxite for non-metallurgical uses
– Energy costs for alumina refineries, mainly brownfield investment
• Gold– Low prices, official reserves still a threat
– Financing for small ventures problematic