Commodities and their Markets
Guide and Directory
Published by TWIN 1995
ISBN 0 7494 1672 0
ONE MARKETS FOR TROPICAL PRODUCTS
for Tropical products
history of the world is inextricably linked with trade in tropical products. Wars
have been fought to gain access to precious oils, fabrics and spices from Africa
and the Orient. Empires have been built on the trade in commodities along the
Silk Road and the sea routes to South America and islands of the East Indies.
huge distances over which these products had to be transported by camel train
and ship with all the associated dangers of those times and regions meant that
the prices of the goods were truly fabulous and most were therefore luxuries affordable
to only the richest people.
the centuries, the volume of trade in tropical products has increased enormously.
Technical, environmental, economic and political changes have had a great impact
on their markets. New, more efficient farming techniques, plantation production
and selective plant breeding have greatly increased yields of some commodities.
At the same time, populations in industrialized countries have become bigger and
wealthier and demand for tropical products has grown.
industrial revolution brought changes, which meant that production and processing
could be mechanized. Transport became cheaper and more reliable. Up until the
early part of the twentieth century, international trade in tropical products
was almost totally controlled by the companies of the then imperial powers who
undertook most of the processing. However since the end of the Second World War,
the process of decolonisation has completely altered this structure. Almost all
the once colonized countries have now achieved independence and the large trading
have relinquished much of their direct role in the process of production.
many countries, plantations were nationalized and exports put under the control
of state run marketing boards, which replaced private trading monopolies. Many
firms, once owned by the expatriates of the colonizing state were purchased by
members of the indigenous elite. In some countries, there was a movement towards
the cooperativisation of farms under the auspices of the state but expels of farmers
themselves gaining control over the commercialisation of their products were few
and far between.
ON TRADE IN TROPICAL COMMODITIES IN THE MODERN WORLD.
modern times, the trade in some tropical products has become truly massive. The
markets for these products, whether they are the very important internationally
traded commodities like coffee sugar, cocoa or obscure products like candle wax
are subject to many forces operating behind the scene such as speculation, the
domination of large trading companies and the influence of multilateral development
Most of the old colonial trading companies
have evolved over the post- colonial period into vertically integrated trans national
corporation operating on a global basis. They have joined by large US and Japanese
conglomerates and by trading houses with no real identifiable base but with administrative
headquarters in countries lie Switzerland and other business friendly tax havens.
Together with some specialist trading companies (mostly based in Europe Japan
and North America), these organizations conduct almost all the worlds’ trade in
these trading companies still retain ownership of production capacity I certain
products grown in the tropics. Most however, no longer regard raw material production
a s the profitable end of their businesses and are content to purchase raw materials
from exporters based in the country of origin. This is largely because multinational
corporations are unhappy about accumulating profits in developing countries where
the tax rate are often high, expatriation of profits is limited and where viable
alternative local investment opportunities are few and far between. They would
prefer to conduct the profitable areas of their business in countries with more
flexible opportunities to invest and transfer capital. So rather than profiting
from production, almost all their in come is now derived from the trading, processing,
packaging, financing of the product. For these reasons, such corporations now
have a greater interest of keeping the price of raw materials low.
trading companies, whose existence depends on maintaining the world trade in tropical
goods, have an interest in making sure that the competition from synthetic products
is kept to a minimum. They encourage tropical producers maintain reliable quality
and delivery standards and try to convince them that prices must remain low to
maintain the volume of trade. Such advice is generally helpful but doesn’t always
assist producers in maximizing their earnings when the opportunity arises.
corporations have also strengthened their control over intellectual property.
Pharmaceutical companies have developed a multibillion-dollar industry by utilizing
natural products. In order to produce one useful drug it is often necessary to
test the properties of the extracts of thousands of natural plants. The work
is so highly technical and costly that only the world’s very largest companies
can afford to undertake it. Once a useful product has been developed, often guided
by the knowledge of the people from the district in which the plant is found,
the companies go to great expense to ensure their ownership rights to it.
united Nations Development Programme estimated in 1994 that third world countries
might have earned up to US$5 billion a year in royalties from multinationals for
their use of plant derivatives and know-how. But indigenous communities cannot
afford to patent their own products, let alone fight a legal battle with large
companies over patent rights. Some third world agriculturalists now find they
have to pay a royalty to a multinational corporation, which has patented seed,
plant, or process that they have been using freely for generations.
Multilateral development agencies such
as the World Bank and International Monetary Fund (IMF) are among the main conduits
of aid and credit to developing countries. Their attitude to individual countries
greatly influences the decisions of private investors. The agencies in turn are
heavily influenced by the governments of the industrialised countries that are
the main importers of tropical products.
World Bank and Imf are responsible for designing the economic policies (structural
Adjustment Programmes or SAPs) that must be adopted by countries if they wish
to receive loans and aid. Such policies identify exports as a key to development.
Governments are obliged to encourage exports of these goods, often to the detriment
of domestic food production. These policies might have been effective if adopted
by only one or two countries. Unfortunately many have been pressed to follow
the same course and the resulting glut of primary products on the world market
has resulted in plummeting prices. In many cases prices for tropical agricultural
products in the early 1990s were, in real terms, at historically low levels.
Although in the last few years it has been recognized that SAPs are not helping
to relieve poverty, this has yet to filter through to policy level.
Historically, industrialised countries, which
are the main importers of tropical commodities, have tended to protect their own
processing industries with tariff and non-tariff barriers (quotas, quality restrictions,
bureaucratic regulations, etc). This has perpetuated a situation in which they
carry out much of the processing of natural products into added-value goods –
often the most profitable link in the commercial chain.
the past decade there have been moves towards a reduction of tariff barriers and
a liberalization of global trade. The Uruguay Round of the General Agreement
on tariffs and Trade (GATT), completed in 1993, agreed rules aimed towards a long-term
reform of trade the world’s tropical products. Although some tariffs will be
progressively reduced over coming years, those with low production costs and large
marketing resources are likely to benefit most. What is more, there are fears
that resources are likely to benefit most. What is more, there are fears marketing
resources are likely to benefit most. What is more is that there are fears that
hidden barriers such as environmental criteria and strict food exporters of tropical
products. quality standards will become more and more prohibitive to producers
and exporters of tropical products.
When the world’s trade and much of the production
of many of these products was in the hands of the large imperial companies, their
prices were controlled by them as producers at levels that guaranteed a return
on their investments. The so-called producer price arrangements were negotiated
between companies producing the same product to avoid price competition between
companies producing the same product to avoid price competition. In the 1950s
and 1960s this system stared to break down as private companies based in producing
countries or state-owned organisations took a greater share of production.
producer price system was replaced in part by a number of international agreements
for commodities such as coffee and cocoa, and minerals such as tin, were meant
to keep prices at levels that were satisfactory to both parties.
the late 1970s and 1980s these agreements came under increasing strain. This
was partly due to a failure by producers to participate in and police the agreements
properly, and partly because they lost the support of large consuming countries
such as the USA and the UK, which were much, influenced by non-interventionist
economic doctrines. Most of the agreements required the maintenance of buffer
stocks and, without the necessary financial resources, which only rich, consuming
countries could provide, they started to fall apart.
there have been several signs that the era of the collapse of commodity agreements
is coming to an end. Apart from the coming together of the tin producers, the
Association of coffee Producing Countries (ACPC) has decided that a well designed
stock retention agreement without the participation of coffee-consuming countries
is more likely to prove effective.
history of commodity agreements demonstrates that they can achieve significant
benefits for producers while they last that they will only last it they bring
together the volume producers of a specific commodity and those who perceive a
joint or common interest. They must be well organised, viz the De Beers diamond
cartel or the common agreements the various parties will quickly descend into
a hopeless state of bickering over market share and indulge in outright cheating
until the agreement finally collapses.
The buying power of the industrial world continues
to have great influences on the markets for tropical commodities. Demand for
these products tends to rise and fall along with the cyclical changes in global
industrial activity, whether the product is a food, a fibre or an essential oil.
There are obvious reasons for this: consumers buy more goods of every type when
they have jobs and more money in their pockets; speculators and traders tend to
keep stocks high when they see prices rising. The opposite is of course also
true and the prices of natural products fall in world economic recessions.
is important to consider, however, the market dynamic that makes a very small
surplus of supply over demand keep prices low. The marginal rise in demand in
the early part of 1995 improved the prices of most raw materials, including tropical
crops. The price of coffee, rubber, cotton and some essential oils showed the
first significant rise since the beginning of the decade. By the time of publication,
it was still too early to say whether these improvements would be sustained or
whether they were linked to what was beginning to look like a rather ephemeral
recovery in world industrial activity. To maintain prices at reasonable levels,
some controls over or coordination of supply in order to avoid over-production,
are probably essential.
Natural versus synthetic
In our world of high technology, new and better products are being
developed on a daily basis. Some naturally-occuring organic chemicals can now
be synthesised in a test-tube. Changing tastes and fashions can, in a few years,
end trade in a commodity, which had been produced for hundreds of years.
the other hand, almost paradoxically in an increasingly industrial world, there
is a move among consumers in developed countries towards natural products and
away from synthetic alternatives. This can be seen most readily in the area of
textiles, especially for clothing. The cosmetics industry has also seen a notable
increase in the demand for natural ingredients.
the same time, the incredible diversity of natural substances is a constant source
of interest for those researching new products. New uses for these products,
especially in the pharmaceutical and cosmetic industries are being discovered
all the time. Exotic fruit and vegetables that were once the subject of travellers’
tales are now quite commonplace items in the supermarkets and restaurants of consumer
combination of a rise in the costs of making synthetic products, a rejection of
consumers of synthetic ingredients and a wider interest in non-traditional natural
alternatives is bound to assist, albeit to a small extent he markets for many
Agricultural products are much affected by seasons
and the weather. Climatic changes, especially in the more arid parts, are causing
major changes in production output and in the choice of products to be grown.
The world price of most exported agricultural products changes according to the
time of year. Demand for some goods produced in remote parts of the world outside
the main harvest season can be so high that traders can afford to fly such goods
halfway round the world. The trend towards out-of-season fruit and vegetables
has reached the point where almost any product can be bought (at a price) at any
time of the year in supermarkets in the industrialised, consuming world.
products also have their own natural cycles, which are reflected, in their markets.
Taking the example of a nut tree that takes five years to bear its first crop;
when farmers (and their governments) see that a high price is being paid for that
nut, they will start planting trees. After five years, they will all bring their
nuts to the market at the same time. This oversupply will cause the market price
to fall and no one will want to plant any more nut trees, which will eventually
result in lower production levels, higher prices and a repetition of the cycle.
A small but growing influence
on the markets for tropical commodities is the fair movement. Beginning in the
1960s in Europe, the movement has now spread to North America and Japan and is
becoming a recognised force among consumers and traders alike.
on what is fair trade have been agreed at international level for some commodities.
In general, they involve paying a fair price to primary producers, so that they
receive a decent return on their labour, have access to affordable credit and
can invest in their future; working to long-term contracts, reducing some of the
insecurity associated with global trade; and ensuring that workers have the right
to organise and live and work under safe and healthy conditions.
trade developed through the work of alternative trading organisations and non-governmental
organisations involved in development programmes. Since the early 1990s, however,
it has expanded to include some more traditional commercial companies. An independent
monitoring system has been established for certain commodities, so that if a company
so implies with specified fair trade criteria, they can display a symbol – a fair
trade mark – on their products as a consumer guarantee. In Holland, where this
system bean, coffee traded under these conditions now accounts for some 2.8 per
cent of national coffee sales.
including some relatively large and influential companies fair trade is still
limited in terms of the umber of produce4s it affects directly. However, an important
element of the movement is its commitment to campaigning on trade issues at national
and international level. Combining this activity with setting an example through
actual practice is what gives the movement its strength and the potential to have
a wider impact on the market as a whole.
IN THE WORLD MARKET
The markets of many products are affected
by the economic policies of the countries in which they are grown – whether the
country can subsidises or discourages exports, for instance. Equally, output
can be affected by a producing country encouraging or suppressing trade union
activity, or neglecting small scale farming, or the production of staple or cash
crops. Some topical and subtropical countries are industrialising at a rapid
pace and may not see a future in exporting cheap raw materials. Others have suffered
such appalling economic reverses (for which low commodity prices are often to
blame) that political stability has completely broken down and civic disruption
prevents proper production.
SAPs of the multilateral agencies have, in turn, had an effect on national agricultural
bodies, particularly the role of state-controlled marketing boards. The presence
of these boards was both positive and negative. On the one hand, many served
a useful purpose in that they gave the country the opportunity of bargaining with
buyers (notably the multinationals) on equal terms. Small-scale farmers are simply
not equipped to bargain in such unequal circumstances and are rarely able collectively
to confront buyers on equal terms. In some cases the marketing boards also served
to ensure the quality of the exported product. Ghana for example gained an international
reputation as a supplier of excellent cocoa through the strict quality control
procedures enforced by the cocoa Marketing Board.
the other hand, many marketing boards were seen by the governments of the countries
concerned, as a simple way of collecting tax revenue. Being in a powerful position,
board officials could and did become corrupt. As such, the marketing boards became
hindrances to export programmes and represented a direct cost borne mainly by
the commodity producers
liberalisation process can offer opportunities to primary producers. As a board
is dismantled, there is a window of opportunity for farmers to gain greater control
over the commercialisation of their product. To do so, however, requires effective
organisation or the window will close as individual producers are picked off by
private companies seeking maximum profit.
This book covers a wide range of natural products.
Some can be most efficiently produced on huge plantations and others can only
be collected in tiny quantities from the wild. Whosever it is that actually grows
and harvest the crop, there is probably no other type of trade in which the actual
producers of the traded product have so little influence over the market for their
goods, or whose interest are so poorly represented.
a producer price system, properly controlled marketing boards, the full support
of governments, as well as international commodity agreements, many small-scale
tropical agriculturalists are in a weak bargaining position and cannot influence
the terms of trade. When commodity prices are low they must produce even more
to obtain the same income, thus putting even more downward pressure on the price.
At the same time, the cost of chemical pesticides and fertilisers rises, so they
must work even harder to care for their crop. But, in order to buy such things
as cooking pots, medicines and tools they must keep on producing no matter how
low the price falls. Switching to another crop is often seen as too risky, at
least in the short term.
adoption of modern farming techniques by tropical countries does not necessarily
benefit primary producers. The conversion of agriculture into agro-industry for
the mass production of a single cash crop has seldom improved the economic fortunes
of small-scale farmers. Often it has resulted in disaster for the peasant economy
as a whole which has seen its traditional ownership systems undermined, land expropriated,
production methods and knowledge overtaken and marginalized, and has received
no direct benefit from exports of the cash crop. The movement of subsistence
farmers into ever more marginal and ecological fragile land is both a social and
pressures affect plantation production in a different way. In order to remain
competitive, costs must be kept low and very effort must be made to utilise the
best available technology to this end. The development of hybrids and cloned
varieties has helped to increase productivity and reduce vulnerability to disease
and adverse weather conditions. The main expenditure for most plantation owners
is still the cost of labour, however. Low prices take their toll in the loss
of trade union rights for plantation workers and generally worsening conditions,
often resulting in long and bitter struggles.
production is usually undertaken for profit, whereas smallholders produce to live.
There is a limit to how for plantation owners can cut costs and how long they
are prepared to wait for a profit. This has meant that it has been plantation
production, rather than smallholder production of the same commodity, that has
tended to succumb to the recent long period of low market prices. But it has
also meant that countries with both low wages and efficient production methods
such as those in South East Asia have been able to retain a greater share of the
market, generally at the expense of less efficient producers, particularly in
There is a significant
difference between the price received by producers for raw materials or semi-processed
products and the price ultimately paid in the consuming country. This is most
obvious for products, which undergo little additional processing prior to being
sold to the end consumer. For instance, for whole peppercorns, the final consumer
pays ten times the price paid to the producer and, for coffee, four times more.
Similar differentials exist for fresh fruit and vegetables.
proportion of these differences are attributed to direct costs such as freight,
insurance, finance, cleaning and packaging, advertising and distribution. The
rest is non-material added value such as branding, image and profit. The decline
in prices of many commodities over the past decade has been reflected at retail
THE FUTURE: CAN PRODUCERS HELP THEMSELVES?
matter how large their output, a producer’s influence on the market for its product
is tiny compared with that enjoyed by the transnational corporations. It seems
clear that individual producers of producing countries will not be able alone
to control the markets of their products.
obstacles, which stand in the way of producers trying to plan rational levels
of production, are formidable. Small-scale producers usually lack reliable communication
systems and so could not get in touch with other producers even if they knew whom
they were. It is often easier to telephone from East to West Africa via Europe
than it is to telephone direct.
United Nations Conference on trade development (UNCTAD), which was the international
agency responsible for helping countries to plan world production agreements,
has all but ceased this work in the face of opposition from industrialised countries.
The economic argument that more efficient producers should be rewarded by being
allowed a larger share of the market by means of direct competition still carries
great weight – and this is in spite of the evidence that most efficiency can only
be achieved by worsening the plight of already poverty-stricken producers.
is obvious, however that without an effort by producers to exercise some control
over the production of, and markets for, their products, the prices of most primary
products will stay low. There are no grounds for great optimism but there are
signs that some efforts are now being made by producers of certain commodities
to work together. Certainly, the catastrophically low prices of the late 1980s
and early 1990s have been a harsh lesson to producing countries and may inspire
them to seek solutions by cooperating with one other.
is also possible that pressure from environmental lobbies may eventually stimulate
progress towards management of supplies and the full costing of commodities.
The link between conservation, sustainable production and fair price for crops
has long been established but a concerted world effort is required to make international
policy – and practice – reflect these vital concerns.
cheapness of all but the very rarest tropical products is, perhaps, the most illustrative
feature of the global political and economic forces, which shape their markets.
It would surely surprise most consumers to learn that 12 to 20 million individual
clove buds must be picked to earn the grower only about US$600.
markets for these products not only reflect the relative weakness of tropical
agriculturalists in the modern world, they are to a great extent the cause of
>Market information > Tropical
commodities and their markets> Chapter 1.1