P1246990920CmKuf

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I. DEFINITIONS
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Some Basic Definitions

• What are commodities?
• How Commodity dependence is usually defined?
• Tariff escalation and Tariff peaks
• Prebish-Singer Thesis
• Price instability Index
• Compensatory Financing Facility
• Basis
• Terms of Trade

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What are commodities?
Statistical definition specific SITC sections -
section 0 (agricultural commodities - largely
foods, including processed ones) - section 1
(agricultural commodities - drings and tobacco) -
section 2 (crude inedible materials - largely
oilseeds and raw materials
as well as mineral ores) but groups 233, 244,
266 and 267 excluded (synthetic materials) -
section 3 (fuels - including electricity) -
section 4 (vegetable oils) - item 522.56 (alumina
- partly also reported in 287.32) - division 68
(some (semi-)processed minerals and metals)
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Problems with the SITC definition
Somewhat artificial e.g. - gemstones excluded -
gold at times reported as a metal, at times as a
financial transfer (that is, excluded in
commodity statistics) - textile yarns are largely
excluded, even though theyre standardized and
require much less processing than many metals
that are included under commodities - products
such as paper and plywood are excluded - the
products do not have a lot in common
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Commodities can also be classified according to
other criteria
Share of 15 Leading Commodities in African Total
Exports  

• Method of production (annual/perennial
  wild/organized)
• Conventional versus non-conventional
• Organic, Fair Trade, Eco-friendly, double
  certified, code of practiceconducts
• Traditional versus non-traditional
• - Bulk commodities (coffee, cocoa) / Fairly
  specialized commodities (sheanuts, indium)) non
  organized market
• Degree of processing degree of value-added
  processing transformation into a physically
  different products (but also constraint, e.g.
  cocoa in the US). - But also
• Commodity as a financial vehicle
• Regions of production
• GM versus non GM GM commodities in order to
  emphasize or eliminate traits that are
  considerable desirable or undesirables (e.g.
  pest-resistant, pesticide-responsiveness).

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Defining Commodity as a Financial vehicle
It is attractive to think of commodities as
products that are - fungible - can easily be
described using a few standard parameters - have
a more or less uniform price in any single
market When considering the possibilities for
sophisticated financial markets, this is a very
useful way of thinking of commodities it allows
to identify for which products it is possible to
introduce sophisticated instruments. But it
would exclude many products normally considered
as commodities (e.g. fruits, vegetables,
flowers) and would include many others (e.g.,
yarns, fertilizers, computer chips, interest
rates, pollution rights, crop yields)
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Regions of production
Decision to assign commodity to a region of
production is quite arbitrary
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GMO versus non GMO Commodities
Share of 15 Leading Commodities in African Total
Exports  

• Tracability (e.g. South Africa), consolidation
  of patent porfolios, farmers' rights from "seed
  owners" to mere "licensees" of a patented
  product)

Share of each production in the global
transgenic market value in 2005 Soybean 46 Corn
36 Cotton 14 Canola 4 Share of each
production in the world cultivated area in
2005 Soybean 60 Corn 24 Cotton 11 Canola
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Share of the arable land dedicated to GMO
cultivation in selected countries Million
ha. of arable land 2005 2004 United
States 49.8 28.4 27.2 Argentina 17.1 50.84 48.8
Canada 5.8 12.1 12.0 Brazil 9.4 16.0 8.5 China
3.3 2.3 2.6
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II. IMPORTANCE OF COMMODITIES
Share of 15 Leading Commodities in African Total
Exports  
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Importance of Commodities

• Share in exports

• Estimated World Merchandise Trade in 2005
  10.065 billion
• World Commodity Trade - soft and hard
  commodities - 2,520 billion
• Around 25 of total trade
• Share of oil and mineral 16
• Share of agricultural products 9

Africa 74
Latin America 64
Asia 23
Eastern European 39
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Share of 15 Leading Commodities in African Total
Exports  
Share of 15 Leading Commodities in African Total
Exports
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Commodity dependence

• Of 141 developing countries, 52.2 depended on
  non-fuel commodities for more than half of their
  export earnings in 1990-92. By 2003, the number
  had fallen to 38.3.
• If fuels are included, percentages rise to 71
  and 60.4.
• 69 countries received more than half of their
  export earnings from three commodities in
  1990-1992, and 70 in 2003.

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Commodity dependence
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Importance of Commodities in Africa

• Sub-Saharan Africa is richly endowed with large
  range of commodities from minerals to metals
• 26 out of 30 of leading exporting companies are
  either producing or trading commodities (from
  coffee and cocoa to precious metals through
  tropical timbers)
• For instance, South Africa, world leading gold
  and platinum company, Anglo American account for
  one-third of national exports.

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• While investments in agricultural commodities are
  still low, appetite for mineral sector is quite
  high, including in production and processing. For
  instance, Africa is evolving as one of the most
  important aluminium producer in the world.
• Mozambique and Guinea are a case in point as
  several billion of dollars are injected into
  bauxite extraction production as well as
  processing of aluminium oxide and aluminium
• For tropical timber, Asian demand, mainly from
  China, is driving the market for log (e.g.
  Oukoumé) while in Europe, processed timber are
  usually imported

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Sources enquêtes Canelle Agency (juillet-octobre
2003), missions économiques françaises, MOCI N
1625, 20 novembre 2003
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III. Commodity at a Glance - Main Features -
Share of 15 Leading Commodities in African Total
Exports  
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III. a Reshaping of World Commodity Markets
Share of 15 Leading Commodities in African Total
Exports  

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Past Interventions

• Compensation
• Keynes (1943) Buffer stocls
• 1963 Compensatory finance and IMF
• STABEX (1975)

• Stabilization, Supply and management
• International Commodity Agreements sugar and tin
  (1954) coffee (1962) ccocoa (1972), rubber
  (1980)
• Convention of Lomé (1975) commodities
  protocoles
• Domestic buffer stocks Australia (wool), PPNG

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• Limited liberalization of agricultural policies
  in main OECD countries so far, but radical
  changes are likely to occur over the coming
  decade with multilateral negotiation on
  trade-distorting domestic support
• preferences (paragraph 44 of the July framework)
  and export restrictions (paragraph 50 of the July
  framework).

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III. b Main Features
Share of 15 Leading Commodities in African Total
Exports  

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Commodity at a glance - main features -

• PRICES
• Prices are in a continuous downward trend in real
  terms
• Price volatility continue to be very high
• COMPETITIVNESS
• Developing countries are increasingly important
  as importers
• Non-traditional commodity exports have grown in
  importance
• Africa and LDCs have not kept up with the general
  development of the commodity sector in developing
  countries
• Developing countries are losing market shares
  even in traditional commodities, largely due to a
  failure to capture more value-added on their
  commodities
• MARKET CONCENTRAION
• Industry market structures are going through a
  rapid change.

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Taking a longer perspective, commodity prices
remain low
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Price fluctuations remain important
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• Price instability

• Generally passed on to smallholders and/or
  domestic operators who do not manage it!
  Increasing counterpart risk delivery
• For some commodities, price instability is
  increasing
• Sugar trade policy reforms and multilateral
  negotiation
• Banana trade policy reforms and multilateral
  negotiation
• Pepper change in production pattern
  Vietnam and Indonesia and to some extend
  India
• Selected vegetable oils developments in
  market fundamentals (e.g China)
• Cotton both supports (e.g. US, EU and China)
  and market fundamentals (weather condition in
  China e.g. 2003 versus 2005-06)
• Rubber Termination of the International
  Natural Rubber Agreement (INRA) and creation of
  the International Tripartite Rubber Organization
  (INRO) increasing consumption in China

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Volatility in Cocoa Prices - Standard deviation
measures (LIFFE)
Rapid liberalization accompanied by
macro-economic instability leads to chaotic
markets (cocoa in Côte dIvoire, Cameroon,
Nigeria) price volatility increased
strongly and seasonal effect might increase in
the future.
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Seasonality in world cocoa prices
A seasonal effect tends to emerge, in particular
when one considers the months of May and June
(anticipation regarding next harvesting) as well
as period between October and December (pricing
period after liberalization). Lets take the case
of Cameroon to illustrate the pattern of forward
sales just before and after liberalization.
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Instability of export earnings, particularly in
the agricultural and mining sectors, may
adversely affect the development of the ACP
States and jeopardise the attainment of their
development requirements  (art. 68 of the new
Cotonou Agreement)
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ACP countries are thus now fully vulnerable to
any export earning fluctuation, that means fall
in volume (e.g. natural disaster) and/or price
fall. Agricultural production can fluctuate a
lot due to climatic conditions, but one of the
main source of instability is price fluctuation
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Main countries benefiting from Stabex
under Lomé I.
under Lomé II.
under Lomé III.
under Lomé IV.





Source ACP Secretariat
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Main commodities benefiting from Stabex
under Lomé II.
under Lomé III.
under Lomé IV.
under Lomé I.




Source ACP Secretariat
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Agricultural protectionisma comparative picture
(2004)
GSSE2 20
PSE1 80
1) PSE Producer Support Estimate, 2) General
Services Support Estimate (OECD data)
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• Agricultural tariffs
• Agricultural tariffs are on average substantially
  higher than industrial tariffs

• Complicated mixed with TRQs, ad valorem and
  specific tariffs, complex technical relationships
• Multitude of preferential rates
• Tariff escalation especially for meat,
  sweetners, vegetable oils

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Trade Policies, examples of European Preferential
Regimes.
S.G.P.
L.D.C
East Timor
Qatar
Afghanistan
Myanmar
Panama
Yemen
Malaysia
Australia
A.C.P.
Cambodia
Bangladesh
Bil.
Slovakia
Tonga
M.C.A.C.
Nepal
Maldives
Honduras
Estonia
Lesotho
Cape Verde
Togo
Andorra
Bhutan
Samoa
Latvia
El Salvador
Botswana
Guatemala
Ethiopia
Nicaragua
Ctrl. Afr. Rep.
Slovenia
Senegal
Laos
Sao Tome
Costa Rica
Cuba
Zambia
E.E.E.
Tuvalu
Burkina Faso
Angola
Macao
U.S.
Pakistan
Kiribati
Benin
Madagascar
Norway
Sudan
Mexico
Paraguay
Solomon Isl.
Eq. Guinea
Uganda
Liechtenstein
Malawi
Czech Rep.
Mali
Vanuatu
Argentina
Gambia
Iceland
Comoros
Guinea-Bissau
Haiti
Bahrain
Burundi
A.E.L.E.
Somalia
Niger
Thailand
Tanzania
WTO
Rwanda
Switzerland
Guinea
Mauritania
Eritrea
U.A.E
Kyrgyzstan
Chad
Liberia
Mozambique
Sierra Leone
Djibouti
Romania
Brunei
Japan
Indonesia
Chile
South Africa
Zimbabwe
Kenya
St. Lucia
Suriname
Seychelles
Hong Kong
Peru
Dominica
Barbados
Congo
Andean
Canada
Nauru
Dominican Rep.
Antigua
Bolivia
Bulgaria
Namibia
Gabon
Colombia
Hungary
Swaziland
Congo Dem.Rep.
Jamaica
Cook Isl.
Venezuela
Cameroon
Guyana
Trinidad
Korea, Rep.
Palau
Mauritius
Ecuador
Albania
St. Vincent
Poland
Micronesia
Ghana
Grenada
Uruguay
Tokelau
New Zealand
Marshall Isl.
Ivory Coast
India
Nigeria
Kuwait
Brazil
Papua
Mongolia
Singapore
Belize
Montserrat
Bermuda
St. Kitts
Niue
Yugoslavia
Israel
Morocco
Egypt
Sri Lanka
Bahamas
Fiji
Macedonia
Taiwan
Malta
Uzbekistan
Turkey
Philippines
Cyprus
Anguilla
Euromed
Tunisia
Belarus
Turkmenistan
Oman
Russia
Lithuania
Syria
Iran
Georgia
Algeria
Jordan
Vietnam
Libya
Kazakhstan
Lebanon
Iraq
Greenland
Gibraltar
Ukraine
Aruba
Korea, Dem. Rep.
Bosnia Herzegovina
Tajikistan
Armenia
China
Moldova
Azerbaijan
Croatia
Saudi Arabia
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• In developed countries, tariffs on "sensitive"
  products (i.e. products that receive high
  protection and support from the government) and
  processed products are affected by tariff peaks
  and tariff escalation.
• Bound agricultural tariffs in developing
  countries could be as high as 230 (Nigeria),
  but applied tariffs are generally much lower
  (e.g. 5 plus TCI of 10 for UEMOA countries).

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• Tariff Escalation and Tariff Peaks
• Tariff escalation has been a discouraging factor
  to DCs efforts to diversify agricultural exports
  from primary commodities to processed products

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Losing out in the value-added the example of the
cocoa sector
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Trading companies and Market Concentration
MA in trading in the late 1990s early
2000s Examples Vanishing of international
trading companies such as André, Enron, etc.
Acquisition of Sifca, Unicao and Nord Cocoa by
Archer Daniels Midlands (ADM). Acquisition of
Continental Grain (world cereals n2) and of
Toshoku by Cargill (annual turnover of Cargill
USD 60 billion) Merging in May 2004 of
leading Ghanian gold company (Ashanti Godfiefds
Co Ltd) with South African gold producing
AngloGold (51,4 AngloAmerican) estimated
transaction figure USD 1,089 billion to create
AngloGold Ashanti. In June 2004, Anglo American
increased its share in AngloGold Ashanti from
roughly 47 to 48. Quasi vanishing of
Metallgesellschaft joining-up companies such as
Cook, Ferruzzi, Tardivat, etc.
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Other firms involved in the stages of the supply
chain

• Extensive mergers and acquisitions in the
  agricultural biotechnology and seed businesses as
  well as cross-licensing (e.g. Monsanto, Bayer,
  Syngenta BASF, Dow, Dupont) for more info,
  Tracking the trend towards market concentration,
  UNCTAD/DITC/COM/2005/16, to be published in May
  2006.
• Vertically integrated firms traditionally
  important (e.g. Nestlé, Unilever, ConAgra)
• Recently, increased competition from supermarket
  chains which are getting bigger (e.g. WalMart,
  Metro, Kroger, Carrefour)
• Nestlé, Danone, Parmalat vs. Metro, Carrefour

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Changing Role of Trading Companies
Role of Trading houses are evolving from
traditional trading to a whole range of activities
Information revolution
Entry of new actors
Some trading houses move into new areas (e.g.
futures trade)
Penetration into value-added activities (e.g.
service packages, processing)
Concentration/ consolidation medium-sized
players are disappearing
Penetration into trading at domestic level
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Value chains are changing

• International trade
• Firms becoming larger and vertically integrated
• Mergers and acquisitions
• Disappearance of traders (Internet, fresh and
  specialty products with smaller sizes)
• 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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INFOCOMM
Market Information in the Commodities Area
For further information on this issue Olivier
Matringe Coordinator, INFOCOMM Commodities
Branch, DITC United Nations Conference on Trade
and Development (UNCTAD) 8-14 Palais des
Nations 1211 Geneva 10, Swizterland Tel. 4122 /
917 57 74 Fax. 4122 / 917 02 47 E-mail.
Olivier.matringe_at_unctad.org or
Infocomm_at_unctad.org