Beyond the boom

The prolonged downturn in global commodity prices was reversed a couple of years ago, and since then there has been a veritable commodity price boom.

But the special report on world commodity prices, issued by the UN Food and Agricultural Organisation (FAO), argues that the real prices of all farm commodities have in fact declined over the past 40 years, and that the recent price recovery is unlikely to endure for long.

Thus, the long-term prospects for commodity-dependent farmers and countries in the developing world are not bright. In fact, the prices of commodities exported by the developing countries had dropped in the second half of the 1990s to their lowest level since the Great Depression.

This was the time when farmers' troubles peaked, forcing many of them to commit suicide even in a country like India, where the government swears by farmers' interests.

The questions now are why commodities prices have been on the slide for so long, and who has been responsible. By all accounts, commodity supplies have consistently grown faster than demand, and this therefore seems to be the major cause of price depression.

The supply growth has been fuelled by rising productivity and the emergence of new producers. Countries like Brazil, insignificant on the global commodity scene till a few years back, are now major suppliers.

As to who is responsible for this trend, the needle points directly at government policies in both developing and developed countries.

While most of the developing countries have been supporting growth in the output of conventional commodities through input subsidies and marketing support, the developed countries have been deftly using their subsidies and import tariffs to distort agricultural markets and impede agro-exports from the developing countries.

Significantly, the countries which have managed to avert the adverse impact of the commodity price downturn on their farmers are the ones that have successfully carried out diversification strategies.

They shifted their production and trade to relatively high value-added sectors, such as horticulture, animal husbandry and the like, whose products have managed to duck the general price trend.

India too is now bidding to shift track, but is late in doing so. By the time these sectors are ready to throw up adequate surpluses for export, the global market may already be flush with these products.

Under the circumstances, the real hope for the developing countries rests on global agricultural trade reforms under the aegis of the World Trade Organisation (WTO).

The developed countries will have to be prevailed upon to reduce farm tariffs and sharply reduce producer support programmes as well as export subsidies.

The developing countries, on their part, will have to concentrate on volume-reduction and value-addition, productivity gains, and diversification away from conventional commodities.

Only then will farmers be able to capitalise on the relatively low labour and production costs available in countries like India, and compete with products from the rich countries.