By Gerard Greenfield
The Agricultural Commodity Price Crisis: Back on the Agenda?
As one of the key issues that deadlocked the 5th WTO Ministerial in Cancun and triggered its collapse, the debate over agricultural trade liberalization continues to escalate, and in doing so appears to be breaking the boundaries of the free market fundamentalism that has dominated the minds and actions of policy-makers for over two decades. As Irfan ul Haque argues in a report on agricultural commodities published by the United Nations Conference on Trade and Development (UNCTAD), neoliberalism has created "an intellectual environment of do-nothing, laissez-faire" under which "any search for solutions to unstable and low primary goods prices is dismissed as a waste of time."1 Far from a waste of time, the Special Rapporteur to the UN Commission on Human Rights on the "right to food" has urged immediate action to alleviate the crisis in agriculture by tackling export dumping by the industrialized countries and corporate control over food and agriculture that has exploited falling commodity prices: "Global commodity markets are increasingly dominated by fewer global transnational corporations that have the power to demand low producer prices, while keeping consumer prices high, thus, increasing their profit margins."2
No longer bound by the rigid ‘flexibilities’ of WTO deals, deadlines and coerced commitments, it appears that key UN agencies and programmes are (re)entering the debate on agricultural trade liberalization in ways that challenge the neoliberal policies that have undermined the livelihoods and rights of some 1.3 billion farmers and 450 million agricultural workers for so long. UNCTAD’s Least Developed Countries Report 2004, released on 27 May, belatedly acknowledges that "increasing exports do not necessarily lead to poverty reduction", describing the combination of export expansion and increased poverty as "immiserizing trade".3 In its conclusions the Report observes that: "A particular problem for agricultural-commodity-exporting LDCs [Least Developed Countries] is that the widespread adoption of trade liberalization and export-oriented policies has been associated with falling world prices for agricultural commodities."4
A problem indeed. Over the past two decades the prices of nearly all the major agricultural commodities declined in real terms. According to UNCTAD, comparisons of the prices of agricultural raw materials and food and beverages in 2003 with 1980 prices show a drop of 60% and 73% respectively. Coffee prices in 2003 were a mere 17% of its 1980 value, and cotton prices were 33%.5 one of the effects of these price declines is the deterioration in the terms of trade for commodity-dependent countries that – far from benefiting from trade liberalization – are encumbered with greater debt . From 1997 to 2001 alone, the combined price index of all commodities fell by 53% in real terms, that is, "commodities lost more than half their purchasing power in terms of manufactured goods."6 It is in this context that UNCTAD’s regional economic development report on Africa, released on 26 February this year, focuses on the pitfalls of commodity dependence in a world of declining agricultural commodity prices, arguing that the "commodity trap" has become a "poverty trap".7
The social devastation wrought by these price declines – which translate into falling farmers’ incomes, lower wages and debt – is also recognized. As the Report of the Meeting of Eminent Persons on Commodity Issues organized by UNCTAD immediately after Cancun states: "We note with dismay the extreme poverty into which 25 million coffee farmers and workers have been thrust by very low prices."8 Similar – though much more sanitized – expressions of concern emerge in an increasing number of UN reports dealing with poverty, trade and commodities. Added to this is the renewed interest in international commodity agreements – 57 years after the UN Economic and Security Council recognized the need for price stabilization measures to overcome the social and economic impact of short-term price volatility on world markets. It seems that such measures may be back on the agenda for discussion.
The Iron Cage of Neoliberalism
This renewed official attention to the social and economic impact of declining agricultural commodity prices generated by UN agencies like UNCTAD is necessary and timely, particularly if it contributes to maintaining the deadlock in agricultural negotiations at the WTO and broadens the debate over the future of agriculture. At the same time, we must recognize that the UN interventions in the debate on global agriculture are self-limiting, if not self-censoring. While the solutions advanced clearly demand that governments do something, the implicit assumption is that whatever action is taken must facilitate and not challenge the logic of the market.
One of the effects of this continued devotion to ‘the market’ is that, even in those reports critical of trade liberalization and export dependency, the role and impact of neoliberalism is ignored. For example, a crucial report on commodity dependence presented at UNCTAD X (February 2000) describes the way in which international commodity agreements came to an end "just as world commodity markets changed from excessive short-term price volatility to a sharp downturn in real commodity prices." As a result, "The 1990s thus opened with no effective market-stabilizing mechanisms in place."9 This shift is presented as if the end of price stabilization mechanisms simply coincided with the drop in commodity prices. There is no reference to the deliberate political measures taken to abolish price stabilization mechanisms in order to drive down prices, or to the aggressive neoliberal policies under which this was carried out.
Similarly, the UNCTAD report on Africa suggests that the "ascendancy" of the notion that economic growth results from "the free play of market forces" meant that state regulation of markets "was no longer deemed acceptable or feasible".10 How and why this happened is unexplained. There is no recognition at all of the political struggles or ideological violence involved in this paradigm shift. As such, there is even less scope for a critical understanding of the social violence of the market and its consequences.
There is an obvious ‘disconnect’ between the causes of declining commodity prices and solutions. For example, all of the new UN reports that deal with agricultural commodities acknowledge the extent of transnational corporate control in food and agriculture. Yet – with the sole exception of the Special Rapporteur on the right to food – the relationship between this corporate control and the social effects of declining prices remains obscure. Discussion of market forces of supply and demand are juxtaposed with evidence of massive corporate concentration along the agricultural production, processing and distribution chain, without any apparent contradiction. More importantly, the solutions advanced to deal with "immiserizing trade" roundly fail to address the role of agri-food transnationals, let alone restrict or rollback this corporate domination.
Another major shortcoming concerns the way in which solutions to the long-term decline in agricultural commodity prices are framed within the parameters set by the WTO regime. In particular, it is assumed that securing greater "market access" via WTO negotiations on agriculture will bolster export earnings, turning immiserizing trade into enriching trade. Added to this are proposals for diversification into more "market-dynamic" products, technology transfer and institutional "capacity-building" – measures that are purported to halt the impoverishment of farmers (with no mention of agricultural workers), even as prices keep on falling. Thus we are faced with a curious logic whereby the last two decades of trade liberalization are seen as a major cause of rural impoverishment, and at the same time solutions are advanced in the context of more trade liberalization under the auspices (that is, coercion) of the WTO.
Falling Prices, Rising Profits: The Missing Link
Most analyses of agricultural commodity price problems assume a shift from price volatility in the 1980s, to a steady price decline in the 1990s. This then leads to the odd conclusion that prices have become more stable. In a report to the Consultation on Agricultural Commodity Price Problems organized by the UN Food and Agriculture Organization (FAO) in March 2002, the Assistant General Director of the FAO concluded that since "many commodities prices were more stable in the 1990s than in the 1980s", the "current concern is with the levels of prices rather than volatility."11 But as Irfan ul Haque’s analysis of the impact of neoliberalism on the cocoa industry suggests: "The prices were more stable in the 1990s simply because they had come closest to the bottom."12
Despite this obvious fact, the FAO consultation proceeded on the basis that prices had stabilized at low levels, leading to a key question for discussion: "Are current commodity prices too low?" The report concludes: "So in answer to the question as to whether commodity prices are too low we can certainly say that prices for most commodities are low by historic standards, but it is not so certain that they can be said to be too low given current market conditions of demand and supply."13 According to this circular logic, since market conditions of demand and supply set prices, prices can never be too high or too low. They will always be in accordance with prevailing market conditions. The question that should have been addressed is: "Too low for whom?" Clearly prices are too low for small farmers and agricultural workers and their communities, whose livelihoods have suffered as a result of declining incomes. Hence the well-documented rise in poverty that UNCTAD describes as "immiserizing trade". Prices are not too low for the transnational corporations that dominate the processing and distribution of food and other end products, since – as buyers of agricultural commodities – their profit margins are rising as input costs are falling. Moreover, since these corporations dominate so much of the global trade in agricultural products from growing to marketing, they directly shape the conditions of demand and supply.
The FAO report explicitly recognizes the fact that: "increasing concentration and specialization of production and vertical integration change supply-price relationships, while increasing concentration in processing, marketing and distribution modify commodity demand-price relationships." This means that, "the increasing market power of the transnational trading and processing companies and of multiple retailers in consuming markets have changed the market relationships with developing country suppliers."14 So it’s actually about power, not invisible market forces. Yet this analysis stops dead before it reaches its logical conclusion. The market power of transnational corporations seems to have no bearing on the assumption that prices are not too low because they are in accordance with market conditions of demand and supply. That transnationals largely create these conditions, and that trade liberalization under neoliberalism enhances their power to do so, are realities that are ignored in the final analysis.
In the 33 paragraphs that make up the Report of the Consultation on Agricultural Commodity Price Problems, summarizing the findings of the FAO conference, there is not a single reference to corporate concentration or control, even in the list of "Factors Influencing Prices".15 The proposed solutions, therefore, are limited to measures to improve access to financing, technology and export competitiveness, etc. State action is limited to seeking "an improved balance between supply and demand" and policies targeting farmers that seek "permanent reductions in supply" through diversification – none of which addresses the power of transnational corporations.16 Why should permanent reductions in supply and diversification be imposed on small farmers and agricultural workers as a ‘solution’, if it is already recognized that overproduction and declining prices are a direct consequence of the market power of transnational corporations?
Ultimately, there is no recognition of the need for state intervention to deal with corporate concentration, and so the dependency of farmers and workers on a handful of transnational corporations becomes a given condition – an objective reality as unquestionable as the market conditions of demand and supply. Even the UNCTAD-sponsored Report of the Meeting of Eminent Persons on Commodity Issues, which explicitly addresses the impoverishment of millions of coffee farmers and workers, deals with transnational corporations only in the context of its praise for "corporate social responsibility", expressing satisfaction with those companies that have voluntarily applied certain (undefined) international standards.17
A similar problem surfaces in the UNCTAD report on commodity dependency in Africa. Export subsidies in the developed countries for commodities like cotton and sugar and overproduction in other commodities such as coffee, tea and cocoa are deemed to be the cause of a "structural over-supply" that is driving down prices.18 At the same time the report recognizes that "oligopolistic markets" and high levels of "concentration" in these respective industries, "reveals a ‘disconnect’ between prices paid by final consumers and those received by producers, because of higher profits at later stages of the value chain." It is further acknowledged that, "…where concentration is largest tends to acquire a large share of the profits, with a small share of the final price going to the other stages."19 The example is given of coffee and tea, where "booming" business in developed countries generates higher prices for processed products, but "not in the prices received by producers in developing countries."20
This ‘disconnect’ between what farmers and workers earn and what consumers pay (a euphemism for the massive profit margins of transnational agri-food corporations) suggests that the missing link between the long-term decline of agricultural commodity prices and booming consumer markets lies somewhere in the realm of corporate concentration. This concentration is already well documented.21
In the case of cocoa we can see that 200 mergers and acquisitions from 1970 to 1990 left only 17 corporations controlling half the world market in chocolate, with five corporations (Nestle, Mars, Hershey, Kraft-Jacob-Suchard and Cadbury-Schweppes dominant.22) As a result, by the mid-1990s an estimated 70% of all cocoa grindings were conducted by the top ten corporations, with three corporate giants (Archer-Daniels-Midland (ADM), Barry Callebaut, and Cargill accounting for 50%.23 In the case of coffee, just two companies – Philip Morris and Nestle – control more than half the world market in roasted and instant coffee. Even at the time of the collapse of the International Coffee Agreement (ICA) in 1989, General Foods (Maxwell House), Proctor & Gamble (Folger’s) and Nestle controlled more than three-quarters of the ground coffee market.
Under these circumstances it is clear who are the beneficiaries of the ‘disconnect’, and that these profits are rising at a faster rate as agricultural commodity prices are falling. As Jeffrey Paige has argued in his analysis of neoliberalism and the coffee elite in Costa Rica, where the end of the ICA triggered a dramatic collapse in coffee prices: "The principal beneficiaries of the price drop were the oligopolistic roasters in the developed world, who failed to pass the lower prices on to consumers. The net effect of the collapse of the ICA was a substantial transfer of wealth from the underdeveloped to the developed world."24
This transfer of wealth was even greater because within falling prices the share received by coffee growers directly also declined: "Between 1989/90 and 1994/95, the proportion of total income gained by producers dropped to 13%; the proportion retained in consuming countries surged to 78%. This represents a substantial transfer of resources from producing to consuming countries, irrespective of price levels."25
These transfers of wealth from South to North – from farmers and agricultural workers to transnational corporations – illustrates precisely the layer upon layer of ‘disconnect’ that the UNCTAD report on Africa’s commodity trap acknowledges, but does not challenge.
Fuelling the Fire? The Market Access Solution
Despite the growing criticism of immiserizing trade and the social and economic costs of declining commodity prices, much of the official analysis and debate still operates within the parameters of neoliberalism. This is demonstrated by the fact that little recognition is given to trade liberalization as a direct cause of commodity price decline. Recall that the UNCTAD LDCs Report (quoted above) states that trade liberalization and export-oriented policies were "associated with" the global decline in agricultural commodity prices.26 There is no cause-and-effect; no understanding of how these policies drove down prices and drove up the profits agri-food transnationals.
Trade liberalization encouraged increased production, leading to overproduction that pushed down prices, driving down farmers’ incomes and leading them to attempt to produce more to maintain their livelihoods. As the experience of the cocoa trade illustrates, attempts align domestic and world prices to ostensibly give farmers improved prices generated "some contradiction between the two goals since the increased production from liberalization would lower the world price, thereby lowering the price the cocoa farmer actually received."27 This vicious downward spiral is reinforced by the system of competition. And this is where the social violence of the market – the constantly escalating pressure on farmers and workers to produce more for less – appears as a force, not a benign set of opportunities.
Operating in conjunction with this vicious cycle of overproduction and falling prices is the debt-export trap: where countries are compelled to export more commodities to service their debts, and to borrow more in order to finance export expansion. The UNCTAD regional report on Africa acknowledges that "severe balance of payments difficulties and the debt overhang" heightened the commodity dependency of poorer countries. These countries "were encouraged through structural adjustment programmes to produce and export more of their traditional commodities to offset the loss of earnings."28
Despite the realities of the market as a coercive force, the underlying assumption in the dominant orthodoxy is that the market is benign – a spectrum of opportunities. The solution for impoverished farmers is to enhance their capacity to respond and take advantage of these opportunities. Since import barriers prevent farmers from taking advantage of overseas market opportunities, greater "market access" is the solution – a major opportunity to sell more in these overseas markets. It is in this sense that the UNCTAD report on Africa presents market access as a solution to the commodity/poverty trap: "Africa could use the WTO system to its advantage by judicious schemes of tariff reduction (or rationalization) within the context of regional economic groupings that enhance market access within the continent, and generally in the developing world."29 The report is clear that there is scope for flexibility or "derogations", but only within the WTO system. This refers in particular to proposals for expanding negotiated tariff rate quota (TRQ) regimes, giving less developed countries greater access to the EU and US markets. But as the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations (IUF) points out, "This expanded TRQ regime is essentially a political instrument, giving selective market access as a reward to those countries that commit to a faster pace of agricultural liberalization. Throughout this process bargaining power remains in the hands of the US and EU."30
Notably, UNCTAD’s market access solution for LDCs in the African continent is explained in the context of the WTO’s "rigorous enforcement mechanism", preventing the use of instruments previously used by the Newly Industrializing Economies (NIEs). What this suggests is that the WTO has rendered illegal those economic development policies used by other countries, and so the least-developed countries of the African continent must negotiate market access as one of the few viable options available. All other proposals – including technology transfer, additional financing, debt reduction and so on, are geared towards this goal. Thus for UNCTAD, getting WTO negotiations back on track is an urgent task. There is no recognition whatsoever of the contradiction in supporting the deeper institutionalization of one of the primary causes of the commodity/poverty trap in order to lift countries out of this trap.
It is not surprising that the US government staunchly opposes attempts to bring the problem of declining agricultural commodity prices into WTO discussions, while at the same time insisting that whatever measures taken – by any national government or multilateral institution – must be market-facilitating and not interventionist. When the Kenyan government (backed by India, Pakistan and Brazil) requested in February that the WTO Committee on Trade and Development discuss declining commodity prices, the US expressed its opposition, warning against the inclusion of such "non-trade issues" in the negotiations.31 Apparently, declining agricultural prices – driven down by export-oriented overproduction under trade liberalization, massive export dumping by the US and EU, and manipulation of buying prices by transnational corporations – is not a trade issue. Ironically, activists in the food sovereignty movement would be inclined to agree with the US position: it is not about trade. And since the issue of falling agricultural commodity prices and the future of agriculture are inseparable, it is logical that if one is kept off the WTO agenda, so should the other.(The US is also trying to exclude commodities from the remit of UNCTAD on the basis that it’s a "non trade issue.")
The Market Trap
Prominent among the market-oriented solutions to the commodity trap is the call for diversification out of agricultural commodities that are suffering from falling prices. This was the rationale behind the WTO ‘Sectoral Initiative on Cotton’ in Cancun, where the answer to massive export dumping by the US was for other countries to get out of exporting cotton. Despite all the evidence linking structural adjustment programmes to the current crisis in agriculture, this diversification out of cotton would be overseen by the IMF and the World Bank, along with the FAO..32
Although the Sectoral Initiative on Cotton sank together with the WTO Ministerial, it is important to recognize that the underlying logic of this proposal for diversification prevails. It continues to define diversification not in terms of moving away from export dependency and towards greater self-sufficiency and sustainability (as agricultural diversification might suggest), but in terms of other export products with rising world prices. Thus the UNCTAD report on Africa advocates the move into exports of "market-dynamic products", especially manufactured goods. Currently for the African continent, "undergarments are the only important export item among the most dynamic products in world trade."33 So what is needed – regardless of workers’ wages and working conditions – is more exports of undergarments and like products. Among agricultural commodities are those non-traditional products identified as "new dynamic products", including fruits, vegetables, fish, seafood and fresh-cut flowers. Ignoring the severe ecological and health effects of high pesticide-utilizing industries like fresh-cut flowers, and the absurdity of growing flowers for Europe instead of food for the community, UNCTAD seeks to enhance responsiveness to changing "consumer habits" in the importing countries.34
More broadly, this gearing of entire economies to new consumer habits overseas brings us once again to the missing link in the equation: the transnational corporations that shape consumer habits and dominate the production and trade that supplies these markets. This is explicitly recognized by the UNCTAD report, where market-dynamic products, including non-traditional agricultural exports, are "dominated by larger and more vertically integrated firms and, in the retail sector, by global supermarket chains." It is these concentrated interests that determine "what is produced, how and by whom." Added to this is the fact that: "Real profits in the commodity chain are made by those who control critical points along the chain, own established brand names or have access to shelf space in supermarkets."35
Clearly then, diversification out of commodity dependency and into market-dynamic products promises new forms of dependency – including dependency on networks of global retailers, trading companies and finance capital. The move into market-dynamic products means that producers in poorer countries "must enter into networks if they want to access develop-country markets."36 But instead of proposing measures to tackle this corporate concentration and to develop policies for protecting farmers and their communities from such dependency, UNCTAD proposes that states must encourage producers to enter into these networks of joint ventures, partnerships and strategic alliances to secure entry into overseas markets. The obstacles identified by UNCTAD include the lack of financing, technology, knowledge, and institutional capacity. The solutions – all of them geared in some way towards enhancing responsiveness to market opportunities and competitiveness – inevitably heighten dependency on the global markets dominated by transnational corporations and intensify competition.
So in the shift from commodity dependency to dynamic markets, corporate control prevails, and farmers and workers continue producing more for less. That’s not an aberration – that’s the market.
* Gerard Greenfield is a researcher with Focus on the Global South, based in Bangkok, Thailand.
Notes
1 Irfan ul Haque, Commodities Under Neoliberalism: The Case of Cocoa, UNCTAD G-24 Discussion Paper Series, No.25, United Nations, New York and Geneva, January 2004, p.18.
2 The Right to Rood, Report submitted by the Special Rapporteur on the right to food, Jean Ziegler, Commission on Human Rights, United Nations Economic and Social Council, 9 February 2004, pp.9;13.
3 United Nations Conference on Trade and Development (UNCTAD), The Least Developed Countries Report 2004: Linking International Trade with Poverty Reduction, New York and Geneva, United Nations, 2004, p.152.
4 Ibid., p.191.
5 Ibid., p.126.
6 UNCTAD, Economic Development in Africa: Trade Performance and Commodity Dependence, New York and Geneva, United Nations, 2003, p.19; United Nations, World Commodity Trends and Prospects. Note by the Secretary General, United Nations General Assembly. A/57/381. New York, United Nations, 2002.
7 UNCTAD, Economic Development in Africa, p.46.
8 UNCTAD, Report of the Meeting of Eminent Persons on Commodity Issues, Geneva, 22-23 September 2003, p.4.
9 Alfred Maizels, "Economic Dependence on Commodities", UNCTAD X High-level Round Table on Trade and Development: Directions for the Twenty-First Century, Bangkok, February 12, 2000, pp.4-5.
10 UNCTAD, Economic Development in Africa, p.33.
11 "Issues in World Commodity Markets", presented by Hartwig de Haen, Assistant Director-General, Economics and Social Department, to the Consultation on Agricultural Commodity Price Problems, Commodities and Trade Division, Food and Agriculture Organization (FAO) of the United Nations, Rome, 25-26 March 2002, p.15.
12 ul Haque, Commodities Under Neoliberalism, p.19.
13 "Issues in World Commodity Markets", p.16.
14 Ibid., pp.15-16.
15 FAO, Report of the Consultation on Agricultural Commodity Price Problems, Rome, 25-26 March 2002.
16 "Issues in World Commodity Markets", p.18.
17 UNCTAD, Report of the Meeting of Eminent Persons, p.5.
18 UNCTAD, Economic Development in Africa, p.41.
19 Ibid., p.24.
20 Ibid.
21 Sophia Murphy, Managing the Invisible Hand: Markets, Farmers and International Trade. Institute for Agriculture and Trade Policy, April 2002; Sanaz Memarsadeghi and Raj Patel, Agricultural Restructuring and Concentration in the United States: Who wins, who loses? Institute for Food and Development Policy/Food First, Policy Brief No.6, August 2003; International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations (IUF), The WTO and the World Food System: A Trade Union Approach. Geneva: IUF, May 2002.
22 ul Haque, Commodities Under Neoliberalism, p.12.
23 Ibid., p.11; N. Fold, "Restructuring of the European chocolate industry and its impact on cocoa production inn West Africa", Journal of Economic Geography, 1, 2001, pp.405-20.
24 Jeffrey M. Paige, Coffee and Power: Revolution and the Rise of Democracy in Central America, Cambridge, Mass., Harvard University Press, 1997, p.262.
25 Stefano Ponte, The ‘Latte Revolution’? Winners and Losers in the Restructuring of the Global Coffee Marketing Chain, Centre for development Research (CDR) Working Paper 01.3, Copenhagen, June 2001, pp.14-15.
26 UNCTAD, The Least Developed Countries Report, p.191.
27 ul Haque, Commodities Under Neoliberalism,, p.8. The ‘free on board price’ of exports of goods is the market value of the goods at the customs frontier of the economy from which they are exported, before international transportation, customs charges and other costs are added.
28 Emphasis added. UNCTAD, Economic Development in Africa, p.34.
29 UNCTAD, Economic Development in Africa, p.62.
30 IUF, Export Dumping: Deepening the Global Crisis in Agriculture. Geneva: IUF, September 2003. www.iuf.org
31 "CTD: Declining commodity prices in the spotlight", Bridges Trade Weekly, 8 (7), 26 February 2004.
32 Paragraph 27 of the Draft Cancun Ministerial Text, 13 September 2003.
33 UNCTAD, Economic Development in Africa, p.8.
34 Ibid., p.26.
35 Ibid., p.27.
36 Ibid.
