MARKET DEVELOPMENT
02-11-2004
China and India supply the demand
10/30/2004 - China and India, the world's two most populous nations, willsoon be potentially big markets for a wide range of commodities, likecotton, rice, coffee, cocoa, palm oil and rubber, which should translateinto a rare boon for the developing countries that produce them, says anew United Nations report.''Thailand expects its rice exports for this year to increase by onemillion tons, to nearly eight million tons because of strong Chinesedemand, earning revenues of US$2.4 billion compared to $1.9 billion lastyear,'' said the 20-page study from the UN department of economic andsocial affairs.The accelerating demand for rubber from China's fast developing automobileindustry has also created "a boom" for rubber industries in neighboringcountries. The east Asian giant is also set to overtake India as theworld's leading importer of vegetable oils and is expected to buy up to5.5 million tons of palm and soy bean oil in 2004, up from 4.2 milliontons in 2003.''India's share of world consumption of major commodities is relativelymodest,'' says the study, ''but China's rapid industrialization has led toit becoming a major market for most raw materials'', including copper,iron ore, lead and zinc.China and India have a combined population of 2.3 billion people, about37% of the world's population. A $100 increase in the per capita income ofthese two countries (representing a 10% rise in China and 20% for India)would translate into about $230 billion in additional demand forcommodities. ''Commodity prices increased considerably in 2003 and thefirst half of 2004, particularly for minerals, while prices ofagricultural products rose more slowly,'' the report added. Generaleconomic recovery and the rapidly increasing demand in Asia, particularlyChina, were the main reasons for the increases.The study, which will go before a UN committee at the current session ofthe General Assembly, scheduled to end in mid-December, says that over thelong term, increasing Chinese demand for vegetable oils, particularly palmoil, will benefit Malaysia, which accounts for half the global production,and Indonesia, another significant producer.According to figures released by the UN Conference on Trade andDevelopment (UNCTAD), 95 of 141 developing countries are more than 50%dependent on commodity exports, including oil. For most sub-SaharanAfrican nations, the figure is 80%. ''This dependence makes most countriesparticularly vulnerable to commodity market fluctuations and is a realhandicap to economic development,'' UNCTAD said in a report released at aUN conference in S?0Å’0o Paulo, Brazil, last June.The world's 50 least developed countries (LDCs), "the poorest of thepoor", now depend heavily on commodities for their economic survival.Since 1997, the fall in prices of some commodities, including coffee,cotton and sugar, has been ''dramatic'', causing large economic losses andincreased poverty in several developing nations.According to UNCTAD, about 70% of the world's coffee supply is provided bysmallholders. Coffee growing supports about 40% of the rural labor forcein countries such as Nicaragua. ''Essentially, depressed coffee priceshave been caused by five consecutive years (1998-99 to 2002-03) in whichtotal coffee production has exceeded demand,'' UNCTAD said.Phil Bloomer, head of Oxfam's International Make Trade Fair Campaigns,says: ''Commodity dependence is the single-most important trade issue forthe world's poorest nations.'' The countries most affected by plummetingprices are in Africa. Burkina Faso and Mali depend on cotton, Ghana oncocoa and gold, Kenya and Malawi on tea and Ivory Coast on cocoa andcotton. Coffee accounts for 67% of the income of Ethiopia and 79% of thatof Burundi.But the study says African countries experienced a 10% annual increase inagricultural exports to China from 1995 to 2002. Anwarul Karim Chowdhury,UN under-secretary-general for the least developed countries, sayscommodities occupy a very important place in those nations' quest forequitable trading arrangements.The development efforts of most LDCs - 34 of which are from sub-SaharanAfrica - ''can only go forward if their primary commodities, whichtraditionally come from the agricultural sector, generate sufficientexport earnings and employment,'' Chowdhury told IPS. Besides increasingSouth-South trade, he said, the rising demand for commodities from Chinaand India would provide a much-needed stimulus for the world's developingand poorer nations.In order to assure fair commodity pricing and reduce their volatility, heargued, there is an urgent need to reach an effective agreement to allowLDC commodity exporters to compete on a level playing field with richernations. "Assuring LDC producers their fair share will not only benefittheir agricultural sectors by increased employment savings and reductionof poverty in rural areas, but will also allow the LDCs to reinvest anysurplus in necessary services and infrastructure," Chowdhury added.The UN study says the importance of the relationship between commodityproduction and both the incidence of poverty and the potential to reduceit is illustrated by the basic fact that more than two billion people inthe world are employed in commodity production - "and that the majority ofthem are poor".But the report strikes a positive note when it concludes, "The comingyears may see an unprecedented opportunity for developing countries toincrease exports of commodities, particularly to other developingcountries, as a result of favorable market conditions over the mediumterm, both for raw materials and for food commodities."
