Commodities in International Trade: Current Trends and Policy Issues Olle Östensson, UNCTAD September 2002 - PowerPoint PPT Presentation

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Commodities in International Trade: Current Trends and Policy Issues Olle Östensson, UNCTAD September 2002. www.unctad.org/infocomm www.natural-resources.org/minerals. Commodities: an attempt at a typology. Physical characteristics Homogeneous quality Can be shipped in bulk

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Commodities in International Trade:

Current Trends and Policy Issues

Olle Östensson, UNCTAD

September 2002

www.unctad.org/infocomm

www.natural-resources.org/minerals


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Commodities: an attempt at a typology

  • Physical characteristics

    • Homogeneous quality

    • Can be shipped in bulk

    • Low degree of processing

  • Economic characteristics

    • Few barriers to entry

    • Productivity gains tend to be passed on

    • Fluctuating prices


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Commodity groups

Shares of world exports, 1997

- manufactures: 75.1%

- food items: 8.6 %

- fuels: 7.8 % (1980: 24%)

- ores and metals: 3.3 %

- agricultural raw materials: 2.4%

- non-classified, including non-monetary gold: 2.8%

Growth rates, 1980-97

8.1 %

4.5 %

-0.8 %

3.8 %

3.4 %


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Change of shares in world commodity exports

  • Developed countries59% 66%

  • Developing countries33% 29%

  • United States12% 12-13%

  • European Union 28% 39%

1970-72 1998-99


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Change of shares in world commodity imports

  • Developed countries75%70%

  • Developing countries16%26%

  • United States12%12-13%

  • European Union 46% 42%

1970-72 1998-99


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As a group, developing countries have become less reliant on commodity exportsHowever, out of 140 developing countries, 83 depend on commodities for more than half of their export income, almost the same number as in 1990.


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Nonfuel commodities’ share of exports, %

90-9297-99

Antigua and Barbuda 644

Barbados2831

Belize8884

Dominica6747

Grenada6674

Guyana8865

Jamaica8074

Saint Kitts and Nevis4748

Saint Lucia6665

Suriname9582

Trinidad and Tobago 710


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Share of export earnings of three most important commodities, 97-99

Antigua and Barbuda 2.6Fish, Alc beverages, Wood

Barbados19.4Sugar, Alc beverages, Fuels

Belize52.5Sugar, Bananas, Fish

Dominica34.1Bananas, Oil of coconuts

Grenada23.2Spices, Fish, Wheat+flour

Guyana91.0Gold, Sugar, Bauxite

Jamaica61.2Alumina, Sugar, Bauxite

St Kitts and Nevis36.6Sugar, Beverages

St Lucia55.7Bananas, Fresh fruit, Pepper

St Vincent and Gren68.5Bananas, Wheat+flour, Rice

Suriname84.5Alumina, Rice, Fuels

Trinidad and Tobago51.2Fuels, Non-alc bev, Sugar


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Dynamic and stagnating sectors

  • Changing consumption habits

  • Improved storage and transportation

    • For example, tropical fruits, fishery products

  • Changes in the organization of trade

    • Direct contacts between exporters and retailers allow adaptation to consumer preferences

  • Technological change and substitution

    • Mainly for raw materials

  • Agricultural protectionism

    • Dynamic sectors least protected


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Changing consumption habits - food

In rich countries

  • Health concerns

  • Convenience - less time to cook and prepare

  • Desire for variety

  • Environmental awareness

  • Rising incomes

  • Tourism

    In poorer countries

  • Increasing incomes

  • Current low levels for basic foods

  • Increased calory intake

  • Also, “globalization” of consumption


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Example of a dynamic specialty item:“Organic products”

  • Markets less than 2 % in general but in Austria, Switzerland, Denmark, 5 to 10 %

  • Increasing rapidly – in UK by 40 % per year

  • Import demand likely to remain high

  • 80 per cent of organic products imported into the UK


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Margin increasing between international and retail prices

  • Widened since 1970s, and at an accelerating rate since 1980s

  • Margin greater in countries where there is more concentration

  • Cannot be attributed to costs

  • Also, for same products, with similar retail prices, producers in developing countries receive less


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Developing countries and agricultural commodities


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Why is agriculture important to developing countries?

  • 2,500 million people in developing countries depend on agriculture, and most of them are poor

  • Comparative advantages are clear

  • A window of opportunity in a new round?


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Main developing country agricultural exports (% of agricultural exports)

New dynamic sectors have emerged

Traditional commodities are losing importance


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Border measures

Tariffs

Seasonal limits

Minimum import prices

Health and safety standards

Other obstacles

Domestic support

Oligopolistic markets

Importing firms’ standards

Exporters’ (un)competitiveness

Obstacles to increasing food exports


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High tariff sectors

Tobacco, meat, dairy and sugar

Low tariff sectors

Fruit, vegetables and fish BUT

Few TRQs, minimum prices, vary with prices

Agricultural tariffs:-Agricultural tariffs (average 62 %) much higher than for manufactured products (average 5 %)- Complicated – mixed with TRQs, ad valorem and specific tariffs, complex technical relationships- Multitude of preferential rates- Tariff escalation especially for meat, sweeteners, vegetable oils


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1970-72 to 98-99, successful countries had few, if any preferences: share increased from 9 to 12 %

ACP countries and LDCs had preferences: shares declined from 8.4% to 2.4% and from 4.7% to 1%, respectively

How important a barrier are tariffs?


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Official

SPS and TBT bring discipline

HACCP generally accepted

Implementation costly

Management skills required

Unofficial

Importing firms’ requirements

Determined by consumers’ tastes and public opinion

Quality, traceability

Implementation costly

Standards vary

Health and safety standards


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Subsidized exports from developed countries displace developing countries in their own and third country markets

Total support to agriculture in OECD in 2001 was$311 billion; support per farmer was US$ 33,000 in Switzerland, US$ 20,000 in the E.U., Japan and the United States


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A useful comparison (billion US$, 2000)


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Increasingly, traditional developing country products are processed and/or branded in developed countries, and re-exported

Developed countries are accounting for larger shares of tropical product exports. US exports of coffee and coffee products continue increasing and reached a record level of $250 million from about $175 million five years ago. (Largest exporter Brazil and all of sub- saharan Africa - about $2 billion each)


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Losing out in the value-added:

the example of the cocoa sector


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The evolution of productivity:Change in yield 1980-2001, %


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The gap is closing:Yield in developing countries in % of developed


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Changing market structures

  • At the national level:

    • liberalization: foreign entrants, foreign product competition, increased price risk exposure

    • pressure to meet exigencies (eg. HACCP)

  • At the level of international trade

    • growing concentration of trade: mergers

    • cheaper finance and good logistics are now key factors

    • need for greater capital resources and more skills

  • At the level of consumer demand

    • increasing importance of supermarkets

    • globalization of consumption patterns

    • new demands linked to production technology (e.g. organic foods)


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Value chains are changing

  • International trade:

    • Firms becoming larger and vertically integrated

    • Mergers and acquisitions

    • Disappearance of traders

  • Retail sector

    • Global supermarket chains

  • Liberalization of agriculture in developing countries

  • Closer integration of trade and production

    • Impact on not only WHAT to produce but HOW and by WHOM


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Policy issues

  • International community

    • Reduce agricultural protectionism and subsidies

    • Harmonize standards

    • Allow protection of crucial sectors for single commodity exporters and food importing countries

    • Establish safety nets against catastrophic price falls

    • Provide market information

  • Governments

    • Integrate subsistence farmers in the monetary economy

    • Facilitate access to credit, regulatory frameworks

    • Improve transportation and storage

    • Complement liberalization with institution building

    • Improve information flows


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Policy issues, continued

  • Enterprises

    • Identify dynamic markets

    • Upgrade business skills and product quality

    • Raise productivity, particularly in small-scale farming

    • Build competitive marketing and distribution networks

    • Use market-based risk management techniques


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Market issues and prospects

  • Bananas

    • Stagnation of demand in traditional consumer countries, new markets becoming important

    • Organic bananas

    • EU banana regime ends in 2006

    • No tariffs for LDCs in EU in 2006

  • Fish

    • Rapid growth in demand

    • Compliance with standards costly


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Market issues and prospects, continued

  • Sugar

    • Falling prices (countries exporting to free market lost 1.4 billion US$ 1998-2002)

    • Subsidized production and exports in developed countries

    • No tariffs for LDCs in EU in 2006

  • Spices

    • Rapid growth in demand

    • Easy to enter market, risk of oversupply


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Developing countries and mineral commodities


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Why is mining important to developing countries?

  • Little employment - but 13 million people work in small scale mining

  • Production-consumption linkages weak – but locally important

  • Fiscal linkages provide opportunities for funding development


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Developing countries’ share of world minerals and metals exports, %


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Developing countries’ share of world minerals and metals imports, %


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Some success in the last decade, taking into account

  • The share of developing countries in production is higher than in exports (increasing imports)

  • Their share in investment is higher than in production

  • Their share in exploration is higher than in investment


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Factors behind the success

  • Comparative advantages are allowed to work

  • Changed investment climate in developing countries

  • Changed financing methods

  • Security of supply issues politically dead

  • Environmental concerns


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International trade regime for minerals

  • Developed countries apply zero or near zero tariffs on mineral commodities, developing country tariffs decreasing

  • However, anti-dumping actions are common


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Investment climate

  • Most developing countries have updated legislation on FDI, on mining or on both

  • Nationalizations unlikely

  • Political stability


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Financing methods

  • Project lending

  • Gold loans, commodity bonds (not very common now)

  • Equity capital (easy until a few years ago)


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Political factors in developed countries

  • No subsidies to domestic mining

  • Privatization of state owned mining companies

  • Zero environmental tolerance

  • Mining banned on large areas of land


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Policy issues: mineral commodities

  • For mature mineral economies: diversification

  • For new mineral economies: attract and retain investment

  • For both groups:

    • ensure an equitable distribution of revenue

    • channel government income to investment in human capital

    • maintain macro-economic stability in the face of price and volume variations


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Market issues and prospects

  • Bauxite/alumina

    • New bauxite mines in new places

    • Chinese competition on bauxite for non-metallurgical uses

    • Energy costs for alumina refineries, mainly brownfield investment

  • Gold

    • Low prices, official reserves still a threat

    • Financing for small ventures problematic


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