In an exclusive interview with MediaGlobal’s Adelia Saunders, Ambassador Ali Mchumo, Managing Director of the Common Fund for Commodities, discusses the need for countries dependent on raw material exports to work together to benefit from rising commodity prices and rapidly globalizing international trade.
The Common Fund for Commodities finances the development of commodity sectors in developing countries through hundreds of projects designed to improve the production and marketing of specific commodities.
MediaGlobal: What role does cooperation between countries of the global South play in developing sustainable industries in commodity-dependent countries?
Ambassador Ali Mchumo: Of course South-South cooperation is a growing phenomenon between developing countries, and in the South, there are countries which are better industrialized than others. So South-South cooperation can play a role, [with] those countries which are more industrialized assisting and investing in countries which are less industrialized. I think that is one aspect of the issue. And this is happening through investment between countries like China or Malaysia or India investing in and assisting less developed countries in the South. So that is one aspect of South-South playing a role in developing sustainable industries in the commodity-dependent countries.
And the other is just the normal South-South trade. If countries with industries in the South exchange commodities, that enables them to strengthen their industries both ways — [both] in the countries where the industries are and in the countries where the industries are not, [expanding] the market. So there is this South-South trade, which provides markets for industries on either side of the divide, as it were, and that I think contributes to sustainable industries in commodity-dependent countries.
But another aspect is regional integration. Especially in countries which are within the same geographical vicinity, the geographically contiguous countries, integration benefits the larger market in the rest of the integration area.
I would say that, for instance, countries in Southern Africa, in SADC [the Southern African Development Community], or countries in East Africa more specifically, an industry which is based in one country would be able to enjoy the market in the whole area through South-South cooperation but limited in the regional kind of integration process. So that I think would be another aspect of how South-South cooperation would help in developing sustainable industries.
Q: An important component of many of the Common Fund’s projects seems to be connecting individuals within these countries — scientists, farmers, businessmen, etc., as well as institutions — to individuals and institutions in other countries that have knowledge about a particular commodity or are trying to develop a particular commodity. Do you see these connections, particularly as they happen between people or institutions in countries of the South, as having a long-lasting effect, and possibly even contributing to the development of other industries?
A: The major component of our projects is not arranging the connections — of course that may be one of the results, welcome as it is. If you want to really identify the major components of our projects, [you must look at] what they intend to do, in terms of increasing productivity of commodities, in terms of increasing and improving quality of commodities for better marketing, in terms of expanding the possibilities of market access of the commodities so that they become more marketable. So these, in our view, would be what you call major components. But of course in the process you do inevitably have individuals connecting in implementing the project or benefiting from the project. Farmers will benefit from the projects — indeed, they are the target group. So indeed the connections get developed, but I would say they are the results of what happens in implementing the major components of the projects. Now, of course what happens in terms of whether our projects would filter into development in other areas — certainly the projects we finance are what we call “pilot projects,” we don’t have the capacity to really do everything in every country, but if there is a commodity problem, regarding, let’s say coffee or tea or cotton, whatever, given what the proponents would like us to do, if it is disease control or increasing the productivity, once that project is established, our idea is to see whether we can develop the culture which can be co-opted by other countries, other commodity [producers] facing similar problems. So in that way, what our projects do is try to identify what can be done in a particular commodity problem, and what we come out [with] is disseminated to other countries facing similar problems.
Q: You mentioned the problems facing commodity producing countries. What about the issue of global trade regulations that may negatively impact commodity development in some countries? What do countries of the South have to gain from working together to address those regulations?
A: Well, certainly it is always helpful and beneficial for developing countries, commodity producers, to work together, because in working together they augment their bargaining power vis-a-vis the more developed countries. In this regard, I think you do follow what is happening in the WTO [World Trade Organization] processes. Commodity-dependent countries have banded together in arguing, for instance, against the continuation of subsidies by more developed countries. But no single country in the South could ever be heard if it stood alone. To argue [with one voice] is always beneficial to developing countries, particularly in the South, to work together in agreeing for interests which are shared by them, vis-a-vis the adversaries in the economic divide of the world.
Q: Is there ever such a thing as too much cooperation? By cooperating with one another might countries encourage competition — for example from a neighboring country?
A: Collaboration between producers is always a good thing, in the sense that they can marshal greater bargaining power vis-a-vis the consumers. Of course what usually happens is that the consumers sometimes become so powerful they work against the possibilities of producers banding together. So far only one among the very few successful producer cartels, as it were, has been OPEC [the Organization of the Petroleum Exporting Countries]. They have been able, by banding together, to really determine the price of the commodity. Now, for other commodity producers, they are not so lucky, because the consumers are more powerful than the producers. So it’s all a lack of cooperation between producers which really undermines the position of the producers in commodity-dependent countries. If they were able to marshal their unity and work together, for instance if all cotton producers would be able to say ‘this is what we want’ vis-à -vis the consumers, then perhaps things would change in the favor of the producers. So I don’t think too much collaboration is a bad thing. I think there is not too much — there is a lot of lack of effective collaboration with the producers.
Q: How has the global food crisis we hear so much about impacted your work? Does the current economic climate actually help smallholder farmers? What do you see as the overall impact on commodities?
A: Well, certainly we are all very delighted that the general trend of prices of commodities is rising, so in a way this is a very positive thing for commodity producers, in the sense that now the prices are better than they were, say, five or ten years ago. What is not certain is whether this price boom for commodities will be sustainable beyond, let’s say, ten years from now. But if this is a trend, then certainly commodity producers would say it’s a good thing.
But of course it also depends on how the producing countries make use of this boom in order to improve and establish more sustainable economic programs in their countries. This boom may not last beyond a certain number of years, depending on a number of circumstances. So this, overall I think, will be a positive thing. The increasing demand for commodities in China and India, etc., is a plus to those countries which produce those commodities.
On the other hand, as far as food is concerned, a number of developing countries are food-deficient countries, food importers. So for these countries the rise in the price of food certainly has a very negative impact. Because whatever they might earn from the increase in the other commodities they produce, they will have to spend by buying more expensive food. So that is a factor. And whether they are food importers or non-importers, the overall negative impact is [that] even those countries which have gained from the high price of commodities — for those who are oil importers, whatever gains they might have are sort of washed away by the increasing price of oil and other related products — like fertilizers and so on and so forth.
So you can look at it in a totally holistic way, but as commodity producers, one can say that the high price of commodities will benefit those countries which produce those commodities for export. But on the other hand, for those which have to import food, certainly this is a negative development for them.
Q: Why the focus on commodities? In an age when the development of information-based technology, communications technology, is bringing wealth to many developing countries, where do commodities fit into the globalizing world economy?
A: Well, this is an interesting question. One thing that must be said, is that many countries are dependent on commodities for their economies not out of choice, but out of historical and geographical necessity. You look at the industrial revolution happening in Europe and of course in America, but for many countries in Africa and other countries in Asia, agriculture remains the main economic activity.
So why are commodities important? It’s is just a fact of life that many, many countries—some depend on a single commodity for their economy, others two or three — but this is the result of historical [and] geographical development, one could say. But it’s true to say that of course commodity producers don’t want to remain just commodity producers. They also want to join the industrial club. But how do you do that? Either you use commodities as the launching pad into industrialization — even countries which are industrialized in trade, they started off with agriculture. So one hopes that many commodity-dependent countries will follow the same trajectory of using commodities as a launching pad to industrialization. Countries like Malaysia have done that, they’re doing that. And there commodities become less and less important.
But you have to start somewhere. Even Malaysia started with commodities. The plea that we, the Common Fund, do make is that, while we help to improve the commodity production and the quality, at the end of the day, the only sure way is for countries to diversify away from a dependence on commodities. But that calls for investment. It calls for technology transfer, and all these are issues which are laid in international forums for discussion, for debate, so the developing countries can join the club of the developed countries. But it takes time. It takes time, it takes imagination, it takes goodwill, it takes patience, all these things combined.
Commodities are not necessarily the end-all, but there has to be a starting point, there have to be some factors built into the process so that commodities are no longer so crucial in the lives of developing countries. But there is a long way to go, and there is a lot of goodwill that is required from the developed countries to have that position realized. And South-South cooperation is a factor that can also help. Because as I said in the beginning, those countries which are more developed, more industrialized, have to play their role in assisting the countries which are less developed, which are more commodity dependent. Once again, the role of South-South cooperation in assisting the development of commodity-dependent countries is crucial.