WORLD TRADE  
ORGANIZATION  WT/COMTD/W/124 
5 March 2004 
 
 (04-0982) 
Committee on Trade and Development Original:   English 
  
 
DECLINING TERMS OF TRADE FOR PRIMARY COMMODITIES, 
AND ITS IMPLICATION ON TRADE AND DEVELOPMENT OF  
PRIMARY COMMODITY EXPORT COUNTRIES 
 
Statement by Kenya on behalf of the delegations of Kenya, Tanzania and Uganda during the meeting
 
of the Committee on Trade and Development held on 18 February 2004  
 
 
 The statement is being circulated at the request of the delegations of Kenya, Tanzania and 
Uganda. 
 
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 1. Let me begin by thanking the Secretariat fo r the comprehensive bibliography which it 
circulated at the request made by Kenya, Uganda a nd Tanzania.  We have been able to make a first 
reading of the papers despite our limited capacity and we would like to briefly highlight some the 
issues raised in the papers; 
• Most of the world's poor live in countries wh ich are dependent on e xports of one or two 
primary commodities for the bulk of their export earnings and therefore a clear link is drawn 
between commodity dependency and poverty. 
 
• The secular trend towards decline in prices of these commodities is continuing.  Even though, 
prices of some of the agricultural commodities have shown in the last two years an upward 
trend, this is largely due to unfavourable w eather conditions in the main producing countries 
or political uncertainties in some of these countries.   Prices continue to be volatile for most of 
these commodities. 
 
• The efforts made in the past at international level for the stabilization of prices, through the 
commodity agreements have failed.  This is  because the economic clauses, which enabled the 
coffee, cocoa, sugar and rubber international or ganizations to intervene in the markets to 
stabilize prices when such prices were falling, have been suspended. 
 
• The producing countries have been persuaded to liberalize internal markets by abolishing 
inter alia  marketing boards, which hitherto ensured that farmers got minimum prices for their 
production.  The farmers are therefore at present left completely to the mercy of market 
forces. 
 
• The purchasing power on the other hand is getting increasingly concentrated in the hands of a 
few foreign companies.  Large trading compan ies, dealing in many commodities, are being 
replaced by more specialized companies.  For coffee only,  five companies now account for half of trade in green coffee, while cocoa trad ing companies in London have fallen from 30 to 
10 and half of the trade is now controlled by chocolate manufacturers.  Both of these trends WT/COMTD/W/124 
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 represent concentration of buying power in th e hands of a few companies enabling them to 
dictate prices. 
 
• Almost all studies emphasize that the only long term  solution would be to diversify either into 
producing other agricultural crops or encourag e the development of manufacturing or service 
sectors.  Most of them however, admit that the past experience has shown that it would be 
difficult to find an agricultural crop that would be suitable for diversification.  A few of the studies also recognize that for a large number of countries which are dependent on exports of a few primary commodities, diversifying into manufacturing or into service economy, is likely to be a long term objective, as it would take years to develop the physical and human infrastructure that is needed for their development. 
 
• Most of the papers, particularly those by expe rts from the International Financial Institutions, 
refer to the important role which commodity de rivative instruments such as futures, options, 
swaps and commodity linked bonds could play in reducing price volatability and making earnings for producers more predictable.  Some commentators however, consider that even though these private sector instruments can be usef ul in covering risks arising from temporary 
fluctuation in prices, they would not have any perceptible effects, where there is persistent 
decline in prices as a result of structural ove r supply.  The coverage of risks under these 
instruments is also fairly limited.  While for metals like copper, it may be possible to cover 
risks up to three years or so, for agricultural commodities, the coverage is limited to a few 
months (generally three months).  The expe rience has further shown that these instruments 
are used in some developing countries thr ough the financial support from foreign banks.  
They further enable exporters from covering the risks and their benefits are rarely passed on 
to the farmers whose day to day livelih ood is dependent on earnings from exports. 
 2. The summary of the findings which we have ma de may not fully reflect the various nuances 
and emphasis that are placed by the authors in co ming to these conclusions.  Despite these limitations, 
we consider that these findings and conclusions  could provide two u seful guidelines for our 
discussions.   
3. First, for a large number of developing countri es, which are heavily dependent on exports of 
primary commodities, diversification is not going to provide an immediate answer to their problems.  
Despite the assistance that may be provided to them in transforming their economies into 
manufacturing and service economy, most of these countries, particularly those in Africa would 
continue to depend on exports of these commodities fo r a very long period of time may be even for 
the next two to three decades.   
4. Secondly, despite all the enthusiasm shown by  International Financia l Institutions for the 
market based financial instruments like commodity de rivatives, their use would have very little effect 
in dealing with situations where decline in pri ces is due to a disequilibrium in demand and supply 
caused by structural over supply.  As we have emph asized in the "non-paper" the crisis situation that 
has been created in trade in comm odities like coffee and cocoa is due to structural oversupply in the 
world market. 
5. With these observations let me now turn to th e way in which our future work could be 
organized.  In this context we wish to reca ll the positive progress made before Cancun on the 
commodities issue and indeed its inclusion in paragr aph 28 of the Cancun Draft Ministerial text.  This 
underscores the importance of this issue and the need  to find a solution in a rule based system.  It 
should be noted that there was no controversy at Ca ncun on this issue and therefore we would like to 
urge Members to continue engaging in discussions on this subject in a constructive manner and in the 
spirit of paragraph 5 of the Cancun Ministerial Statement.    WT/COMTD/W/124 
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6. In doing so we should bear in mind that the l ong term solution to the commodities crisis will 
need a multifaceted approach.  In this regard, a lthough the primary responsibility for discussions on 
the issues raised in the non paper should remain in the CTD there is need to involve the other WTO 
bodies as we have stated in previous sessions.  
7. Towards this end we intend to submit an add itional proposal specifically highlighting which 
issues should be handled by other working groups  and negotiating bodies.  This proposal will borrow 
heavily from the illustrative list of elements for ac tion highlighted on page 9 paragraph 37 of our non 
paper.   
 
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