Research Papers 5

INTRODUCTION

“There is on the question of commodities a sort of conspiracy of silence. The solutions are not simple… But nothing justifies the present indifference.” President Jacques Chirac of France, in his address to the Twenty-Second Summit of the Heads of State of Africa and France, 20 February 2003(As quoted in UNCTAD, 2003a)

Although the structure of International Trade has changed significantly in favour of manufactures, primary commodities remain extremely important for several developing as well as Least Developed Countries. A large number are still dependent on a limited basket of primary commodities for their exports. For example, Nigeria is predominantly dependent on petroleum and cocoa; whereas 95%of Ugandan exports consist of coffee and 95% of Zambian exports consist of copper and zinc. Due to their inherent peculiarities, primary commodities face extreme price volatility in the short run and secular decline in the long run. This adversely affects primary commodity growers directly, and severely hampers the ability of the Governments of these countries to improve the welfare of their impoverished populace. More than a billion people are still dependent on the production and export of primary commodities in these countries, especially in the Highly Indebted Poor Countries (HIPC), African, Caribbean and Pacific (ACP) countries and the Sub-Saharan African countries (SSA). Even today a major portion of these populations earns less than USD 1 a day. Therefore no strategy aimed at attaining the ‘Millennium Development Goals’1, especially that of halving the number of extremely poor people by 2015, will succeed without a conscious effort to address the issues of primary commodities2.

Several attempts have been made in the past towards ensuring commodity price stabilization commencing with the Havana Charter. They include, among others, International Commodity Agreements, Marketing Boards and International Compensatory Financing Mechanisms. Unfortunately, none of them proved to be satisfactory and primary commodities remain an area of concern.

Commodities, today, are plagued by several issues, and just a few are quoted here: a) market access, b) value chain, c) subsidies, d) price volatility and e) a long-term secular decline in prices.

This paper is an endeavour to explore the Export Earning Instability experienced by the Commodity Dependent Developing Countries (CDDCs) originating from price volatility and its associated issues which “...constrain the ability of many developing countries to attain a path of stable and sustained growth and employment creation that could benefit all segments of their population and allow them to reach the [Millennium Development Goals] MDGs” (UNCTAD, 2005). It also attempts to suggest better policy options keeping in mind the lessons learnt from past efforts.

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