(ALLAFRICA) Africa: 'Build Regional Markets to Prevent Hunger'

Africa: 'Build Regional Markets to Prevent Hunger'
Inter Press Service (Johannesburg)
26 May 2008
Posted to the web 26 May 2008
Aletta Du Plessis
Cape Town

Regional trade agreements could not only serve to protect farmers in developing countries but could also be used for the swift distribution of food aid from neighbouring countries in times of famine. Luisa Bernal, coordinator of the trade development programme at the South Centre in Geneva, made these remarks last week in an interview with IPS about the links between commodity dependence and development.

South Centre, together with ActionAid, recently concluded a report revealing how a few large players have secured most of the agricultural commodity business for themselves. South Centre is an intergovernmental organisation working at enhancing South-South cooperation while the non-governmental ActionAid is engaged in advocacy and research on poverty.

"There is a lot of value in developing countries coming together in their regions and thinking about how to build their markets and what kind of commodities they produce," Bernal argues. "There is this vision of a united, integrated Africa and regional bodies can make it possible.

"For example, when you have a food deficit in one part of Africa food is flown in from the United States, whereas a neighbour might be able to provide in the need."

Regional economic unity can help protect producers in developing countries, the report states.

Developing countries should develop regional competition policies to protect their own markets from market concentration. Most developing countries do not have the institutional and human capacity to enforce competition policy on a national level.

They should also go further and engage in the negotiation of global competition rules, the report recommends.

Dede Amanor-Wilks, director of ActionAid for west and central Africa, bemoans the fact that producers in Africa and other parts of the developing world do not seem to benefit from the current high food prices.

"The rich industrialised North has set the rules of the game but, instead of holding its producers accountable to those rules, it is distorting markets in their favour. Meanwhile, African producers, whose governments have accepted to play by the rules, are losing out," she notes in a statement introducing the report.

Multinational corporations are using their growing clout to skew the terms of trade against the poor, according to the report. For instance, in 1998 the top six coffee trading companies held half of the world market. By 2002 the top three held 45 percent of the market. By 2002 only two companies controlled 75 percent of the global grain trade.

This kind of market concentration, together with commodity price volatility and the long-term drop in commodity prices, are three features of the commodities market deemed to be problematic.

Market concentration gives multinational corporations the power to dictate the terms of trade, making it difficult for commodity-reliant developing countries to cope. These countries are already experiencing unpredictable commodity prices, a dilemma which leads to fluctuations in domestic income, savings and government tax revenue.

Forward planning therefore becomes difficult and investment is dented, and so economic development is hampered. This creates a catch-22 situation in which these countries cannot move up from being suppliers of primary commodities and raw materials.

Burundi, which depends on coffee and tea exports for 87 percent of its foreign exchange earnings, is an example of a developing country which has suffered these problems. From 1986-1987 coffee and tea prices fell by 37 and 20 percent respectively. As a result, Burundi's annual exports plunged from 154 million to only 90 million dollars.

In 1988 exports rebounded to 132 million dollars due to a seven percent increase in coffee prices and an increase in export volumes but it contracted again the next year to 78 million dollars after a 20 percent fall in coffee prices. In 2003, Burundi's total annual exports totalled only 37 million dollars.

The international commodities trade could help with economic development and poverty reduction but policy needs to be put in place to address market concentration.

International commodity agreements and national commodity boards, which were used in the past to ensure a fair price and to reduce producers' vulnerability to market shocks, should be introduced again, the report states.

Bernal told IPS that state marketing boards were dismantled due to prevailing liberalisation policies.

These policies also led to the decay in infrastructure such as roads, because countries were encouraged to focus only on the production of commodities for exports rather than building their own domestic and regional markets. Farmers need roads to get to the markets.

According to Bernal, the food crisis could be an opportunity to prioritise agricultural development in commodity-dependent countries. The funding of rural development and infrastructure through aid can help many poor people down the line. "Investment in agriculture has a significant multiplier effect," she points out.

David Zounmenou, a senior researcher at the Institute for Security Studies in Pretoria, South Africa, says Senegal is currently investing 500 million dollars in importing rice because of scarcity. "This money could have been used for irrigation and agricultural infrastructure. We need a long term approach towards agriculture," he says.

Governance is also a factor in improving conditions for producers. Zounmenou argues that it does not help to increase taxes but the money only favoured a particular group, such as the governing elite, instead of farmers.

The report says developed countries have failed to live up to their pledges to help developing countries through hard times.

However, Joachim von Braun from the International Food Policy Research Institute in Washington, U.S., reckons that industrialised countries no longer set the trading rules alone. "Today developing countries use the various rulings of the World Trade Organisation a lot, and the recent export bans had been initiated by developing countries."

He says the farm producers in developed countries with access to infrastructure and those who have organised themselves in groups do reap the benefit of rising food prices.