UNCTAD Commodities and Development Meeting and Actions

UNCLAS SECTION 01 OF 02 GENEVA 000350 SIPDIS STATE FOR IO/T, IO/EDA, EEB E.O. 12958: N/A TAGS: ECON ETRD EINV EFIN UNCTAD SUBJECT: UNCTAD Commodities and Development Meeting and Actions GENEVA 00000350 001.2 OF 002 ¶1. This is an Action request, see para 12. ¶2. SUMMARY: At UNCTAD's Multi-Year Expert Meeting on Commodities and Development on April 6-7, expert discussion focused on the need for regulation of commodity markets and the need to address the problem of speculation, which was considered to be a cause of both volatile markets and price increases. The situations in oil and gas, agricultural commodities, minerals and metals, and fisheries and forestry markets were discussed as well as the challenges and possible solutions for each commodity area. END SUMMARY ¶3. Background: At the twelfth ministerial meeting of the UN Conference on Trade and Development (UNCTAD) held in Accra, Ghana in April 2008, member states recognized the importance of expert meetings, to share experiences and best practices, and for networking among experts (para 207, Accra Accord). Member states also highlighted the importance of international commodity bodies and commodity sectors, including agriculture, forestry, fisheries, metals and minerals, and oil and gas (para 91). The April 6-7 UNCTAD's Multi-Year Expert Meeting on Commodities and Development was a response to the Accra mandate. The meeting was attended by about 75 experts and member state observers. ¶4. Ambassador Gauze from the Ivory Coast, Chairman of the meeting, stated that we are currently in a market of risk, which has caused a drop in demand for commodities. This is demonstrated by iron, mineral, and oil prices, which have dropped over sixty percent in the last six months. Expert speaker GATI Saadi Al-Jebouri, CEO of Litasco S.A., talked about the current issues facing the oil industry, including the instability of prices. Al Jebouri warned that if reductions in worldwide investment in oil continue, a reduction in production will follow, which will eventually result in higher oil prices. ¶5. The relationship between oil and food prices was highlighted by experts, including Professor Gilbert of the University of Trento. He explained that high oil prices lead to a demand for biofuels, made from products such as maize and vegetable oils. This demand for biofuels generally occurs when oil prices surpass $70 per barrel. High food prices are also caused by high fertilizer prices, high freight rates, and high production costs. Several participants �A;stressed the importance of addressing volatility in commodity prices through stronger regulation of commodity markets. ¶6. Experts' discussion on the issue of forestry was largely focused on the economic crisis, which has greatly affected timber prices. Christopher Prins, Chief of ECE/FAO Timber Section, discussed the timber industry in North America, which is being drastically effected by the rising inventory of unsold homes and the extreme drop in demand for new housing projects. He stated that forest production in Canada, which is the United States' main trading partner for forestry, is expected to lose another $750 million to $1 billion in revenue in 2009. Short term solutions were mentioned and included cost-cutting in production, product diversification, and exploring renewable energy from wood. ¶7. Experts noted that approximately 1 billion people, many of them from developing counties and LDCs, depend on fish and marine products as their main source of livelihood, foreign income and domestic savings. International trade in fish and fish products, valued at USD 86 billion in 2008, is growing at about 4 per cent per year, driven largely by high per capita consumption in Japan, the United States, and the European Union. Participants noted the significant growth of aquaculture farming - particularly in Asia, led by China and Viet Nam - compared to captured fish. Overfishing and the depletion of fish stocks are threatening the sustainability of the fisheries sector, and participants stated that this issue should be addressed. ¶8. During the session entitled "Improving transparency and accountability at all levels and for all participants in the commodity sector," the United States made a statement about the importance of transparency, good governance, and accountability. This statement was well-received by experts and other member states. ¶9. In his summary, the Chairman noted many challenges that are faced in the commodities industry today, including macroeconomic challenges, volatile prices, lack of diversification, poor supply chain linkages, high transportation costs, difficulty accessing financial markets, and limited market access due to trade barriers. Suggestions for future action included the collection of reliable and timely data in production regions, the integration of GENEVA 00000350 002.2 OF 002 agricultural policies with other sectoral policies, minimization of rent-seeking and corruption, avoiding development of industrial enclaves, and climate-proofing agriculture through better technology. It was also noted that UNCTAD should do more work to strengthen the domestic commodity sectors in commodity-dependent developing countries (CDDCs). Specifically, experts said that UNCTAD should undertake a comprehensive review of all current multilateral and bilateral assistance to CDDCs in order to identify gaps and priority areas which, if addressed, would enable them to take advantage of the opportunities in international trade in commodities, as well as to cope with the challenges of the current price cycle. Comment -------------- ¶10. The establishment of a multi-year experts group on commodities was one of the major objectives of the Africa Group during the Accra Ministerial meeting. The Africa Group also succeeded in having UNCTAD's commodities branch reestablished as an autonomous, higher profile, unit reporting directly to the UNCTAD SG Dr. Supachai. So far work of the commodities unit and expert group seems to be constructive, but it warrants close monitoring as historically, UNCTAD has looked to price agreements and buffer funds rather than free market solutions to promote price stability among commodities' producers. ¶11. The Trade Commission meeting May 11-15 will consider the following proposals for work by the Commodities experts group, contained in report TD/B/C.I/MEM.2/5. ¶12. ACTION REQUESTED: Please advise Mission by May 8 whether the US would support or object to any of the points below. The Commission may wish to: (a) Welcome the call by experts on the international community to address the vulnerability of commodity-dependent developing countries to both positive and negative price shocks (para. 4 of the report); (b) Take note of the consensus among experts that - while excessive speculation was partly responsible for the recent wide price swings - an overregulation of markets could be detrimental, since speculators provided the liquidity required by futures markets for hedging. However, futures markets should nonetheless be better regulated so that they remained a reliable barometer of price for market participants. (para 11 of the report); (c) Endorse the emphasis by experts that a strategic approach to the commodity sector by commodity-dependent developing countries (CDDCs) should involve investments in both vertical and horizontal diversification, and that technical support, including from UNCTAD, would be necessary to support this strategy. (para 23 of the report); (d) Endorse the view of experts that transparency in the management of windfall incomes from natural resource exploitation is essential to prevent their misapplication (para 37 of the report) and that the principles of good governance should extend beyond transparency in the management of revenues to include the appropriate management of the social and environmental cost and benefits related to extractive industries (para 20 of the report); (e) Reconfirm the need for commodity policy issues to be incorporated in rules of the international trading system. (para 41 of the report); (f) Take note of the emphasis of experts on the need to pursue mechanisms to stabilize commodity prices for producers and producing countries, and for stronger regulation of commodity production and trade throughout commodity chains. (para. 43 of the report); (g) Request UNCTAD to undertake a comprehensive review of all current multilateral and bilateral assistance to CDDCs (para 45 of the report); (h) Endorse the view of experts that initiatives at the regional and subregional levels should be encouraged to address the energy security challenge of net fuel-importing developing countries (para 48 of the report); (i) Approve the suggestion of experts that UNCTAD should organize joint taining workshops and other capacity-building activties to promote a "green revolution" in food-defcit developing countries (para 50 of the report); nd Comment and Action Request. STORELLA#