Commodities: Price pacts crumble at last

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The Independent Online
NOT before time, the few remaining international commodity agreements with the power to support prices are nearing their demise. Three organisations - coffee, cocoa and rubber - are struggling to revive their moribund price supports. Tin, sugar and wheat councils admitted long ago that they could not buck the markets and scrapped the support operations.

The first agreements trying to support prices were forged in the 1950s and 1960s. Their lofty goals were to protect producers from the vagaries of the market and give consuming countries food security. They used export quotas, held back stocks or set production quotas to keep prices within agreed targets.

Some schemes worked for a while, under certain conditions, but one by one over the past decade the mechanisms have collapsed.

Behind this has been the way that, during the 1980s, surpluses meant most commodity prices declined. As a result, commodity agreements ended up supporting prices apparently indefinitely.

Yet such artificial price supports have often hurt those they were meant to help: developing countries and small growers. Their abrupt breakdown triggered immediate sharp price falls. Market disruption, mine closures, sudden unemployment and lost earnings have been more devastating for economies and individuals than slow price declines linked to overproduction.

Large Western countries are among the biggest commodity consumers. Their governments have traditionally backed the price-support pacts for political reasons, seeing them as cheap aid- in-kind for developing countries.

The trouble is that this aid is untargeted. Commodity producers around the world are a mixed group, and not equally deserving of assistance. Take cocoa, of which the Ivory Coast is the world's biggest producer.

Cocoa producers include growers and pickers living in poverty because labour oversupply keeps wages low. They also include plantation owners, who may expoit workers, are members of export bodies that determine policy, dine with government ministers, and live extremely well.

But Malaysia is also among the top four cocoa producers. As a rapidly growing economy, it arguably does not need foreign aid-in-kind.

In the end, it is consumers, rich and poor, who foot the bill for artificial price supports. Not only do they end up paying more than they need for food, but as taxpayers they also fund the junkets of the bureaucrats who have to fly to London for extended meetings, and pay for the organisations' permanent secretariats.

Enthusiasm for price-support schemes is waning. But they need not be completely junked. The organisations are useful for international co-operation, research, market transparency, export promotion and marketing.

The coffee, cocoa and rubber organisations embroiled in talks about the future should let their price-stabilisation schemes die a natural death, and focus their efforts instead where they will be more effective.