Global Trade Mailing List Archive

["Vinay Chand" <<address removed>>]

Commodity producers still tend to offer for sale rather than market their 
produce. The reason for this for me was best explained by Franz Fannon in 
'Wretched of the Earth'. It springs from a pattern established in the colonial 
era and the hardest aspect to break loose from that is a dependent mentality 
where an production orientation leads to production and collection but with 
weak marketing.

Going by this analysis, it is not a question of not producing more commodities 
but rather focussing on changing attitudes so that markets are taken into 
account when planning what to produce. It may sound simple, but I am 
continually astounded by lack of appreciation of marketing technology in aid 
assisted projects. This weakness is reflected even in large loans by the 
development banks and grants by EU, they always talk about market driven forces 
as a key guideline but do not allocate enough TA for the purpose.

The problem is made worse by the fact that when commodities are in competition 
with synthetics the latter are being produced by northern MNCs (eg fibres, 
flavours and fragrances as well as rubber and vanilla) who have massive 
development and promotion budgets and far better distribution. In contrast, 
with no adequate intervention not only have most of the markets that could be 
lost been lost but there has been no serious contention for some that need not 
be lost or at least where the rate of loss could be lessened. A good example is 
that of jute. In the 1970s and 80s ITC mounted a market development and 
promotion campaign which helped reduce the rate at which markets were being 
lost. At one stage, there was even warehousing of jute carpet backing in the 
USA. Today, there is no such measure and as a result you cannot find jute sacks 
or carpet backing cloth easily even if you wanted to buy them in much of USA 
and there is every reason to switch further to synthetics. In fact we have a 
massive jute problem in Bangladesh with farmers and workers bearing the brunt 
of the consequences. Very little is being done now to develop a strategy to 
defend the sector.

Supply management was a logical response by commodity producers. OPEC started 
by taking control over production but found quickly that it was not very useful 
without going downstream to chase the profit stream and working with those who 
would market the resulting products. The World Bank scheduled a loan to help 
Bangladesh lower its production of jute but without sufficient regard to social 
and political implications, thus not including enough positive measures to 
market the products. A good start would be for major exporters to pool their 
knowledge and analysis on markets to see what prudent steps could be 
undertaken. To some degree this happens in international forums such as the 
system of Intergovernmental Groups assisted by FAO. For sisal, coir, abaca and 
jute indicative prices are set but with no attempt to manage supply. It is 
necessary for major commodity producers to meet regularly and exchange such 
information and this may well lead to some coordination of supply.

One major reason why so little value addition has been promoted is the lack of 
appreciation and understanding of the marketing function. Even in those cases 
where there are few producers and SM is possible as is the case for example 
with coconut oil, the Philippines moved from copra to oil and meal with only a 
very marginal improvement in revenues and none for farmers but for long 
neglected further development, say into coconut milk which yields 20 times as 
much as copra or fatty acid extraction. Those who controlled coconut oil 
production during the Marcos era concentrated instead, unsuccessfully as it 
turned out, on trying to manipulate world market prices. 

Staying with coconuts for the moment, the attempt in the 1980s by Sri Lanka and 
Philippines to SM desiccated left out consideration of major customers and 
without any control over promoting the market, the attempt was short lived. The 
opposite has happened with coconut shell activated carbon which used to sell at 
very good prices for them when the technology was controlled by a few MNCs but 
with new producers swamping the market, prices have fallen to an unattractive 
level.

There are a number of international commodity boards, eg coconuts, coffee, 
pepper, rubber, etc but have ended up becoming talking shops with useful 
dialogue and mutual exchange of information but no market effect. Some have 
either died or lost support as was the case for jute. There are of course many 
more national boards but they have an indifferent track record often ending up 
as stalled organisations.

The aid system which was intended to assist with this central problem included 
the FAO and the International Trade Centre (ITC) and the recent Commodity Fund 
(CFC). In the 1970s and 1980s the UN was active in commodity market development 
and promotion and a lot of very valuable work was done with spices, 
horticulture, leather, cotton, fruit juices, jute and coir but lack of funding 
and a fuzzing of roles that has led to duplication of efforts has reduced 
market impact. Those with more money to spend such as the development banks and 
the EU did not give the function much priority and in the face of stalled 
organisations bilateral donors have pulled in their horns.

There are private firms that now offer price information and market analysis 
but no active market development or promotion of commodities is being 
undertaken outside the ITC which still does a lot of good work, for example, 
with spices. 

In the hunt for diversification and higher value crops we have to produce more 
commodities. The question is which ones and what sort of research and analysis 
do we do to help us decide. The case of vanilla has already been aired in the 
debate and my own personal opinion is that there will be good development 
prospects in the foreseeable future, short term price movements are less 
important. The market forces changes trough its logic with high cost producers 
forced out of markets when lower cost producers enter. Even within countries, 
there are shifts in patters such as the demise of rubber production in West 
Java. As Vietnam continues to increase pepper production and Cambodia 
re-establishes its own, pressure will be felt by Malaysia and other higher cost 
producers.

We are at something of a crossroads at present. While the dollar value of 
commodities has long tended to be stagnant even at nominal values, the major 
commodity exporters have been steadily devaluing their currencies and this kept 
production viable for many commodities. The strengthening of exchange rates 
being experienced by some today is going to put a lot of pressure on commodity 
revenues for framers. On the other hand, the high rate of growth in Asia will 
increase consumption from often very low percapita levels and China and India 
have been absorbing more of their own production of staples and other 
commodities.

The whole question deserves to be revisited and DFID can play a major role in 
helping develop marketing technology. There is scope for SM in some cases. 
Diversification to higher crops is also possible. Downstream links will be of 
critical importance in any strategy adopted. And where possible emphasis or at 
least consideration needs to be paid to market development and promotion. All 
these measures as well as rationalisation of international intervention is 
called for.  

Best wishes,

Vinay Chand,
230, Finchley Road,
London NW3 6DJ, UK
Tel: 44-20-7794 5977
Fax: 44-20-7431 5715
<address removed><mailto:<address removed>>