The commodity trade can be conveniently categorized by commodity type as:

• food products from agriculture and fisheries (e.g. grains, tea, meat, fish);
• agricultural non-food products (e.g. cotton, rubber, tobacco);
• ferrous metals (iron, steel, etc);
• non-ferrous metals (e.g. tin, gold);
• industrial raw materials (e.g. non-metallic chemicals); and
• energy (e.g. coal, oil).

NRI's work in this area primarily concerns those agricultural commodities and fisheries products that are the economic backbone of most of the world's least developed countries (LDCs), particularly in sub-Saharan Africa. Based on its staff's long-term experience and global network of contacts in the commodity trade, NRI focuses on the importance of these commodities to the livelihoods of the poorest in society.

 

The current dominant features of the trade in these commodities are:

• production and export is centred in the developing countries of the 'South', and import and consumption is in the industrialized countries of the 'North';
• diminution of producer power due to market liberalization following economic structural reform in the past two decades; · low producer prices, with a trend towards oversupply and long-term price decline in real terms;
• negative impacts of national agricultural policies, and international trade regulations and agreements, on market access for producers in poor countries (e.g. EU/USA agricultural protection and subsidies, and WTO trade measures);
• the growing importance of the sustainable development movement and its impact on producers' livelihoods through the emergence of specialized markets (e.g. organic and other differentiated products, and 'fair trade' approaches); and
• a trend towards increased value-addition in producer countries.

The complexity of such issues raised by the involvement of poor countries in commodity production and trade has made commodity-related research and consultancy a major focus of NRI's activities for many years.

Within the agricultural trade sector, tree crop commodity markets (e.g. cocoa, coffee, tea, oil palm, coconuts, rubber) typify the problems affecting producers. These markets are characterized by slow demand growth and oversupply with a long-term real-price decline, coupled with stronger market power of commodity importers as a result of mergers, acquisitions, and substantial brand-advertising. Tree-crop exporters are in a difficult bargaining position since most state-run marketing boards, with their monopoly over foreign sales, have been disbanded. Furthermore, government intervention in world markets to stabilize commodity prices is no longer an economically viable option in view of low producer prices, particularly since the collapse of the international coffee, cocoa and rubber price-support mechanisms in the late 20th century. Loss of market share by LDCs is of even greater concern. These countries, three-quarters of them in sub-Saharan Africa, have suffered more from loss of market share than from adverse movements in their commodity terms of trade. Competitiveness on world commodity markets is therefore considered to be even more important than stable or improved commodity prices.

 

NRI has undertaken several recent studies to define options for commodity-producing countries and to inform policy, including:

• a tree-crops scoping study, for the World Bank;
• a study on the functioning of markets, for DFID;
• a study on sustainable sugar supply-chains, for the UK's Sustainable Development Commission, sponsored by DEFRA; and
• a study on the effects of converting the Colombo tea auction from local currency to US dollars, for the Ceylon Planters Association.

For the World Bank, NRI has recently reviewed the price received by smallholder oil palm producers in Papua New Guinea. Commercial oil palm production is based on the model of a nucleus estate with smallholders who sell their oil palm 'fresh fruit bunch' (FFB) to the company for milling, according to an FFB pricing formula. The review recommended that the FFB pricing formula should offer more advantageous terms for the smallholder oil palm producers.

 

For further information see Coote et al. (2000) and Tallontire and Blowfield (2000) in our selected publications.

 

NRI Project Codes: C1487