Hundred and Twenty-eighth Session
Rome, Italy, 20-25 June 2005
Rome, 11-13 April 2005
II. THE STATE OF WORLD AGRICULTURAL COMMODITY MARKETS
III. POLICY DEVELOPMENTS AFFECTING AGRICULTURAL COMMODITY MARKETS AND TRADE
IV. OTHER CURRENT ISSUES IN AGRICULTURAL COMMODITIES AND TRADE
V. INTERNATIONAL ACTION ON AGRICULTURAL COMMODITIES AND TRADE
VI. ARRANGEMENTS FOR THE SIXTY-SIXTH SESSION
VII. ANY OTHER BUSINESS
APPENDIX A - Opening Statement by Mr D. A. Harcharik, Deputy Director-General
APPENDIX B - Agenda
APPENDIX C - List of Members of the Committee on Commodity Problems
MATTERS REQUIRING THE ATTENTION OF THE COUNCIL
The Committee wishes to draw the attention of the Council to the following matters in particular:
1. The Committee on Commodity Problems held its 65th Session from 11 to 13 April 2005 at FAO Headquarters, Rome. Of the 110 member countries of the Committee for the biennium 2004-2005, 92 were present at the session. Eleven Member Nations of the Organization, one United Nations Member State, the Holy See, seven international organizations and seven non-governmental organizations participated as observers.
2. The Committee elected Mr Heiner Thofern (Germany) as Chairperson, MráNasreddine Rimouche (Algeria) as First Vice-Chairperson and Mr Auguste Paraina (Madagascar) as Second Vice-Chairperson.
3. The opening statement was delivered by the Deputy Director-General, Mr David A. Harcharik. It is reproduced in Appendix A.
4. The Committee was assisted during the session by a Drafting Group composed of Armenia, Australia, Belgium, Greece, Guinea, Indonesia, Japan, Kuwait, Philippines (Chair), Nigeria, Paraguay, Sudan and United States of America.
5. The Committee adopted the agenda reproduced in Appendix B.
6. The Committee reviewed the state of world commodity markets on the basis of document CCP 05/9. It considered a number of alternative possible responses which might be made to deal with the variability in prices, and suggested that such responses should be market based. The Committee noted the long-term decline in real commodity prices which would be altered only by market-based changes in the balance between supply and demand.
7. The Committee welcomed the Secretariat’s monitoring and assessment of commodity markets. It particularly expressed concern about the long-term downward trend in real prices and a high level of year-to-year price variability to which protective policies have contributed. It noted the negative impact which these have on foreign exchange earnings and development in developing countries, particularly those with a high level of dependance on one or a few commodities. As a result, poverty and hunger are being aggravated. The delegate of the European Community outlined initiatives being taken by the European Union in this respect.
8. Within the context of the Doha Development Agenda, agriculture is vital for developing countries. The Committee recognized that the Doha Development Agenda has a significant role to play in the future evolution of agricultural commodity markets, particularly for developing countries. The Committee expressed various views regarding the reasons given for low and variable prices, a combination of technological progress which facilitated increased production, support to domestic production and exports in some countries and barriers to imports, particularly for processed agricultural products. The view was also expressed that policies which distort trade were not limited to developed countries, and that there was scope for developing countries to facilitate trade among themselves by reducing their own trade barriers. The Committee noted the danger that interventions to address the problem of price variability could introduce new market distortions. Moreover, it considered that market-distorting policies to reduce price variability are unlikely to be sustainable. Some members of the Committee highlighted the importance of market structure issues in international commodity markets and noted it was important to analyze comprehensively all pertinent issues.
9. The Committee complimented FAO on the new publication the State of Agricultural Commodity Markets, which had become available in February 2005. It affirmed the valuable role of FAO in monitoring, undertaking analyses and disseminating information on the state of global agricultural markets. In doing so, some delegates urged the Secretariat to take account of the impact which its publications might have, and noted the value of adherence to a sound communications policy, which should be sensitive to global developments and to the needs of member countries.
10. The Committee also recognised the contribution to facilitating trade which FAO work outside the commodities area could have, and it noted particularly the normative work of Codex Alimentarius Commission and the International Plant Protection Convention (IPPC), as well as efforts made to promote animal health.
11. The Committee considered some aspects of global trade policy issues on the basis of document CCP 05/Inf.7-Rev.1, along with information provided by the Secretariat on two new work programmes, the Commodity Simulation Model (COSIMO) modelling framework (document CCP 05/CRS.4) and Agricultural Policy Indicators (API) (document CCP 05/CRS.5).
12. The document CCP 05/Inf.7-Rev.1 presented a preliminary and limited assessment of the implications of decoupling of domestic payments for world commodity prices and trade, as one of many topics within the overall framework of the impact of domestic and trade policies. The Committee noted the range of results in the analysis with respect to estimated effects on international prices, based on extreme assumptions of coupling or decoupling.
13. The Committee noted that the results are only preliminary given the nature of the assessment which is both limited as well as initial, and with a model that is new and still evolving. The Secretariat was called upon to expand the scope of the analysis putting more emphasis on the empirical documentation of levels of policy measures and taking into account various sustainable non-production services provided by agriculture. The Secretariat was also called upon to expand its analytical work to estimate the amount of tariff revenue collected by developed countries on imports from developing countries. Other delegations drew attention to the value of work on refining the criteria for decoupled payments.
14. The Committee was informed of the new COSIMO work programme at the Secretariat with the help of the document CCP 05/CRS.4. This modelling framework was undertaken to improve the Organization’s capacity to assess existing and proposed policies, as well as current and emerging commodity market issues. The work has been undertaken in a collaborative arrangement with OECD to make efficient use of OECD’s established work in the form of its Aglink model, as well as FAO’s modelling expertise on developing countries.
15. The Committee welcomed the development of the COSIMO model and commended the Secretariat for the collaboration with OECD. However, the Committee urged the Secretariat to seek to minimize duplication of the work programmes of other agencies. Some delegations called upon the Secretariat to extend the collaboration to developing country institutions and networks also in view of the mutual benefits such as better data, parameters and capacity-building. Suggestions were also made to extend further the number of the developing countries, subject to resource availability. Suggestions were made, in the future applications of the COSIMO model, for analysing the impact of trade distortions on both net food exporters and net food importers as well as analyzing the impact of trade liberalization within a WTO rules-based framework.
16. The Committee endorsed a new initiative on Agricultural Policy Indicators (API) in which the Secretariat is collaborating with the World Bank, International Food Policy Research Institute (IFPRI) and the OECD to establish a consortium to identify, collect, analyze and monitor policy indicators for developing countries (CCP 05/CRS.5). The consortium would use its collective resources and expertise to provide policy indicators for a wide range of countries on a consistent basis. The API work will help understand better how agricultural and related economy-wide policies are affecting food security, poverty reduction, agricultural growth and rural development. Several delegations stressed the importance of capacity-building and welcomed the approach taken by the Secretariat in this area, notably the training component for in-country data collectors and analysts as well as validation workshops and dissemination activities.
17. The Committee considered trade policy reform and food security on the basis of the document “Food Security in the context of Economic and Trade Policy Reforms: Insights from Country Experiences” (CCP 05/11). The document presented a summary of the findings, conclusions and lessons from analysis of economic and trade policy reforms in relation to food security in 15 countries over the past two decades.
18. The Committee noted the main conclusions of the document, underlining the finding that there has been considerable variation in the results of policy reforms, both within and among countries. Further, the Committee generally agreed that among the most significant factors influencing the outcomes were the infrastructural and institutional contexts in which agriculture operates, the appropriate sequencing of reforms and the consistency of implementation of the reforms.
19. The Committee recognized the importance of agricultural price incentives to increases in output. However, at the same time, the strong influence of other factors, such as the withdrawal of available rural credit and a rise in input prices were noted for those cases where a weak or negative supply response was observed. This occurred especially in cases where the private sector was often not fully equipped to replace government services that were discontinued.
20. The need to target transitional policy measures towards low income and resource poor people living in rural areas and who depend on agriculture was emphasised by the Committee. Further, reforms should be aimed at raising productivity and at non-agricultural employment creation as essential measures for enhancing food security in the medium to long term. Committee members indicated that reforms may take some time to yield results and need to be phased in a gradual and careful manner, especially in terms of crops directly affecting food security.
21. Considering the WTO negotiations on agriculture, some Committee members pointed out that reduction of domestic support in developed countries was not the panacea for development of low income countries with large agricultural sectors and attention should continue to be given to increasing liberalization in developing countries as this was important to the improved functioning of their product and factor markets.
22. The Committee stressed the importance of a market based strategy of agricultural and rural development and indicated that trade reform should continue to be supported through capacity building activities directed at both more effective participation in the negotiations and through increasing the competitiveness of value added products from developing countries. In this latter regard, concerns were raised related to tariff escalation and non-tariff barriers in developed country markets.
23. Drawing on the conclusions of the case studies, the Committee stressed that in addition to trade policy, other measures could address the problem of food security. These can include the development of micro-finance, simplification of regulatory regimes, infrastructure improvement, and special incentives for rural industrialization in poor areas. Essentially, the development of rural non-farm employment for the rural poor was seen as being critical to increasing food security.
24. The Committee called for increased developing country case study based research and analysis in the following areas:
25. The Committee reviewed issues arising from international commodity price instability and actions that may be taken to manage the resulting market risks on the basis of document CCP 05/13. The document makes note of the long history of efforts to alleviate the adverse consequences of market price risks and points out that despite such efforts, the problem is still as important today as it has been in the past.
26. The Committee agreed in general that commodity market risk management can be important in overcoming price variability and unpredictability problems encountered by many countries, especially the low income commodity-dependent countries (LICDC) that depend, for a large share of their merchandise export earnings, on commodities. Such tools are also increasingly relevant to the developed countries where policy reform exposes producers more to market developments. Some delegates suggested that the possibility of combining a variety of measures including inventory schemes and contracts, for example, to limit risk should be explored. It was accepted that such tools could not resolve the problems of long-term real price decline.
27. While some delegates supported the need for further analytical work on the subject, others cautioned against the idea of implementing new mechanisms to address commodity risk in favour of possibly improving existing mechanisms to better deal with problems related to commodity risk. Some delegates noted the sophisticated nature of hedging as a commodity risk management tool and pointed out that governments may not be able to make the necessary investment in such tools and may not be the appropriate agent to utilize them. Market-based instruments could possibly be difficult to implement widely in the countries that needed them the most due to a combination of factors such as lack of finances and limited technological capacity. They would rather see concerted efforts directed towards aiding farmers and farmer associations in boosting productivity and meeting international standards as a way of increasing accessibility to international markets and managing risk.
28. The Committee supported the Secretariat’s work in the area of risk management and recommended that this should be continued. It also endorsed that the Secretariat continue collaborating with the World Bank’s International Task Force on Commodity Risk Management in this endeavour.
29. The Committee discussed multilateral negotiations concerning food aid, on the basis of documents CCP 05/14 and CCP 05/CRS.6. Delegates recognized that food aid played an important role in providing relief in emergency situations. Concern was expressed by some delegates regarding the possible dependency on external assistance that food aid flows could perpetuate in recipient countries. It was underlined that food aid does not address long term development needs, and that negative effects on local markets and domestic producers as well as on commercial marketing channels should be avoided.
30. Many delegations stressed that food aid should be demand rather than supply-driven, thus responding to recipient needs rather than depending on the availability of surpluses in donor countries. In that context, many delegations supported that food aid be given in grant and untied form. The wider developmental benefits of local procurement of food aid supplies were also cited. Some concerns were expressed about conditionality in food aid. However, the view was also expressed that the type of foreign assistance was a prerogative of the donor country.
31. The Committee also received the report of the Consultative Subcommittee on Surplus Disposal, CCP 05/15, under this item. Delegates were informed of the activities undertaken by the CSSD since November 2002, in particular on the monitoring of food aid transactions and related issues. In the light of the difficulties faced by the Subcommittee in meeting its mandate, a thorough review of the underlying reasons for the difficulties was seen as appropriate. Such a review should take into consideration the reforms implemented in CSSD member countries and their impacts on food aid policies. However, it was agreed by the majority of members that the future nature and roles of the CSSD could not be determined in advance of the outcome of current negotiations in the WTO and they also noted that a constitution of a working group to consider these matters and the future of the CSSD was premature.
32. Instead, the Committee invited the Secretariat to send a signal to WTO members with respect to the role of the CSSD in monitoring international food aid flows and indicating that it could be at the service of WTO if appropriate and required.
33. The Committee commended the secretariat’s analytical input to the food aid debate and invited the secretariat to continue carrying its role in monitoring the implementation of the WTO Marrakesh Decision, and implement further analytical work on effectiveness of food aid targeting mechanisms, implications for marketing channels of recipient countries, and food aid needs assessments, in collaboration, where appropriate, with other international institutions including the World Food Programme.
34. The Committee endorsed the reports of the eight Intergovernmental Groups and the Sub-Group on Hides and Skins that had met since its 64th Session. Members commended the Groups for their active and positive contribution to the consultation among commodity producers and consumers and underlined their role in the formulation of commodity development strategies at the national and international level. The need for a periodic updating of the commodity strategies so as to provide guidance for international action was reiterated.
35. The Committee underlined the relevance and importance of work undertaken on sanitary and phytosanitary measures, regulations on pest residues and other related measures affecting global trade in commodities. The Groups were requested to continue, and where appropriate expand, their work in that area. The Groups were considered appropriate fora for discussing members’ concerns and possible solutions to problems arising. Groups were encouraged to attach particular importance to commodity and value chain analyses.
36. The proposal from the Groups on Hard Fibres and on Jute, Kenaf and Allied Fibres to organise an International Year of Natural Fibres met with the Committee’s unanimous approval. Members agreed that it would raise the profile of all natural fibres and their positive contribution in terms of environmental benefits and, through income generation, improved food security in developing countries. The Committee decided that the proposal be submitted to the Council.
37. As to the operation of its subsidiary bodies, the Committee recommended that inter-agency cooperation among all existing international commodity bodies (ICBs), Food and Agriculture Organization (FAO), Common Fund for Commodities (CFC), United Nations Conference on Trade and Development (UNCTAD), International Trade Centre (ITC) and the World Bank be further strengthened to analyze the efficiency, effectiveness and possibility of improving the output of these bodies.
38. The Committee reviewed FAO’s cooperation with the Common fund for Commodities (CFC) in commodity development, and the role of the Intergovernmental Groups in promoting and supervising projects on the basis of document CCP 05/16.
39. The Committee noted with satisfaction that since its last session several additional projects had been approved and commenced implementation. The CFC’s financial support was acknowledged and the Groups were commended for playing an active role in project formulation and supervision. However, concern was expressed over delays in the project approval process. The Committee acknowledged the efforts of the Secretariats of both FAO and the Fund to address this problem. The Committee also noted with concern that the lack of resources to ensure adequate support of CFC project work which represented a considerable and increasing burden on the Secretariat. The Committee acknowledged that additional resources were required if FAO was to maintain its ability to contribute to commodity development projects. The Committee noted with appreciation that the issue of procedures and of adequate compensation of FAO’s services with regard to project formulation and supervision activities were pursued jointly by FAO and the Fund so as to identify solutions to the problems faced.
40. The Committee noted that the Director-General would set the date of the next session in consultation with the Chairperson. A number of delegations made positive comments regarding the organization of the current session, including its back-to-back arrangement with the Committee on Agriculture (COAG). It was also suggested that there may be some scope for integrating the work of CCP and COAG. The Committee looked forward to the comprehensive evaluation of this format at a future meeting of the Programme and Finance Committees.
41. There were no items of other business.
OPENING STATEMENT BY MR DAVID A. HARCHARIK
I hope you find time to participate in these events.
The role of CCP is to review commodity problems of an international nature, to survey the world commodity situation, and to develop appropriate policy recommendations for the FAO Council.
Since the last session of the CCP, agricultural commodity prices have, in general, continued their hesitant recovery from the low levels recorded in the second half of the 1990s. However, the longer-term trend in real commodity prices continues downward. Recent history also illustrates the high degree of variability in prices. These basic features, and their economic implications for developing countries depending on commodity exports on the one hand, and food imports on the other, are the background to your discussions.
The Committee might wish to reflect on feasible responses to commodity price instability. Over the years, various measures have been proposed to cope with international price instability, but measures based on market interventions have produced disappointing results. The Secretariat has prepared a document to inform the Committee of a recent initiative in managing price risks using futures and options markets.
More information on commodity market developments, factors underlying them, implications for commodity exporters and food importers, and international actions to address commodity problems, can be found in a new FAO flagship publication, The State of Agricultural Commodity Markets, which was launched in February this year. This new biennial publication aims to present commodity market issues in an objective and accessible way to policy makers, commodity market observers and all those interested in commodity market developments and their impacts on developing countries.
As in previous sessions, the Committee will review recent trade policy developments. The Secretariat will present a paper on economic and trade policy reforms and their impact on food security. The paper gives the results of a major FAO study of the experiences of 15 developing countries over the last twenty years in domestic policy reform, including such issues as the reduction or elimination of trade barriers, and institutional reforms in agricultural marketing systems that emphasize market mechanisms rather than administrative pricing. Most importantly, the Committee will have the opportunity to discuss the policy lessons to be drawn from this study.
Our Commodities and Trade Division is expanding its capacity to carry out analyses of policy reform scenarios and to undertake outlook work through the development of an analytical model – known as the COSIMO model. This is being done in close and continuing collaboration with OECD, and is illustrative of a trend towards greater technical cooperation with our partner agencies. We welcome the views of the Committee on this project, especially since it is hoped that the model will eventually be made available to member countries to help them assess policy developments.
With regard to policy analysis, I would like to draw your attention to an important collaborative initiative between FAO, the World Bank, OECD and IFPRI. The initiative is called the agricultural policy indicators project. It aims at assisting developing countries in identifying, collecting, analysing and monitoring policy indicators so as to better understand how agricultural policy affects food security, poverty reduction, agricultural growth and rural development.
In addition to analysing specific trade policy issues, we are continuing and expanding our work in capacity-building and support to member governments in relation to the ongoing WTO negotiations, as well as technical assistance to individual member governments in relation to commodity policy. However, the demand for such assistance far exceeds our capacity to supply because of resources constraints.
The final major issue for your consideration is food aid. This is highly topical, given the ongoing WTO negotiations which are considering the impact of food aid on commercial trade. The existing provisions of the WTO Agreement on Agriculture include reference to the FAO Principles of Surplus Disposal and Consultative Obligations, which are addressed by the CCP’s Consultative Subcommittee on Surplus Disposal (CSSD). The WTO negotiations may have implications for food aid and trade, the recipients and donors of such aid, and the role of the CSSD. Therefore, the report of the CSSD will be presented as part of the discussion on food aid. The negotiations on food aid within the WTO rules give renewed importance to the CSSD and to the relevance of your debate at this Session. The Committee may wish to consider the role which the CSSD might play in monitoring adherence to any new disciplines agreed in the WTO, and how the effectiveness of the CSSD in doing so might be strengthened.
Mr Chairman, Distinguished Delegates, Ladies and Gentlemen,
Your participation in this session of the CCP is much appreciated. The agenda focuses on key issues of crucial importance to commodity trade and development. Since the CCP is the only global platform for the discussion of problems facing agricultural commodity producers, exporters and importers and for identifying appropriate solutions to them, your discussions here are of unique importance. They will also provide guidance for FAO’s commodity-related work programme.
I wish you a constructive and successful meeting.