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Agricultural commodities, dependence and poverty
The Commission has drawn up an action plan to help developing countries dependent on commodities such as coffee, sugar, cotton and cocoa, and the producers of those commodities. It sets two overall objectives: raising the earnings of producers of traditional and other commodities and reducing the vulnerability of earnings at both producer and macroeconomic levels.
Communication of 12 February 2004 from the Commission to the Council and the European Parliament: Agricultural commodity chains, dependence and poverty - a proposal for an EU Action Plan [COM(2004) 89 final - Not published in the Official Journal].
The Communication establishes policy priorities for addressing the six main challenges facing commodity dependent developing countries (CDDCs):
- treating commodity chains and dependence as priority issues in combating poverty;
- remedying the long-term decline in prices;
- managing commodity risks and providing access to financing;
- diversifying production to include non-traditional commodities;
- promoting integration in the international trading system;
- encouraging the use of viable business and investment practices in the CDDCs.
The Communication focuses on agricultural (not mineral) commodities traded and marketed internationally, since these products are directly linked to poverty.
It does not cover timber as the Commission has already drawn up a strategy and provided a specific budget line for this product. The Commission has also implemented an action plan to combat illegal logging.
Treating commodity chains and dependence as priority issues in combating poverty
Commodity chains have a major impact on the poorest sections of the population and should be treated as a priority in development strategies and combating poverty.
To this end, the Commission proposes:
- helping the CDDCs develop national commodity strategies as part of the fight against poverty;
- enhancing the strategies developed in international commodity bodies for each commodity category.
Remedying the long-term decline in prices
As demand for commodities has been outstripped by the increase in supply on the world market, there has been a long-term decline in commodity prices.
To address this problem, the Commission proposes:
- encouraging implementation of commodity chain strategies in the CDDCs, particularly in terms of improving capacity and support services at producer level, establishing basic infrastructure in production regions and pursuing policy reforms at macroeconomic level;
- setting up support services at regional level to promote regional cooperation among farmers' networks, regulatory bodies, research institutions, the services responsible for infrastructure, etc.;
- supporting regional integration by concluding economic partnership agreements with the African, Caribbean and Pacific (ACP) countries.
Managing commodity risks and providing access to financing
There is high price volatility on the agricultural commodities markets, and this creates uncertainty and affects the willingness and capacity of farmers to invest.
To address this phenomenon the Commission proposes:
- improving producer access to commodity risk insurance and trade finance;
- encouraging the development of shock management tools for the macroeconomic level;
- improving the CDDCs' access to the Flex compensatory mechanism. Flex is an EU instrument that allows the countries concerned to compensate for sudden declines in export earnings.
Support for diversification
Expanding the markets for both inputs and output products would reduce investment risks.
To achieve this the Commission proposes:
- offering CDDC governments technical assistance with policy choices concerning diversification;
- providing more support for implementation of diversification and growth strategies;
- supporting the preparation and implementation of a growth-focused strategy allowing products traded at national level to be developed; such a strategy would include abandoning unprofitable commodities;
- increasing aid to the private sector, drawing on the available instruments for private sector development in non-traditional sectors.
Promoting integration in the international trading system
International trade rules are important for the CDDCs and commodity producers. Rules on domestic support, export competition and market access all shape commodity producers' opportunities, as do measures and standards and other technical regulations.
The Commission therefore proposes:
- working to achieve a substantial and development-friendly outcome from the current negotiations under the Doha Development Agenda;
- pursuing reform of its agricultural polices so as to reduce trade distortions as much as possible and monitoring the impact of national aid policies;
- facilitating CDDC access to the EU market, in particular by revising the generalised preference system;
- supporting CDDC efforts to profit from their market access, in particular by enhancing helpdesk services.
Encouraging the use of viable business and investment practices in the CDDCs.
The international commodity companies and retailers play a central role in framing the future of the commodity sectors since local entrepreneurs are often unable to compete effectively with these large consolidated corporations whilst remaining independent. Their dependence on the corporate policies of multinational enterprises means that they need to improve their social and environmental practice.
The Commission therefore proposes:
- fostering social responsibility at international level by promoting the application of viable codes of conduct, supporting the pooling of experience and studying criteria for the establishment of voluntary fair and ethical trading schemes at Community level;
- supporting CDDCs' efforts to benefit from companies' social responsibility and setting up public-private partnerships in some countries to evaluate the experience gained;
- promoting competition by drawing up common guidelines within the WTO, in particular in the context of regional cooperation.
The prices of some important agricultural commodities (for example, sugar, cotton, coffee and cocoa) fell by 30 to 60% between 1970 and 2000. This has led to macroeconomic imbalances in the developing countries concerned, reducing export earnings, debt repayment capacity, imports, credit availability, government revenue and the provision of basic services (health care and education).
There are about fifty highly commodity dependent developing countries (with export revenues based on a maximum of three commodities). They are located mainly in Sub-Saharan Africa, but also in the Caribbean and Central America. They are mainly least developed countries (LDCs), landlocked countries or islands.
Many of these countries are caught in a trap of declining income and investment, stagnating competitiveness, endemic poverty and dependence. A lack of resources means that their commodities sectors are finding it ever harder to take on international competition, handle change and deal with the situation facing them.