Introduction

 The UNCTAD secretariat is currently implementing a project on diversification and commodity based development, financed by the United Nations development account. The project's objectives are: (i) to promote the horizontal, vertical and geographical diversification of production and trade structures; (ii) to improve governments capacities to formulate focused, effective and sequenced policies in this respect: (iii) to increase the competence of enterprises in adapting their business strategies and supplies to the Post-Uruguay Round trading framework; and (iv) to strengthen positive linkages between the commodity sector and the rest of the economy. The above referenced workshop is one of several regional and subregional workshops that are being organized under this project to address specific diversification and commodity development issues.

  More specifically, the objective of this workshop is to contribute to the diversification and development of the commodity sector, with particular focus on poverty reduction among small producers and traders in the Least Developed Countries and transition economies of South and South-East Asia. It will be structured around discussions and exchanges of views and experiences among participants, supported by presentations on success stories relating to domestic linkages conducive to enhancing exports and reducing poverty, international networking for small producers, and the role of modern financial instruments for commodity production and trade. It is expected to contribute to capacity building for (i) assessing the potential of commodity export diversification and its impact on poverty reduction and (ii) designing and implementing appropriate policies and measures by governments and enterprises. The meeting will also provide an opportunity for participants to establish contacts and improve their awareness of the availability of advice and assistance.

 

Documents

BACKGROUND DOCUMENT: LESSON LEARNED FROM COMMODITY-BASE DIVERSIFICATION WITH PARTICULAR EMPHASIS ON SMALL PRODUCERS AND EXPORTERS AND ON POVERTY REDUCTION Boonjit Titapiwatanakun	277 Kb 116 Kb
RICE PRODUCTION AND EXPORT IN VIETNAM Van Luat, Nguyen Duc Loc.	77 Kb 37 Kb
THE CASE STUDY ON CANNED PINEAPPLE IN INDONESIA Prayogo U. Hadi	107 Kb 27Kb
THE CASE STUDY ON THE MALAYSIAN PALM OIL Arif Simeh & Tengku Mohd Ariff Tengku Ahmad	377 Kb 483 Kb
EXPORT POTENTIAL OF ONION: A CASE STUDY OF INDIA V. C. Mathur	85 Kb 39 Kb
PROMOTION OF EXPORT PROCESSING OF VALUE-ADDED FISHERY PRODUCTS FROM BANGLADESH; A SUCCESS STORY OF AN INTEGRATED PROJECT. S. Subasinghe	152 Kb 219 Kb
CUT FLOWERS IN YUNNAN PROVINCE OF CHINA. ITC EXPERIENCE IN TECHNICAL COOPERATION FOR EXPORT DIVERSIFICATION Xuejun Jiang	84 Kb 38 Kb
CROP AND TRADE FINANCING TO PROVIDE SMALL FARMERS, PROCESSORS AND TRADERS ACCESS TO AGRICULTURAL INPUTS AND COMMODITY FINANCING André Soumah	112 Kb 45 Kb
IMPLEMENTATION OF A SYSTEM OF LICENSED PUBLIC WAREHOUSES AND WAREHOUSE RECEIPTS IN BULGARIA Krassimir Kiriakov	114 Kb 76 Kb
CREATING A MARKET ENVIRONMENT WHERE SEASONAL PRICE FLUCTUATIONS ARE NOT EXCESSIVE Andrew Zemek	478Kb 206 Kb
THE ROLE OF FINANCIAL INSTRUMENTS FOR COMMODITY TRADE IN POVERTY REDUCTION: THE PHILIPPINE EXPERIENCE Raul Q. Montemayor	911 Kb 637 Kb

Recommendations

(Summary of discussions and recommendations)

The following summary has been prepared by the UNCTAD secretariat on the basis of the inputs prepared for and discussions that took place during the workshop. Its purpose is to assist participants at the workshop and the UNCTAD secretariat to identify future activities for implementation and co-operation.

The participants specified a number of critical success factors in export diversification, taking into account their impact on small producers and exporters of commodities and, especially, on poverty reduction in the countries of the region.

General problems in export diversification.

1. Among the major bottlenecks to export diversification in the region were: inadequate information on nature and pattern of demand/supply in export markets; inadequate investment in new export items; lack of capital and technologies; lack of infrastructure and other supportive facilities; lack of co-ordination between research and development organizations and commercial interests.

2. Another general observation was that it might prove to be difficult to replicate country-specific recommendations for commodity export diversification owing to differences in the organization of agricultural sector in the countries of the region, and the specificity of commodities. Several delegates were of the opinion that for boosting the benefits of exports the emphasis should be put on vertical diversification. It was recognised that as comparative and competitive advantages change over time there is a constant need to look at diversification opportunities, even away from areas that seem very successful, into other dynamic high value products. Such diversification, especially by small farmers could contribute to reducing their vulnerability and increasing their income. However, it should be borne in mind, that such "new industries" will be difficult to expand owing to needs for support and extension services such as credit, and the lack of expertise, know-how, and infrastructure. In this connection it was pointed out that banks are usually reluctant to provide credits to small producers and to "new industries".

3. The importance of close cooperation and coordination of policies between governments, local authorities and farmers/traders associations was underlined. With regard to the infrastructure and institutional support, the general lack of comprehensive and timely information (especially to small and remote producers) and advanced national marketing information systems was widely recognised. There is a scarcity of exchange of experience in commodity diversification between the countries of the region.

Role of public policies and initiatives.

1. Governments still have a central role in the provision of the necessary economic services including credit, financing, infrastructure, R&D and the know-how (human resources development). A "general approach" to poverty problems tends to dilute the benefits of the programme when it finally reaches the poor target group. There is the need for a wider and extensive framework of support services, which has to be decentralised and organised all the way to the village and individual farmer levels.

2. The issue of direct programmes/subsidies to inputs aimed at small producers as a selected and targeted group was raised. It was, moreover, noted that, where feasible, a policy of the provision of guaranteed minimum prices to this group should be pursued. Eventual limitations on support to agriculture included in the Uruguay Round Agreement on Agriculture could, however, prevent some such support. The choice between subsidies and other institutional support measures such as warehouse receipt schemes would depend on the incidence of poverty (on or off the land). Sometimes policies to create employment off the farm (e.g. ecotourism) may be preferable.

3. In discussing public research and development programmes it was noted that they are not always action-oriented, connected with needs of provision of practical extension services and responsive to the needs of the market.

Role of the private sector.

1. The private sector (especially small and medium farmers which are not grouped in associations) is not always in touch with the government (both local and national) regarding its problems and needs. On the other hand, in industry/producers associations, small enterprises/farmers are still playing a minor role, if at all.

2. One of major problems of the private sector is the production of outputs of desired qualities and quantities on contractual arrangements with big companies/transnational corporations (TNCs). While such companies were instrumental in starting new activities in the old days through direct production, now this is often done through contract farming under which meeting and maintaining quality standards set in the contracts are crucial. On the other hand, in many countries of the region standards and grades that conform to international norms and hence improve competitiveness are still not established or their control is not organized. Small producers and their associations have unequal bargaining power vis-à-vis big companies/TNCs. It was, however, generally accepted that contract farming may provide lower returns but stable prices over a relatively longer run (the situation which may be preferable especially for small and medium producers).

3. Another problem discussed was market differentiation (different markets need different qualities). In this context, the importance of knowing correctly and responding adequately to market demands (e.g. shrimps with heads receive better prices than cleaned shrimps with higher costs) was mentioned. Prices need to reflect quality differences (which is not always the case), otherwise good quality is not produced. The private sector is not paying due attention to alternative marketing channels and appropriate extension services.
4. Another important issue was limited awareness of the use of market-based instruments, risk management strategies and warehouse receipt financing for reducing earnings instabilities by actors involved in the commodities area.

Recommendations to Governments/Local authorities.

- Public policies of all kinds should be designed by governments through the involvement of the private sector and industry organizations including associations of small farmers;

- In order to prevent exodus from the farm, support should be given to the development of high value products and other high-income generating activities in rural areas;

- Land reform (where feasible) as well as fiscal and financial policies that provide a supportive environment should be implemented;

- Social support systems for improving farmers' living standards should be strengthened and/or installed;

- Where possible, direct subsidies should be provided as they tend to create a more stable production environment and more secure income for farmers. However, as direct subsidies are being in general eliminated, emphasis should be made on improving infrastructure and providing "green box" type support measures. While Government intervention may not be possible as it was before, good policy planning which involves all relevant government agencies and the private sector and good analysis would be the best way in this direction.

- Where feasible, decent guaranteed minimum prices should be provided, especially to small producers as a targeted group, including by creating the institutional preconditions for managing price instability;

- Some fairly simple innovations that could improve productivity, yields, competitiveness, should be introduced (e.g. use of improved seeds and row seeding in rice, integrated pest management, integrated nutrient management, simple tools to meet SPS/HACCP requirements, integrated farming such as palm oil and cattle).

- In order to increase incomes of farmers and reduce poverty "new-industries" (commodity niches) that are more remunerative in comparison to current traditional crops need to be identified and developed.

- With regard to extension facilities, the following are priority areas: (a) post-harvest facilities; and, (b) national and regional networks of demonstration farms and training centres for specific commodities;

- As transport is a necessary precondition for the development of diversified trade it is important to develop an extended transport infrastructure;

- In the improvement of institutional infrastructure the following needs were identified: (a) a clear legal and financial framework to enforce, where needed, the contractual arrangements between buying companies and small farmers; and (b) opening of local marketing centres for specific regions. (c) exchange of experts between countries of the region; (d) assistance for participating in fairs.

- Special attention should be paid to the development of a solid marketing information system, accessible at local level, which needs to go beyond simply providing information on prices and arrivals in commodities in major markets, but should also provide information on such aspects as availability and cost of support services, potential markets for exports, and procedures and requirements for exporting products. In order to increase the bargaining power of small producers, extended and timely price and market information to this targeted group (both through their associations and directly) should be regularly disseminated. Adequate means to reach widespread and distant farmers (including radio, TV and telephone network) should be developed. The idea of financing the appropriate hardware as a cost effective means for reaching a wide farmers' audience should be explored. Introductory training programmes for small farmers, possibly through their associations, to benefit from information technology should be organised;

- With regard to institutional obstacles impeding the use of hedging mechanisms, governments should ensure the fiscal neutrality in harmonizing taxation on hedging expenses (e.g. option premium, margin payments, settlement difference accounts, etc.) and hedging earnings.

- Ways and means to improve marketing operations and financing conditions in Asian countries should be explored, particularly through:

a. improving access to short term financing for operational capital, including through the use of warehouse receipt systems and development of regulated and guaranteed system of commodity storage;

b. determining the licensing procedures and in particular the role of legal entities regulating the issuance and registration of warehouse receipts;

c. setting-up financial, technical, legal and institutional conditions for ensuring a sound control of public warehouses so that commodity can effectively be used as collateral and that different levels of protection are set-up.

- With the emergence of new types of risks, it is seen as crucial to develop effective legal framework for agricultural credit and secured agricultural financing schemes with the goal of reducing cost of loans and limiting lending risks.

- Providing easy credit facilities and systems of guarantees for farmers, in particular in improving the degree of liquidity of collateral and enhancing transparency for instance in making more transparent the fees charged for storage by public warehouses. In addition, it would be crucial to enhance the situation of small farmers by improving access to risk management by small producers, particularly in using collateral to meet margin requirements.

- Ensuring quality classification, quality certification, as well as grading procedures so that public warehouses in developing countries set-up international recognized standards.

- Instituting new production and trade financing mechanisms, including inputs distribution programmes.

- Given the importance of the new high tech environment, specific measures to assist small farmers, possibly through their associations, to benefit from information technology should be examined. In this regard, adequate means - including radio, TV and telephone - to reach widespread and distant farmers should be considered.

- Ways and means should be explored to establish and/or improve electronic trading systems in agriculture to enhance market transparency and access to finance.

- Commodity exchanges should be developed and operated with the aim of enhancing price discovery mechanisms, reaching a higher degree of liquidity, and providing domestic operators with the possibility of locally accessing financing and hedging mechanisms.

- Public research and development programmes should be initiated which would be more responsive to the needs of the market and would lead the private sector in this respect. (However, it should be taken into account that, in some cases the public sector rather follows the signals sent by the private sector that is more in touch with international market developments):
- Measures aimed at improving links between public research and extension services and between research institutions and the private sector should be undertaken;

- In order to affect positively the situation of women, projects should be implemented in areas where women are employed intensively. Projects impacting on small producers in general would also be critical in this respect.

Recommendations to the private sector.

- Developing effective organization of producers to reach critical size (and volume) should be encouraged in order to improve credit rating of small growers by the development of effective and ethical intermediaries (association of farmers, fair trade organizations, NGO's, other possible institutions);
- The private sector should communicate to the government its priority needs in a clear and timely fashion;

- In industry associations, the voice of small enterprises should be heard and their concerns taken into account in formulating the common position of the industry;

- Large companies with contractual arrangements with small producers should assist them in the production of outputs of desired qualities. Production according to standards and grades that conform to international norms and hence improve competitiveness should be one of the priorities of the private sector. In this context, focus should be made on food safety and international product standards which are relatively easy to comply with, rather than on quality standards that may cost too much to implement and to maintain;

- Due attention should be paid to problems of market differentiation and establishment of the system of prices that reflect quality differences;

- A system of market research that timely detects existing and emerging market demands has to be developed;

- Alternative marketing channels such as fair trade networks should be explored;

- For large volumes of exports direct marketing with offices in important markets should be established.

Recommendations to International Organizations.

- International community, including specialized agencies, should support poverty reduction through focused and targeted projects in the commodities field. Programmes and projects should be developed by international organizations in close co-operation and co-ordination with national government agencies, for increased awareness, training and technical support;

- UNCTAD and ITC UNCTAD/WTO should initiate country-wise surveys to identify for poor communities possible potential commodities into which it would be possible to diversify, considering domestic, regional and international market demands. One of the existing national central trade promotion agencies should be assigned for the dissemination of such studies. Regular experience-sharing is to be organized regionally for such identified "new products";

- Common Fund for Commodities (CFC) should look into the possibility of providing adequate finance on a secure basis in order to reach a critical mass that will make a significant contribution to export diversification and reduction of farmers' poverty in the region. To induce such financing the activities of the CFC in this respect should be given better visibility both to the governments and the private sector of the region.

- It would be important to strengthen existing pilot projects on warehouse receipt finance systems and organise national technical workshops with special focus on enhancing price discovery and financing mechanisms as well as the potential of developing domestic and/or regional commodity exchanges.

- International organizations should play a central role in improving awareness on the use of market-based instruments for improving access to finance and enhancing marketing operations and in providing specific training and education on the different risk management strategies and warehouse receipt financing to actors, including commodity producers, involved in the commodities area in order to familiarise them with new ideas such as using information technology.