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Thank you again Duncan for your summary. You ask me to respond on some components of supply management (SM) but firstly, I need to say that some research work is being commissioned (not before time, in my opinion) on this subject. This, no doubt, will help us all to get a better picture of how such programmes could work in detail. On the terms 'long' and 'short positions' - As I said, commodity trading is highly influenced by sentiment. As with all volatile markets, the markets in tropical commodities attract speculation. If traders and speculators perceive that the price of a product is likely to fall in the future, they will make speculative sales (take a short position) of the product for delivery at some future date at the current, ruling price. If they are right, they will be able to buy back (cover) the product needed for these sales at a lower price nearer the date of promised delivery and make a profit. This has the effect of adding more 'artificial' or 'paper' product to the market, thus adding to the weak tone or sentiment of the market. This, I say, needs to be reversed by showing a determination to bring supplies once more into balance with demand. If sentiment can be changed in this way, speculators will purchase the product (take a long position) in the expectation of selling it at some future date at a higher price and making a profit thus reducing further the available supplies and completing a virtuous circle. Such changes in sentiment can have a dramatic effect on price. I did not want to appear dismissive of free riders - what I hoped to suggest was that by improving the model of past SM programmes, the incidence of free riding could be reduced. There is a significant amount of 'cheating' within the EU's Common Agricultural Policy, but no one is suggesting that the CAP does not work (in it's own terms, of course). Provision could be made within SM programmes for new entrants but we should ask ourselves why anyone should want to enter markets which are likely to fail to offer a return on investment and labour. I have been involved with, and/or studied, many projects designed to increase production or encourage diversification into another product. Not one of them included a proper market impact study. Even quite small increases in production, say of cloves or vanilla, can cause the world market price to fall precipitously. There is no point in development agencies funding projects to help a small group of new producers if the many existing producers suffer massive falls in income. I think all of us involved in agricultural development linked to poverty reduction programmes find ourselves between two very powerful influences. We are horrified by the levels of poverty we witness in our work but at the same time we are aware of the shocking level of indifference we encounter to the plight of the poor which, I afraid to say, manifests itself in the policies of some major development institutions. We must now seriously confront this second influence. SM would boost prices (resulting to increased income to the tune of hundreds of billions of dollars per year if prices were restored to 1980 equivalent levels). It will target farmers directly and release some land for food production. It will offer investment for vertical diversification and can be carried out autonomously, if necessary, by producing countries themselves. Yes, I think SM will be a powerful way of helping many millions of poor farmers. It will not stop them remaining poor by the standards of wealthy countries but it, together with measures to control trader concentration, does offer a new and better approach to development. I have tried many times to elicit the counter-argument to SM from known expert opponents to the idea but, apart from saying that ' SM failed in the past' or 'they would be difficult to establish', I've heard nothing - does this mean that the SM argument has now been won? Regards - Peter Robbins
Please visit dfid-agriculture-consultation.nri.org.