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Making High Commodity Prices Help The Poorest Nations

AMSTERDAM, (IPS)  .-  In 2000 the international community declared its commitment to halve poverty by 2015 by adopting the United Nations Millennium Development Goals (MDGs). Midway to the target date, the indications are not very encouraging.

By Ali Mchumo (*)

According to current projections, several least developed countries (LDCs), the majority of which are commodity dependent, are unlikely to meet this goal. It is impossible to eliminate poverty, achieve sustainable development, and achieve the MDGs without improving the conditions and prospects of global commodity producers. Two and a half billion people in the world make their living through the production and trade of commodities, including agricultural goods, forestry products, and minerals.

Since 2001, the prices of many commodities and other natural resources have soared partly as a result of increased demand in emerging economies, mainly China and India. This provides an opportunity for commodity-dependent developing countries, which could use the increased revenues to combat poverty and make real economic and social gains. But for this to happen, adequate policy measures need to be implemented and the international community needs to take swift action to address the challenges that commodity-dependent countries face in the intensely protectionist global environment.

The Common Fund for Commodities (CFC) is an inter-governmental financial institution established within the framework of the United Nations in 1989. The Fund focuses on commodity development measures using market-based approaches and on assisting developing countries to strengthen and diversify the commodity sector as a way of contributing to the economic growth and development of society as a whole.

It is important to note that the backdrop of the CFC’s commodity policy work is advocating for the 70 percent of the world’s poor who live in rural areas and depend directly or indirectly on commodity production for income. Many developing countries, particularly in Africa, depend on commodities for more than half of their merchandise export earnings.

In 2007, the CFC realised that to change the prevailing situation within the international commodity sector, and to be able to advocate more effectively, action at the highest level was needed. The Fund, together with other international organisations, convened an international meeting last May in Brasilia to launch the Global Initiative on Commodities (GIC).

The GIC process has been proceeding well and figured prominently at the recent UNCTAD XII meeting in Accra, Ghana. It is expected that the GIC will be pursued further at other international fora, such as the UN General Assembly,  high-level review processes for development financing, and civil society consultations.

The CFC is presently pursuing and financing major initiatives and projects in Africa, Asia, Latin America, and the Caribbean Basin that focus primarily on several key areas in commodity development to improve structural conditions in markets and enhance the long-term competitiveness and prospects for specific commodities. Many of these actions also include applied research and development, productivity and quality improvements, transfer of technology, diversification and processing, and improvements in marketing and accessibility to regional and global markets.

Adequate financing for small stakeholder farmers, who work in rural areas, remains one of the major development obstacles for international financial organisations such as the CFC. Farmers need to have access to finance to make investments to meet challenges such as more stringent market requirements, adaptation to new technologies, and stiffer domestic and international competition. When rural financing is available, it tends to be provided to large borrowers, excluding the majority of small producers from the formal credit system. In this regard, the micro-finance revolution should be expanded to reach rural communities where the need is greatest.

If the international community is to meet the agreed international development commitments, including those contained in the MDGs, it would need to reverse the current trend in Official Development Assistance (ODA) and allocate more resources to agriculture investments and commodity development, as outlined by the recent World Development Report 2008.

There is legitimate concern that the momentum could slip away unless sustained efforts are made to honour pledges made at the G8 Summit in July 2005. In this regard, the importance of commodities to development was reinforced at the 2007 G8 Summit in Heiligendamm. This is the right time for the international donor community to seize the opportunity and increase assistance to commodity-dependent developing countries, so that they have the capacity and conditions to benefit from the upswing in commodity prices and set a course for growth, sustainable development, and fulfilment of the MDGs. (END/COPYRIGHT IPS)

(*) Ambassador Ali Mchumo is Managing Director of the Common Fund for Commodities (CFC)