UNCTAD Committee assesses role of international commodity agreements in attaining Integrated Programme goals.

UNCTAD Committee assesses role of international commodity agreements in attaining Integrated Programme goals

A special session of the Committee on Commodities of the United Nations Conference on Trade and Development (UNCTAD) was held from 3 to 7 June in Geneva to assess the role international commodity agreements (ICAs) have played in attaining the objectives of the Integrated Programme for Commodities (IPC), particularly the objective of price stabilization.

The Group of 77 and Group B (developed market economy countries) produced draft conclusions which, the Committee decided, would both be considered at its next regular meeting in December 1985.

The Group of 77 stressed the importance of: flexibility in design and application of mechanisms adopted for a commodity agreement (buffer stocks and/or export quotas); careful formulation of the provision on such mechanisms; the immediate entry into force of the Common Fund; the need for an appropriate price range compatible with dynamic market conditions, with explicit procedures for solving deadlocks on price ranges; and the need for universal producer and consumer participation.

Other Group of 77 recommendations related to the need: to avoid disruption in international commodity markets when Governments purchase for and sell from national non-commercial reserves; for better preparations for negotiations on ICAs, including greater use of industry advisers for producers and consumers; for forthcoming negotiations and renegotiations of ICAs to be wider in scope so as to include appropriate economic clauses for price stabilization and other development measures; and to improve the competitiveness of, and to encourage research and development on the problems of natural products competing with synthetics and substitutes.

Group B's draft conclusions noted that while some ICAs with price stabilizing features had been able to meet their objectives, others had experienced difficulties and had not. On the whole, ICAs were seen to have made useful contributions towards achieving some of the objectives of the Integrated Programme. It was pointed out that even when successfully implemented, price-stabilizing ICAs could solve only a limited number of problems which might affect a particular commodity and that external factors could have a considerable impact on the functioning of such agreements.

Group B idendified a number of elements as being relevant to the success of ICAs: realistic and market-related price ranges, adequate provisions for adjusting price ranges in accordance with shifts in the underlying market trends, effective economic provisions (in cases where price stabilization measures were deemed feasible and desirable) and support and participation of as many important producing and consuming countries as possible.

Regarding the Common Fund, Group B's draft conclusions stated that members that had already ratified the Fund Agreement urged other members to take the political decision necessary to achieve entry into force of the Agreement as quickly as possible.

Most of the ICAs now in force have sought to stabilize prices through buffer stocks, supply management measures such as export quotas, or both these mechanisms. According to the UNCTAD secretariat (TDB/C.1/270), the mechanisms used have been "relatively successful in stabilizing prices within the terms of the corresponding Agreements" for four commodities--tin, wheat, rubber and coffee. For cocoa and sugar, however, the "price stabilization objectives have not in practice been achieved". In the case of cocoa, this was because of inadequate participation in the agreements and the resulting consequences for the financing of the buffer stock. In the case of sugar, it was due to the incompatibility of domestic policies of major producers with the objectives of the agreement.

Olive oil is in a special category, in that while price stabilization is an objective of the agreement on that commodity, there are no specific mechanisms for achieving that aim apart from the encouragement of olive oil consumption and the reduction of production costs in order to make olive oil more competitive with substitutes.

Alister McIntyre, Deputy Secretary-General and Officer-in-Charge of UNCTAD, told the session that the "overwhelming majority" of commodity producing countries had experienced "significant deterioration in their export earnings and capacities to import because of weakness in commodity prices". Sugar was "perhaps the most dramatic example", its nominal price in dollars the lowest in 15 years and its real price lower than any recorded over the post-war period, he said. A widespread recovery in commodity prices was a sine qua non for getting Africa and low-income countries in other regions on a path of sustained development, he said.

Executive heads or their deputies of seven international commodity organizations which administer ICAs made reports at the meeting.

Cocoa: Kobena Erbynn, Executive Director of the International Cocoa Council, considered that the non-participation in the 1980 Cocoa Agreement of the United States, the biggest importer, and the Ivory Coast, the biggest producer, had made international co-ordination of stabilization measures less effective. The experience of the Agreement had also highlighted the limitations of relying on a buffer stock scheme as the sole mechanism for attaining price stabilization objectives. Apart from requiring huge financial resources, a pure buffer stock scheme could not cope with a situation of structural over-production.

Coffee: Alexandre F. Beltrao, Executive Director of the International Coffee Organization, noted that the Organization had administered four international coffee agreements extending over a 21-year period, providing continuity in management, which he considered of prime importance in maintaining price stability. Each international agreement had been based primarily on export quotas which had been introduced originally in 1963, a time of large surpluses and falling prices. The export quota functioned well, he said, thanks in large part to a far-reaching system of verification of stocks in all exporting countries.

Wheat: Jean Parotte, Executive Director of the International Wheat Council, noted that efforts to regulate trade in grain had spanned more than half a century, during which time agreements had undergone considerable change. The present agreement, adopted in 1971, contained no economic provisions. The Food Aid Convention was the humanitarian arm of the International Wheat Agreement. The other arm was the Wheat Trade Convention, which covered the commercial aspect of the trade in grain in general and wheat in particular. Total aid provided under the Food Aid Convention to all destinations in 1984-85 was expected to exceed 12 million tons.

Jute: Amal K. Dutt, Executive Director of the International Jute Organization, noted that his Organization had been formed provisionally in January 1984 because the representation on the importers' side fell short of the number of countries and trade shares needed for the Agreement's definitive entry into force. Today, though the five exporters accounted for 98 per cent of world exports, the coverage of net imports was still short, with 62 per cent as against 65 per cent required. Mr. Dutt hoped that the Soviet Union, the second largest importer of jute, would soon join. With price stabilization measures having been ruled out, his organization was concentrating on collecting information on jute and on sponsoring research projects on agriculture, industrial processing and market promotion, all with the aid of United Nations agencies.

Olive oil: Hedi Guerbaa, Deputy Director of the International Olive Oil Council, explained that the 1979 International Olive Oil Agreement "did not aim at regularizing the market by adopting interventionist measures". The Council's main activitives were the elaboration of policies to upgrade the competitive position of olive oil vis-a-vis other oils. He pointed out that a new agreement would be negotiated in June under UNCTAD auspices. It would provide for on-going activities in a number of fields, such as agronomical research in producing countries, efforts to improve yield per tree and surface area in qualitative and quantitative terms, cost reduction and the expansion of consumption.

Sugar: William K. Miller, Executive Director of the International Sugar Organization, saw insufficient participation as the dominant reason for the failure of the 1977 International Sugar Agreement. The fact that it was based on export quotas was not in itself a determining factor. There had been a failure in 1984 to negotiate a new Agreement with economic provisions or with a mechanism for stabilizing the market. In the absence of a real Agreement, he said, "the sugar market is terrible; nominal prices are at lows since the 1960s and real prices probably are at all-time lows". He saw little inclination to renew negotiations on an Agreement. A few exporting countries had announced plans to cut back production but not many.

Tin: Malcolm Farrow, of the International Tin Council, said that his organization could claim to have prevented excessive price fluctuations over the course of six international tin agreements. The mechanism for promoting price stabilization throughout had been a buffer stock. Export controls had not proved effective in reducing surpluses because of smuggling and increased production in countries other than producing members of the Agreement. A further constraint had been that major tin consumers such as the United States and the Soviet Union did not join the Agreement. Notwithstanding these difficulties, the Agreement kept the market from collapsing.