A High-Level Panel will highlight the importance of commodities for many developing country economies, seek new insights into problems and opportunities and identify fresh approaches. The interactive Panel discussion will take place on 15 June 2004, alongside UNCTAD XI in Sao Paulo.

The Panel will focus on the key links between commodities production and trade, poverty alleviation and sustainable development, particularly in the light of the Millennium Development Goals. It will also emphasize the importance of the commodities sector in many developing countries and discuss ways to make it an engine of growth and development.

Themes will include the impacts of supply side issues, diversification, quality concerns, market access and financing on the growth of developing countries. The panellists will represent major stakeholders of the commodities sector including producers, farmer organizations, traders, processors, governments, international organizations and non-governmental entities. Speakers will present their analyses and messages, followed by open discussion.

Why the commodities sector is important

Most developing countries depend heavily on commodity export earnings, although the dependence has decreased slightly over the past decade. Of 141 developing countries for which data were available, 68 depended on non-fuel commodities for more than half of their export earnings in 1990-92. By 1998-2000, the number had fallen to 62.

The dependence on export earnings from a small number of commodities with declining or sharply fluctuating prices has direct implications for economic development. According to UNCTAD estimates, in 1999-2002 coffee producers would have earned US$ 19 billion more, sugar producers US$ 1.4 billion more and West African cotton producers US$ 1 billion more, if prices had stayed at the average 1998 level.

In several Commodity Dependent Developing Countries (CDDCs), particularly Least Developed Countries, the commodity sector has not functioned as an engine of growth and industrialization. They are often caught in a "poverty trap" from which they lack the resources to extract themselves.

Many of the benefits of global trade and its liberalization depend on the ability of developing country producers to seize new opportunities. But they are often held back by restricted market access to importing countries worsened by difficult market entry conditions, including technical, health and safety standards, environmental concerns, and speed of delivery. Low and fluctuating prices are important impediments.

High and variable transaction costs increase uncertainty and act as an implicit tax on trade. Many CDDCs are trying to diversify exports for which a prerequisite is to help entrepreneurs to identify and invest in new opportunities. Changes in consumer demand and market structures have opened new opportunities for adding value to raw commodities by transforming a product from its original state to a more valuable state that consumers prefer to buy. But that requires considerable time and investment for product development, food safety, packaging, market analysis and selling skills. Some developing countries, mostly in Asia and Latin America, but also in Africa have successfully developed value-added products and established internationally competitive industries.

The need for institution and capacity building to help commodity exporters has been recognized at the highest political levels. But the gap between words and action is large. Donor agencies have so far largely failed to adjust their aid policies and provided little support for the required private-sector-based skills and services. Donors should pay particular attention to strengthening financial support services. At the same time, developing country governments often do not have a commodity strategy. It is time for this to change.

Increasing the productivity and competitiveness of the commodity sector are major concerns for developing countries. Particularly in the context of liberalization and greater consumer attention on quality and other standards, competitiveness based on prices is not enough. It must also be based on meeting market imperatives.

Commodity price instability imposes high economic costs. The past two decades have seen the demise of most national and international price stabilization arrangements, e.g. buffer stocks, export quota, stabilisation funds, marketing boards and the European Union´s STABEX scheme. There is need to study new tools emerging from the fast development of financial markets over the past decade.

The problems of mining and mineral commodities differ considerably from those of agricultural commodities. While declining prices, price fluctuations, commodity export dependence and lack of diversification are similar, their implications for development are different and require different policy approaches. In contrast to agricultural commodities, tariffs on minerals and metals with little processing are low or nonexistent. There is much scope for using the rents generated in mineral and other natural resources for diversification and sustainable development.