Value Chains and Tropical Products in a Changing Global Trade Regime

Date period
1 May 2008

SummaryqThe importance of agricultural commodities for developing countries, including tropical products, is undeniable. Their significance has been recognised in an array of studies, fora and organisations. As indicated in the Global Initiative on Commodities Report (UNCTAD et al, 2007), as many as 38 developing countries are estimated to be dependent on a single commodity for more than 50 percent of their export income, with an additional 48 countries depending on only two. These countries depend on commodities as a source of livelihood, employment, foreign exchange and public revenue; the commodity sector is their principal stimulus for economic growth.

There are no studies estimating the importance of tropical and other commodities using economic, social and foreign trade indicators. Nonetheless, the participation of such products in exports from developing countries is significant: the twenty main tropical products account for 36 percent of developing countries’ incoming foreign currency from agricultural exports. This proportion reaches 46 percent for low income developing countries (Perry, 2008). Many of these products are grown primarily by small farmers in developing countries – as in the case of coffee, cocoa, tobacco and cotton. Others (i.e. sugar, rubber and rice) are vital in the generation of rural employment. Therefore, besides their considerable contribution to foreign currency generation, they also play an important role from a social point of view.

The built-in agenda of the World Trade Organization’s (WTO) Agreement on Agriculture reflects the longstanding priority attached to tropical and diversification products, that “having agreed that in implementing their commitments on market access, developed country Members would take fully into account the particular needs and conditions of developing country Members by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these Members, including the fullest liberalisation of trade in tropical agricultural products […].” The 2004 Framework Agreement reached during the Doha Round notes that the full implementation of the liberalisation of trade in tropical agricultural products is “overdue and will be addressed effectively in the market access negotiations.” However, the way in which the commitment is to be implemented and even the identification of such products remain far from clear.

In the last decade, the commodity issues have re-emerged as central to development initiatives and poverty alleviation strategies. The objective of this Issue Paper by Charles Mather is to contribute to this debate by providing an analysis of the value chains of four tropical commodities (bananas, sugar, cut flowers and palm oil) in a rapidly changing global trade environment. The author seeks to provide insights on the different ways the significant changes occurring in the structure and governance of commodity chains ultimately affect producers’ income and production sustainability. He also suggests recommendations to improve these two variables.

The value chain approach has become an increasingly important framework for examining changes in the global trade of commodities and their implications for primary producers. Rather than describing the broad patterns of global exchange and assessing their consequences for producers and consumers exclusively through market mechanisms and equilibrium price changes, the global value chain (GVC) framework encompasses the production, processing, distribution and marketing of specific globally-traded commodities, and identifies the main stakeholders involved at each stage. It also highlights governance patterns (how these different stages are coordinated) and specifies the role of lead firms in determining market access, defining products and value across the chain (Schmitz, 2005).

The commodity studies in this paper focus on four themes: changes in the geography of production, changes in chain governance, new developments in trade agreements and their impacts on primary producers in different developing countries, and initiatives towards sustainable production, ethical trade and worker welfare. With regard to changes in production, the paper provides insights into new developments in the production of bananas, sugar, palm oil and cut flowers, which have been driven by changes in trade agreements and new investment patterns. In several of the commodities concerned, an important development has been the rise of new low cost producers who will play a role in shaping the global market for these commodities.

This paper was produced under an ICTSD dialogue and research project which seeks to address the opportunities and challenges of the full liberalisation of trade in tropical and diversification products, and explores possible areas of convergence between different groupings and interests in WTO negotiations. The project seeks to generate solutions-oriented analyses and possible policy responses from a sustainable development perspective.