The Hindu Business Line : Unctad keen to revive integrated plan for commodities to shore up African economy

THE UN Conference on Trade & Development (UNCTAD) has underlined the need to "revisit" its two-decade-old proposal for integrated programme for commodities (IPC) in a serious bid to shore up the commodity-dependent economies in Africa, despite widespread scepticism over the efficacy of global commodity agreements.

In a new report on trade performance and commodity dependence under its economic development in Africa series, the Geneva-based UN body said today for African countries "price volatility arising mainly from supply shocks and the secular decline in real commodity prices and the attendant terms-of-trade losses have exacted heavy costs in terms of incomes, indebtedness, investment, poverty and development."

Unctad's analysis of real commodity prices for 14 products of export interest to Africa between 1960 and 2000 suggests that 12 (bananas, cocoa, coconut oil, coffee, copra, copper, cotton, fishmeal, gold, sugar, tea and white pepper) suffer from high price volatility. It further noted that between 1997 and 2001, the Unctad combined price index of all commodities in US dollars fell by 53 per cent in real terms.

That is, commodities lost more than half of their purchasing power in terms of manufactured goods: African commodity exporters would have had to double their export volumes in 2001 to maintain their foreign exchange income at 1997 levels. Tropical beverages and vegetable oil seed and oils, which comprise about one - fifth of Africa's non-fuel commodity exports, registered the highest rates of decline in real terms, it said.

It is in this context that Unctad advocated the need to revisit its earlier IPCs. "Failing agreement between producers and consumers, developing countries could study the feasibility of establishing supply management schemes for a selected number of commodities for which they are major producers and exporters, such as tropical beverages, where oversupply has been a major determinant of secular decline in prices," it said.

Once this feasibility is firmed up, the next stage would be to work out a financing mechanism at the global level to help these countries foster a system of supply rationalisation and diversification into other products in order to remove excess supply of these international commodities from the markets. This might necessitate revisiting the concept of a "diversification fund" for African countries. The remit of the second window of the Common Fund for Commodities (CFC) could be redefined and its resources enhanced to enable it to take on this additional role, Unctad argued.

Two other elements of the Unctad IPC could form the plank of any future international commodities policy, incorporating lessons learned over the past three decades. The first includes enhancing the capacity of producer countries to adjust to structural changes and long-term trends through the progressive diversification of other economies

And expanding the secondary stages of production based on the processing of commodities. The latter involves paying compensation to cover shortfalls in export earnings in the case of transitory shocks, such as those ascribable to subsidies and other production support in rich countries.

While a major consideration here would be how to design these schemes in consonance with the current global economic conditions defined by the multilateral trade disciplines of the WTO, Unctad suggested that alternatively, derogations from the WTO disciplines could be sought. Alongside, Africa could also use the WTO system to its advantage by judicious schemes of tariff reduction within the context of regional economic groupings that enhance market access within the continent and generally in the developing world, Unctad noted.