Communication from the Commission to the Council and the European Parliament - Agricultural Commodity Chains, Dependence and Poverty - A proposal for an EU Action Plan
Date: 2004-02-12
Institutions: European Commission
Subjects: EU policy, EU programme, agricultural product, developing countries, development aid, development policy, primary product

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 12.02.2004
COM(2004)89 final

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE
EUROPEAN PARLIAMENT

Agricultural Commodity Chains, Dependence and Poverty
- A proposal for an EU Action Plan

EN

  EN

CONTENTS

1.

2.

2.1.

Why an EU Action Plan in support of Agricultural commodities in developing
countries? ..................................................................................................................... 5

Addressing commodity chains and dependence as a priority ...................................... 7

Policy Response: Developing commodity strategies, at national and international
level .............................................................................................................................. 8

2.2.

Proposed EU actions .................................................................................................... 9

2.2.1.

Supporting the development of CDDC commodity strategies..................................... 9

2.2.2.

Pursuing reform of International Commodity Bodies and their strategies .................. 9

3.

Coping with long term price decline.......................................................................... 10

3.1.

Policy response: Raising competitiveness of commodities and the economy ........... 10

3.1.1.

Improving capacity and support services at producer level ....................................... 10

3.1.2.

Ensuring essential infrastructure for commodity producing areas............................. 11

3.1.3.

Pursuing policy reforms at the macro level................................................................ 11

3.1.4. Developing and exploiting regional integration......................................................... 12

3.2.

Proposed EU actions .................................................................................................. 12

3.2.1.

Support the implementation of commodity chain strategies...................................... 12

3.2.2. Development of regional support services ................................................................. 12

3.2.3.

Support to Economic Partnership Agreements with the ACP ................................... 12

4.

4.1.

4.2.

Managing commodity risks and accessing finance.................................................... 13

Policy Response: Developing institutions and instruments ....................................... 13

Proposed EU actions .................................................................................................. 14

4.2.1.

Facilitating producer access to commodity risk insurance and trade finance ............ 14

4.2.2. Developing shock management tools for the macro-level ......................................... 15

4.2.3.

Improving access to the EU Flex compensatory instrument...................................... 15

5.

5.1.

5.2.

Diversifying around traditional commodities ............................................................ 15

Policy Response – increasing government capacity to support diversification ......... 16

Proposed EU action.................................................................................................... 17

5.2.1.

Informing government choices .................................................................................. 17

5.2.2.

Supporting rural growth ............................................................................................. 17

5.2.3.

Strengthening private sector support.......................................................................... 18

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6.

6.1.

Successfully integrating with the international trading system.................................. 18

Policy Response: Maximising opportunities for CDDCs in the multilateral trading
system......................................................................................................................... 19

6.2.

Proposed EU actions .................................................................................................. 20

6.2.1.

Securing a development friendly outcome in the Doha Development Agenda ......... 20

6.2.2. Monitoring the external impact of agricultural policies............................................. 20

6.2.3. Maximising access to the EU market for CDDCs ..................................................... 21

6.2.4.

Supporting CDDCs efforts to valorise their market access ....................................... 21

7.

7.1.

Enhancing Sustainable Corporate Practices and Investments in CDDCs.................. 21

Policy response: Fostering corporate responsibility for sustainable commodity
production .................................................................................................................. 22

7.2.

Proposed EU actions .................................................................................................. 23

7.2.1.

Promoting Corporate Social Responsibility internationally....................................... 23

7.2.2.

Enabling CDDCs to benefit from CSR ...................................................................... 24

7.2.3.

Promoting Competition.............................................................................................. 24

8.

Next steps ................................................................................................................... 24

3

 
1.

WHY  AN  EU  ACTION  PLAN  IN  SUPPORT  OF  AGRICULTURAL  COMMODITIES  IN
DEVELOPING COUNTRIES?

Commodity dependence is back  on  the  international agenda.  The dramatic  recent price falls
have incited the international community to scrutinize the issue and make a series of general
commitments  to  take  action1.  Most  recently,  several  commodity  dependent  developing
countries  (CDDCs2)  have  focussed  the  attention  of  the  WTO  on  their  situation,  arguing  for
special attention to be paid to them3.

Internationally traded agricultural commodities are crucial to the employment and income for
millions of people in developing countries, as well as a major source of revenue and foreign
exchange  of  many  developing  states.  For  many  sub-national  regions  within  developing
countries, too, commodities are the engine for economic development. The producers of these
products  live  an  unpredictable  existence,  however,  because  the  prices  for  a  wide  range  of
commodities  are  very  volatile,  and  in  addition  follow  a  declining  long-term  trend.  Between
1970 and 2000, prices for some of the main agricultural exports of developing countries, such
as sugar, cotton, cocoa and coffee, fell by 30 to 60 percent (constant dollars).

The  declining  and  volatile  prices  lead  directly  to  lower  levels  of  human  development  by
negatively affecting farm incomes, agricultural wages, employment and the health of the rural
population. They are particularly damaging for the efforts to reduce poverty in CDDCs, where
a  significant  part  of  the  population  and  the  economy  depend  on  these  products.  There,  the
price patterns also lead to macroeconomic imbalances: curtailing export earnings, debt service
capacity,  imports,  credit  availability,  government  revenues  and  provisions  of  basic  services
such as health and education.

In about 50 countries, three or fewer primary commodity exports constitute the bulk of export
revenue. These countries are located mainly in Sub-Saharan Africa, but also in the Caribbean
and Central America (see Annex). Many are LDCs, landlocked or small island states. Many
CDDCs are caught in a trap of declining income and investment, stagnating competitiveness,
persistent poverty and dependence. Their commodity sectors have difficulties  in adapting to
increasingly  harsh  international  competition  and  changes  in  the  international  market
environment, but these countries have few resources to counter the situation.

In the view of the Commission, traditional commodity sectors still have a role as a key source
of employment, income, export earnings and poverty reduction in CDDCs. But measures are
needed to support them. Without such action, these sectors may fail in many countries, with
major socio-economic and political consequences.

1

2

3

E.g.  the  Third  UN  Conference  on  the  Least  Developed  Countries  in  Brussels  2001,  The  Doha
Declaration  of  November  2001;  The  Finance  for  Development  Conference  in  Monterrey  2002;  The
World  Summit  for  Sustainable  Development  in  Johannesburg  2002;  The  United  Nations  General
Assembly 2002
“CDDC” is used for convenience throughout this document as an abbreviation. It refers to countries that
are  particularly  exposed  to  developments  such  as  price  variability  in  international  agricultural
commodity  markets  and  thus  share  certain  development  challenges.  It  should  not  be  taken  to  suggest
that a specific definition exists, or indeed should exist.
Communication from Kenya, Uganda and Tanzania.(WTO WT/COMTD/W/113 of 19 May 2003); and
’Sectoral  initiative  on  cotton’,  Presented  to  WTO by  Chad,  Mali,  Benin  and  Burkina  Faso,  WT/MIN
(03)/W/2 in connection with WT/GC/W/516TN/AG/GEN/4

4

 
                                                
This  Communication  follows  directly  from  an  EC  staff  working  document  on  agricultural
commodity  trade,  dependence  and  poverty  (SEC  (2003)  908).  That  document  explored
challenges  facing  developing  countries  depending  on  agricultural  commodities,  as  well  as
possible  strategies  in  these  countries.  The  present  paper  proposes  an  EU  Action  plan  in
support of such CDDCs and their producers.  The overall objectives  of the  proposed  actions
are to:

(cid:1)  improve incomes for producers, from traditional or other commodities; and

(cid:1)  reduce income vulnerability, at both producer and macro level.

The  paper  focuses  on  agricultural  (rather  that  mineral)  commodities  that  are  traded  and
marketed  internationally.  This  is  principally  because  agricultural  commodities  have  a  more
direct  poverty  link  than  mineral  commodities  due  to  the  very  large  involvement  of
smallholders and labourers in production. Timber is not covered by the present paper since the
Commission  already  has  a  specific  strategy,  budget  line  and  large  ongoing  programmes  for
this sector and in addition is pursuing an action plan to combat illegal logging4.

This  Communication  complements  other  recent  Communications,  in  particular  Com  (2002)
429  ”Fighting  Rural  Poverty”;  Com  (2002)  513  “Trade  and  Development  -  Assisting
Developing  Countries  to  Benefit  from  Trade”  and  the  Communication  of  26th  November
2003  “Reviving  the  DDA  Negotiations  –  an  EU  perspective”.  It  is  accompanied  by  the
Commission ‘Proposal for an EU-Africa partnership in support of cotton sector development’
which is being launched simultaneously and  represents  a  specific  application of the  policies
and measures outlined in this Communication for cotton dependent developing countries.

The  paper  proposes  policy  priorities  in  response  to  six  major  challenges  facing  CDDCs:
Addressing  commodity  dependence  as  a  priority  at  national  and  international  level;  coping
with  price  decline;  managing  commodity  risks  and  accessing  finance;  diversifying  around
traditional  commodities;  successfully  integrating  with  the  international  trading  system;  and
enhancing sustainable corporate practices and investments in CDDCs.

It is vital to the success of this Action Plan that a common approach is agreed within the EU,
so that efforts by the Community and by Member States reinforce each other. There must be
broad  support  within  the  EU  if  progress  is  to  be  made  in  the  areas  covered  in  this  paper,
including  where  Member  States  act  in  their  own  right  as  bilateral  aid  donors  or  in
international bodies such as the World Bank, IMF and UN; and when the Commission acts for
the  Community  within  the  trade  arena  and  elsewhere.  The  Commission  looks  forward  to  a
stimulating  dialogue  with  Member  States  in  order  to  clarify  priorities  and  roles  to  secure  a
rapid and effective implementation of this action plan. A matrix in annex provides a basis for
discussion.

2.

ADDRESSING COMMODITY CHAINS AND DEPENDENCE AS A PRIORITY

The  abandonment  of  international  intervention  policies  at  the  end  of  the  1980s  and  the
commodity  market  reforms  of  the  1990s  in  the  developing  countries  left  the  commodity
sectors,  and  in  particular  small  producers,  largely  to  themselves  in  their  struggle  with  the
demands  of  the  market.  Despite  the  importance  of  the  commodity  sectors  for  poverty

4

See  Com  (2003)  251  on  an  EU  Action  Plan  for  Forest  Law  Enforcement,  Governance,  and  Trade
(FLEGT) of 21 May 2003

5

 
                                                
reduction  and  the  difficulties  they  experience,  national  development  strategies  have  largely
left these issues aside. At the international level, International Commodity Bodies (ICBs) are
faced with the task of reformulating their objectives for the new context.

2.1.

Policy  Response:  Developing  commodity 
international level

strategies,  at  national  and

National  level:  In  the  view  of  the  Commission,  CDDC  governments  need  to  develop
strategies to deal with the decline of their commodity sectors and the  changing international
commodity  markets.  As  part  of  poverty  reduction  efforts,  these  should  be  embedded  in
national  development  strategies  such  as  Poverty  Reduction  Strategies.  To  address  all
constraints  simultaneously  it  may  be  necessary  to  reflect  commodity  chain  priorities  in
sectoral strategies (e.g.  agriculture, transport) or multisectoral ones (e.g. rural development).
This will allow the Government to make important trade-offs such as those between support
to food crops and cash crops; existing and alternative production; or the volume of investment
in  traditional  commodity-producing  areas  with  relatively  higher  growth  and  employment
potential versus more resource-poor or remote areas.

issues  will  need  specific  attention, 

The strategy should be based on a detailed chain analysis, covering the sector’s strengths and
weaknesses,  as  well  as  threats  and  opportunities.  This  is  important  in  order  to  be  able  to
prioritise solutions. The strategy should identify measures to improve the competitiveness and
returns  to  labour  for  traditional  commodities  and  reduce  the  vulnerability  of  producers.
Environmental 
for  sustainability,  health  and
competitiveness  reasons  and  with  a  view  to  addressing  global  environmental  challenges
related  to  agriculture,  such  as  climate  change,  desertification,  soil  degradation,  biodiversity
loss and water pollution in a coherent manner. The strategy may include measures to support
alternative income opportunities for producers who are unlikely to remain competitive in their
current activity. It could also look at ways to reduce vulnerability to revenue shocks at macro
level.  The  strategies  need  to  take  into  account  regional  constraints  and  opportunities,  while
aiming  at  greater  regional  integration  and  economies  of  scale.  A  key  role  of  a  commodity
chain strategy is to define the respective roles of all actors in the chain, and look for synergies
and  partnerships.  Therefore,  multi-stakeholder  participation  during  the  formulation  and
implementation  of  the  commodity  strategy  is  crucial.  The  strategies  must  be  flexible  and
regularly reviewed so as to respond to emerging challenges. Whilst implementing the strategy
may  not  necessarily  entail  large  financial  investment  by  government,  it  will  require  strong
governmental, institutional and human capacities to address obstacles and bottlenecks through
regulatory  measures,  etc.  These  may  be  more  scarce  than  financial  resources  and  their
opportunity cost needs to be factored in.

International  level:  The  international  community,  for  its  part,  needs  a  vision  on  the
development  of  the  individual  commodity  sectors  as  a  whole.  It  needs  a  framework  for
analysing short and long term price developments; for helping to improve market functioning
(for example through market information); and for addressing developments relating notably
to  trade  rules,  traceability,  sustainability,  and  quality  requirements.  This  could  be  achieved
largely  through  a  strengthening  of  the  individual  commodity  strategies  of  the  International
Commodity  Bodies  (ICBs).  In  particular,  it  is  the  view  of  the  Commission  that  the  ICBs
should work more forcefully towards sustainable development objectives, including pro-poor
development.  This  should  incorporate  a  commodity  chain  perspective,  as  also  urged  by  the
Common Fund for Commodities in 2003. With  better objectives,  strategies,  and stakeholder
participation, the ICBs should be able to draw more effectively on, and influence, the efforts
of other international actors working on cross-cutting commodity initiatives. By raising their

6

 
level of ambition and improving their effectiveness the ICBs should be able to elicit renewed
support from members.

2.2.

Proposed EU actions

2.2.1.

Supporting the development of CDDC commodity strategies

The  European  Commission  and  Member  States  should  support  CDDCs  in  designing
commodity  strategies  and  incorporating  them  into  national  development  strategies.  Such
support  should  include  for  example  analysis  of  the  sustainability,  poverty  implications  and
needs  of  commodity  sectors;  building  of  the  human  and  institutional  capacity  needed  to
ensure  flexible  and  effective  strategies;  and  support  to  multi-stakeholder  participation.  As  a
first step, the EU should engage, within its regular collaboration structures, in a dialogue with
commodity  dependent  countries  interested  in  cooperation  to  modernise  or  diversify  their
commodity sectors.

2.2.2.

Pursuing reform of International Commodity Bodies and their strategies

With reference to the Helsinki principles5 agreed among Commission and Member States, and
with a view to enhancing the performance of the ICB’s, the EU should engage to pursue their
reform:

With  respect  to  objectives  and  functions,  the  Commission  considers  that  ICBs  should
become  more  oriented  towards  sustainable  development,  incorporating  a  clear  focus  on
environmental  and  socio-economic  sustainability  into  their  current  focus  on  market
functioning. The ICBs should become more responsive to stakeholders in both producing and
consuming  countries  and  respond  to  the  current  challenges  of  commodity  markets.  In
particular,  they  should  seek  to  advocate  the  sectors’  common  interests  (e.g.  quality
upgrading),  enhance  transparency  and  a  competitive  market  environment,  stimulate  generic
demand  for  the  given  commodity  and  facilitate  and  monitor  projects  that  are  of  particular
interest  to  CDDCs.  Synergies  with  national  commodity  strategies  should  be  sought  where
they exist.

With  regard  to  justification  and  membership,  an  ICB  should  be  supported  by  enough
members and stakeholders to justify a separate intergovernmental institution. An ICB does not
necessarily need an international commodity agreement, as long as it has an agreed mandate
(see  the  ICB  on  cotton).  The  EU  should  re-evaluate  its  membership  in  ICBs  largely  on  the
basis  of  an  appreciation  of  their  contribution  to  EU  sustainable  development  objectives  and
should consider withdrawing from ICB’s with low relevance, continuous poor performance or
very small size. Furthermore,  in  order to  enhance  visibility  and  impact,  and  reduce  costs  of
administration, the Commission proposes to merge ICB’s covering related commodities: e.g.
coffee and cocoa; jute, bamboo and rubber; FAO-hides, skins and meat, etc.

5

The Helsinki principles were agreed by the Council Group on Commodities when it met in an informal
meeting  in  Helsinki  in  1999.  Coreper  took  note  of  the  conclusions  of  the  meeting  which  state  that:
direct market interventions should be avoided; the positive experience of the international study groups
should be reflected in the future co-operation; however, future forms of co-operation should be decided
on a case by case basis; there should be a minimum share of production and consumption presented to
guarantee the effectiveness of the intergovernmental co-operation; the private sector should be given a
more  important  role  within  the  framework  of  co-operation;  the  structures  and  decision  making
procedures (including excessive administrative practices and requirements) should be streamlined.

7

 
                                                
With respect to governance, the  role  of member  governments  in  the  ICB’s  should  be  more
centred  on  facilitation.  This  corresponds  to  governments’  role  in  commodity  sectors  after
abandoning  the  interventionist  tasks  of  the  commodity  agreements  and  the  collapse  of
marketing boards in producing countries. The functioning of the executive board of directors
also  needs  to  be  reassessed  and  streamlined.  Preferably,  member  governments  should
designate  the  executive  powers  to  well  informed  individuals,  who  act  on  the  basis  of  an
agreed position. The Executive Board should monitor, guide and enable the work of the ICB-
secretariat.  Only  once  a  year  should  all  members  and  stakeholder  representatives  unite  to
review progress and discuss strategic orientations.

ICB’s  secretariats  should  be  lean  and  cost-effective.  The  cost  of  personnel  needs  to  be
brought  in  line  with  the  level  that  is  applied  for  a  division  of  a  specialised  UN-agency.
Furthermore,  some  horizontal  functions  such  as  financial  administration,  information
dissemination  and  project  monitoring  could  be  outsourced  jointly  by  or  shared  among
secretariats of ICB’s. Reform should avoid heavy procedures and promote the use of modern
communication systems, in particular for the specialised committees.

3.

COPING WITH LONG TERM PRICE DECLINE

Commodity prices demonstrate a long-term declining price trend. This trend has been driven
mainly  by  significant  productivity  gains,  which  enable  producers  to  accept  lower  prices  for
their  products.  Other  factors  have  also  increased  production:  pressure  on  countries  to  earn
more  foreign  exchange  but  few  potential  activities  with  which  to  do  so;  devaluation  of
national currencies of many commodity-producing countries following structural  adjustment
programmes;  entry  of  new  areas  into  production;  and  production  subsidies  in  certain
countries. The demand for commodities has not kept up with the increase in supply.

Experience  has  taught  us  that  it  is  not  feasible  to  address  structural  market  imbalances  for
agricultural  commodities  through  international  market  intervention.  Key  conditions  for
success are not met, and appear unlikely to materialise in the near future. CDDCs need other
ways to cope with the declining prices.

CDDC  commodity  policies  often  do  not  sufficiently  address  the  high  production  and
transaction  costs  that  undermine  their  international  competitiveness.  The  small  size  of  most
CDDC domestic markets is another constraint to competitiveness. In many small developing
countries, credible policy implementation, economies of  scale  in production, processing and
supply  of  inputs  can  only  be  realised  within  the  context  of  larger  regional  entities.  Despite
this, market reforms in such  countries have  not  generally  exploited  the  potential  benefits  of
regional integration.

3.1.

Policy response: Raising competitiveness of commodities and the economy

3.1.1.

Improving capacity and support services at producer level

To cope with declining prices, commodity producers can seek to reduce average cost, pursue
quality premiums, capture specialty market shares, develop relationships with new buyers and
improve  contract  conditions.  This  will  require  investment  based  on  market  opportunities
rather  than  mere  physical  production  capabilities.  Primary  processing  capacity  needs  to  be
improved  with  a  view  to  enhancing  quality  and  value  added.  Enabling  producers  and
processors  to  respond  effectively  to  market  requirements  will  entail  improving  market
information  and  advisory  services,  including  skills  development,  based  on  continuous

8

 
research. Research and extension services should be better differentiated according to the type
of situation and organisation of the targeted producers. A regional approach for most of these
services is desirable for reasons of economies of scale.

The majority of farmers, those producing for the mainstream market, should invest primarily
in the reduction of the average costs of production/marketing and/or in the pursuit of quality
premiums. Farmers whose level of organisation and surrounding regulatory framework allow
for this can supply part of their produce to highly integrated speciality markets (geographical
origins,  organic,  fair  trade,  etc.).  This  requires  continuous  quality  improvement,  ways  to
connect  with  new  markets  and,  for  organics,  the  enacting  of  adequate  legislation.  Farmers
able to cope with sophisticated requirements regarding quality, safety, production processes,
delivery dates etc. could tap into the market (e.g. international retailers) for a diversified range
of products, on the basis of adequate capacity building. For all types of farmers it is essential
to strengthen and upgrade farmer organisations, their commodity branch organisations, trade
associations  and  regional  networks.  This  will  facilitate  contacts  with  buyers;  access  to  the
specific services needed by these different actors; and will enable grouping supply into larger
volumes for the market.

3.1.2.

Ensuring essential infrastructure for commodity producing areas

Public infrastructure (roads, telecom, water and electricity) is vital for the competitiveness of
the commodity sectors. This must be ensured by national governments and co-ordinated at the
regional level. The availability of intraregional transport systems and an adequate network of
primary and secondary roads to and within the commodity areas is crucial to reduce transport
costs,  the  main  component  of  transaction  costs.  Reliable  telecommunication  systems
including mobile services are also vital for price information, expansion of sales networks and
organisation of business transactions. While the state has a responsibility to provide some of
this  infrastructure,  it  also  has  a  role  to  enforce  legal  frameworks  which  limit  monopolistic
situations and rent seeking.6

3.1.3.

Pursuing policy reforms at the macro level

Effective liberalisation requires a new role for Governments - facilitating, enabling, regulating
and  monitoring  of  private  sector  operations.  The  adoption  and  enforcement  of  laws  and
regulations that reduce the cost and risk of doing business are crucial for promoting local and
foreign  investments.  Governments  need  to  lay  down  and  enforce  clear  rules  on  contractual
arrangements  between  market  operators.  They  need  to  establish  fair,  transparent  and
predictable  competitive  conditions,  using  for  example  fiscal  policies,  competition  policy,
enforcement  of  minimum  quality  requirements  for  products  and  labour  and  environmental
requirements for production. Measures are also necessary to reduce administrative costs and
red  tape  relating  to  customs  procedures,  quality  assessments  and  certification,  leasing  and
purchase of land etc. Addressing quality is of central importance, because if one exporter has
problems to meet standards, it can harm the reputation of a whole country, and penalise also
exporters  who  meet  the  requirements.  Similarly,  strengthening  domestic  environmental
requirements  may  facilitate  access  to  developed  country  markets  while  protecting  the  local
environment  and  public  health.  Dialogue  among  key  actors  in  the  reform  process  will  help
identify obstacles to investment and optimise sequencing of reform measures.

6

See COM(2003)326 on the Reform of State-owned Enterprises in Developing Countries with focus on
public utilities. The Need to Assess All the Options.

9

 
                                                
3.1.4. Developing and exploiting regional integration

Regional  integration  offers  unique  opportunities  to  increase  CDDC  competitiveness,
particularly  for  small  countries.  Inputs  could  be  made  cheaper  following  harmonisation  of
product  specifications,  scaling  up  of  trading  volumes  and  number  of  suppliers.  Similarly,  it
provides additional opportunities for marketing outputs, including to processors and exporters
in  neighbouring  markets,  thus  retaining  value  in  the  producing  regions.  Improving  the
business  conditions  at  the  regional  level  will  be  crucial  to  making  investment  in  areas  like
processing  more  attractive.  To  take  advantage  of  these  potential  benefits,  efforts  to  remove
tariff and non-tariff barriers for products, services and people must be reinforced. But deeper
integration  is  also  needed,  in  particular  convergence  of  domestic  policies  and  regulation,
common regional transport networks and the adoption of harmonised or common standards.

Market  operations  for  commodities  could  be  improved  through  regional  commodity
exchanges. So far in sub Saharan Africa these have not met with success at the national level
due inter alia to the small size of the market. A regional commodity exchange can contribute
to market transparency, reduced transaction costs and help to define better quality standards
and improve the discipline in the market place, including contract enforcement.

3.2.

Proposed EU actions

3.2.1.

Support the implementation of commodity chain strategies

The EU – Commission and Member States - should support the implementation of commodity
strategies,  within  the  context  of  their  country  support  and  with  the  appropriate  long  term
development instruments. As regards the EC, the existing funding from national and regional
indicative programmes under the European Development Fund (EDF) can be used. The mid-
term  review  of  the  different  ACP  country  strategies  and  programmed  allocations  will  take
place in 2004. It will be an important opportunity for the concerned countries, in partnership
with the European Commission, to revisit the currently existing funding priorities and where
necessary  attach  greater  priority  to  commodity  related  themes  such  as  agriculture  and  rural
development  taking  into  account  that  the  overall  envelope  for  particularly  performing
countries  will  be  increased.  Limited  support  can  also  potentially  be  extended  even  if  rural
development/ agriculture are not retained as priority sectors in country programming.

3.2.2. Development of regional support services

The  EU  (EC/MS)  should  support  actions  at  regional  level  in  support  of  commodity
development:  regional  networks  of  farmer  organisations,  commodity  branch  organisation,
trade  associations;  quality-enhancing  services  (certification,  testing,  market  information);
chain-related  technology  and  market  development  research;  co-ordinated  provision  of
infrastructure such as transport networks; and investment promotion.

3.2.3.

Support to Economic Partnership Agreements with the ACP

The  EC  is  fully  committed  to  assisting  CDDCs  to  pursue  regional  integration  and  is
convinced  of  the  many  potential  benefits  that  this  could  bring.  As  regards  the  ACP,  the
negotiations on Economic Partnership Agreements (EPAs) will be a main instrument to foster
such integration. The negotiations will address issues relating to ACP trade performance both
with the EU and between themselves, including commodity exports. Issues covered will range
from  market  access  to  trade  related  rules,  including  sanitary  and  phyto-sanitary  standards,
which  have  been  identified  as  an  important  issue  by  the  ACP.  Interlinked  development  co-

10

 
operation activities  will  help the  ACP  to  use  this  framework  to  support  regional  integration
and trade including the development of commodity sectors. The Commission, in cooperation
with the ACP partners, will seek to ensure that the issue of commodity dependence is given
proper prominence throughout the EPA negotiations.

Already,  more  than  30%  of  financial  allocations  have  been  set  aside  for  ACP  for  trade  and
regional  integration  under  the  regional  indicative  programmes.  This  is  complemented  by
additional  funding  allocated  under  the  national  programmes  and  the  all  ACP  programmes.
Overall  it  is  estimated  that  more  than  €  600  m  will  be  allocated  under  EC  programmes  to
regional  integration  and  trade.  The  EC  will  pursue  and  strengthen  these  programmes  where
necessary within the context of the EPA process

4.

MANAGING COMMODITY RISKS AND ACCESSING FINANCE

Liberally  operating  markets  for  agricultural  commodities  tend  to  be  characterised  by
alternating short periods (few years) of higher prices and longer periods of lower prices. There
is high volatility within these cycles. Volatility creates uncertainty and reduces the willingness
and capacity of  farmers to invest.  It  may  also  create  insecurity  for  other  actors  in  the  value
chain, increasing downward price pressures.

Following  liberalisation  of  agricultural  markets  in  developing  countries,  including  the
dismantling of marketing boards, farmers became more exposed to market risks and the need
to finance inputs themselves. Since banks are often reluctant to lend to the risky agricultural
sector, entrepreneurs may find themselves unable to upgrade production and technology, and
to finance inputs, output marketing and processing.

Governments  are  also  affected  by  fluctuations  in  commodity  prices  which  influence  fiscal
revenues and reduce the ability to maintain basic service provision. They put further pressure
on  foreign  exchange  reserves  and  the  currency,  making  debt  servicing  less  sustainable  and
imports relatively more expensive.

Compensatory finance has been an important tool to seek to buffer developing countries and
producers against the worst effects of price and income volatility. Although these instruments
provided important resources, they have had problems  relating in particular to disbursement
rates,  which  have  undermined  their  intended  countercyclical  effect.  It  now  seems  clear  that
different tools are needed to cushion impacts at producer and macro level.

4.1.

Policy Response: Developing institutions and instruments

To improve access to finance, there is a need to create more secure collateral for agricultural
lending that would reduce the risk of non-repayment. Some new approaches are based on the
creation of liquid guarantees (as opposed to collateral on fixed assets – land, machinery, etc.).
These  could  include  warehouse  receipts7,  longer-term  contracts  and  risk  management
instruments. To accept lending against warehouse receipts, local banks need a trustworthy and
affordable third party collateral manager; and a warehouse receipt regulation that protects the
rights  of  the  warrant  holder  and  limits  the  credit  risk.  Strengthening  collateral  management
services can have important development impacts, as the techniques can be applied to a range
of products, such as agricultural products, spare parts and fertilizers. Input credit could also be

7

Warehouse receipts represent certain quantities of commodities that the borrower has stored with a third
party

11

 
                                                
developed  by  linking  inputs  to  output  markets.  Another  potential  approach  to  channelling
capital to local producers is to encourage banks to lend against export contracts, in partnership
with  international  and  multilateral  financial  institutions.  Agricultural  micro-credits  schemes
could be additional in some areas.

Market-based commodity risk insurance can offer producers and traders a possibility to hedge
the effects of price fluctuations or natural disasters within a cropping season. The Commodity
Risk  Management  (CRM)  initiative  of  the  World  Bank  has  started  testing  the  feasibility  of
put-options8  in  CDDCs,  and  is  expanding  to  other  instruments.  To  become  operational,
however,  such  tools  need  to  be  implemented  on  a  scale  sufficient  to  elicit  interest  from
financial  providers.  Therefore,  exploring  delivery  channels  to  increase  coverage  and  reduce
administration costs is critical. Other key actions are capacity building for potential buyers of
these  instruments  (banks,  cooperatives,  etc)  and  encouraging  the  international  providers  to
invest  in  establishing  relations  with  CDDCs.  Commodity  risk  insurance  can  furthermore
reduce  the  credit  risk,  if  local  banks  are  encouraged  to  integrate  this  service  into  their
portfolio to the commodity sector. It should, however, be noted that these hedging instruments
are not designed to compensate farmers for long term price falls.

Governments of CDDCs need ways to manage the macroeconomic vulnerability that results
from their dependence – at the level of fiscal revenues and exchange rate stability/balance-of-
payments.  Fiscal  vulnerability  can  be  reduced  by  broadening  the  tax  base  away  from
commodities,  increasing  the  effectiveness  of  tax  collection,  and  pursuing  counter-cyclical
fiscal policies. Such reforms are long-term processes, however. Balance-of-payments effects
of price volatility are even more difficult to address.

Most CDDCs will need access to insurance (hedging) tools to cushion impacts at macro level.
Several  tools  can  be  envisaged  that  could  potentially  replace,  at  least  partially,  the  existing
macro-level  compensatory  schemes  of  international  donors.  Against  a  premium,  such
insurance would guarantee a certain level of budget revenues and foreign exchange in case the
price  of  the  export  commodity  drops  below  an  insured  level.  Other  risks,  such  as  specific
climatic events affecting output, can also be hedged. Hedging schemes for export revenue can
be extended to cover basic imported commodities, e.g. oil, grains and agri-inputs.

4.2.

Proposed EU actions

4.2.1.

Facilitating producer access to commodity risk insurance and trade finance

The  EU  will  jointly  support  the  developing  and  piloting  of  a  range  of  new  insurance  and
finance  instruments  for  the  various  operators  in  the  commodity  chain,  including  producers.
Following  encouraging  results  from  pilot  initiatives  on  Commodity  Risk  Management,  the
challenge  is  now  to  scale  them  up  to  reach  a  level  of  effective  demand  that  would  draw
enduring attention of the international providers of these instruments. Trade finance could be
integrated into the CRM initiative.

8

In a price risk transaction with put options, the buyer pays a premium to lock in a certain price (strike
price)  for  a  given  date  on  an  international  commodity  exchange.  If  the  price  on  the  commodity
exchange on the agreed date is lower than the strike price, the insurance buyer receives a pay-out. If the
price is higher, the producer sells at the market price, but loses the premium

12

 
                                                
4.2.2. Developing shock management tools for the macro-level

The EU will support piloting of the use of market based insurance tools at the macro-level, to
cushion  the  effects  of  commodity  shocks.  This  includes  identifying  which  international
regulatory  framework  will  be  needed  for  the  application  of  these  instruments.  The
international community should also consider temporary co-financing of the premium linked
to this type of insurance, while abiding by related  international  rules.  In  relation  to this, the
EU  should  support  CDDCs  establish  safety  net  programs  to  channel  resources  to  those
affected by commodity shocks.

The  EU,  together  with  the  international  community,  should  continue  to  explore  alternative
international  lending  arrangements,  where  CDDCs  have  lower  debt-servicing  obligations
when  export  revenues  fall.  Options  include  commodity-based  loans,  local  currency  loans,
integrating  commodity  shock  management  into  existing  instruments  of  international  finance
institutions and synergies with grant-based compensatory finance.

4.2.3.

Improving access to the EU Flex compensatory instrument

With  the  entry  into  force  of  the  EU-ACP  Cotonou  Agreement  a  new  instrument  was
established  to  compensate  countries  for  sudden  falls  in  export  earnings,  the  Flex.  The  Flex
provides additional budgetary resources to ACPs in order to safeguard  macro-economic  and
sectoral reforms and policies that are at risk as a result of a fall in export revenue.

Initial experiences with the Flex have shown that several countries that experienced important
losses  in  export  earnings  were  not  eligible  for  compensation:  The  Commission  intends  to
propose  in  May  2004  to  the  ACP-EC  Council  of  Ministers  the  appropriate  amendments  to
Annex  II  of  the  Cotonou  Agreement,  so  as  to  allow  for  applicability  of  the  new  conditions
already  for  cases  relating  to  2003.  The  revision  of  the  Cotonou  Agreement  will  also  be  an
opportunity to reconsider ways of supporting CDDCs. As the resources made available by the
Commission for Flex are limited, the MS should consider complementing this mechanism by
budgetary support.

CDDCs  could  consider  allocating  Flex  resources  to  the  implementation  of  national
commodity chain strategies. In areas where structural changes in global commodity markets
have  made  production  permanently  uncompetitive,  CDDCs  could  also  establish  long  term
programs aimed at assisting farmers in making the transition to other rural activities.

5.

DIVERSIFYING AROUND TRADITIONAL COMMODITIES

CDDCs  mostly  export  a  small  range  of  commodities  without  much  value  added.  This
situation  creates  vulnerability,  at  macro  and  producer  level  and  indicates  a  foregone
opportunity  to  retain  more  value  and  thus  income  in  producing  countries.  Diversification  is
commonly  seen  as  the  remedy  to  both  these  problems,  but  developing  and  implementing  a
diversification strategy is complex.

For  example,  smaller  commodity  producing  countries  are  at  a  comparative  disadvantage  to
enter  into  (secondary)  processing  of  traditional  commodities.  The  lack  of  domestic  markets
coupled with high levels of perceived risk mean that few companies, domestic or foreign, are
willing to make the investments required.  In  the  short term, other  approaches  are  needed  to
add value and increase margins for traditional commodities – as outlined in chapter 3.

13

 
Most  DCs  also  face  serious  challenges  in  diversifying  into  non-traditional  commodities  or
activities:  a)  lack  of  experience/knowledge  in  manufacturing  and  marketing  non-traditional
commodities in international markets; b) lack of access to and costs of financial services for
new industries; c) absence of public infrastructure; d) weak regulatory and legal frameworks;
e)  lack  of  access  to  domestic  raw  materials  and  international  levels  of  technology;  f)  small
size of domestic demand; and g) certain trade rules. Exporters prefer traditional commodities,
for  which  market  information  is  accessible,  transaction  costs  are  relatively  low,  overseas
buyers  are  known  and  support  services  are  comparatively  easily  available,  even  in  LDC’s.
Level of risk is a major determinant for private sector engagement.

This said, complementary income sources are a safety net for many commodity farmers and
labourers. Therefore,  a  strategy  seeking to reduce the vulnerability  of  commodity  producers
within  a  reasonable  time  frame  should  support  effective  local  livelihood  diversification  for
them.  Furthermore,  even  with  intensified  support  to  commodity  sectors,  as  outlined  above,
some producers will not be able to cope with the declining price trend. CDDC  governments
will be faced with demands to assist them to find other activities.

5.1.

Policy Response – increasing government capacity to support diversification

The role of government in promoting diversification and growth is crucial. This has to do with
creating the enabling framework needed for alternative economic activities to materialise, and
with  making  strategic  choices  in  cooperation  with  key  stakeholders  and  supporting  them
through specific and stable policies.

The  strategic  choices  are  not  necessarily  mutually  exclusive,  but  each  requires  specific
support  policies.  Each  of  these  will  make  substantial  demands  on  government  capacity,  a
significant  constraint  in  many  CDDCs.  The  policy  choice  may  in  practice  be  much  more
challenging than it might seem.

There is a clear need to increase the capacity of CDDC governments – national and local - to
evaluate the strengths, weaknesses and potential of their existing or future productive sectors,
and  to  adequately  support  these.  Some  support  information  could  be  shared  between
countries: options in capitalising on the commodity  sectors; ways of addressing the specific
weaknesses  and  strengths  of  CDDCs;  and  experiences  in  sequencing  policy  reforms.  As
outlined in chapter 3, regional cooperation and integration will  be important to progress, by
increasing market size for both inputs and outputs, and by reducing risk to investment in other
ways.

5.2.

Proposed EU action

5.2.1.

Informing government choices

The EU should offer technical assistance to help inform CDDC governments’ policy choices.
It should support analysis of the specific  constraints, conditions and potential  for successful
livelihood  diversification  and  growth  in  individual  CDDCs,  including  the  opportunities
offered  by  the  existence  of  one  or  a  few  comparably  strong  agricultural  commodity  chains.
Specific  tools  to  support  strategic  choices  could  be  further  developed.  For  example,  the
Commission  is  currently  supporting  the  development  of  a  methodology  to  evaluate  the
potential competitiveness of national coffee sectors, including the options of diversification.

The  EU  should  support  broad-based  involvement  of  the  potential  “diversifiers”  in  strategic
choices,  whether  these  are  local  producers,  exporters  or  regional  or  international  investors.

14

 
Gender  sensitiveness  is  important  in  this  context.  Women  dominate  many  of  the  non-farm
activities  with  potential  –  food  processing  and  preparation,  tailoring,  trading  and  many
services. These skills could be capitalised upon in growth/diversification efforts.

5.2.2.

Supporting rural growth

The  EU  should  assist  in  implementing  diversification/growth  strategies  of  CDDCs,  in
particular  by  encouraging  the  incorporation  of  productive  sectors  into  PRSPs.  Again,
coordination between Government, relevant investors and donors will be crucial, and the EU
should make special efforts in this regard.

Efforts to improve the possibilities for livelihood diversification for producers should largely
be  tackled  within  the  framework  of  rural  development.  EU  rural  development  strategies
should  therefore  increasingly  incorporate  responses  to  challenges  relating  to  globalisation,
market  concentration  and  integration,  international  market  constraints,  trade  rules  etc.  In
addition,  special  efforts  are  needed  to  support  producers  having  to  abandon  a  traditional
commodity.

The  potential  for  developing  local,  national  and  regional  food  markets  deserves  special
attention, especially for low-income food deficit countries (almost all highly coffee and cotton
dependent countries are such countries, and many of the cocoa dependent countries too). The
EU is committed to assisting governments to understand the underlying reasons for low food
production and put in place the enabling conditions to redress the situation. In this context, it
will be important to monitor the implications of international trade and agricultural policies.

5.2.3.

Strengthening private sector support

The EU recognises the central role of the private sector in CDDC growth, development and
diversification.  Both  the  Commission  and  Member  States  have  a  wide  range  of  instruments
for private sector development which should be drawn upon to support the implementation of
CDDC strategies. They should actively communicate the existence of these instruments.

As regards the EC, support is provided largely through horizontal instruments of direct access
to  the  private  sector  (rather  than  through  national  indicative  programmes).  The  European
Investment Bank plays a particularly important role in this context, managing the 2.2 billion
Euro Investment Facility funded by the EDF, and contributing 1.7 billion Euro from its own
resources for financing of investment projects in ACP countries.

Consistency,  complementarity  and  synergy,  both  between  these  horizontal  instruments  and
with programmable support, is crucial. The EU should make special efforts in this regard. For
ACP  CDDCs,  particular  attention  should  be  paid  to  support  factors  for  the  release  of  funds
from  the  EIB.  For  example,  as  concerns  the  EIB  loans,  appreciation  of  risk  is  an  important
selection criteria, and so public policies will be important in enabling the forthcoming of such
funds.  The  EU  should  make  use  of  EIB  experiences  of  evaluating  risks  to  investment  in
CDDCs.

6.

SUCCESSFULLY INTEGRATING WITH THE INTERNATIONAL TRADING SYSTEM

International  trade  rules  play  an  important  role  for  CDDCs  and  commodity  producers  by
enabling or constraining exports of primary commodities and diversification products. Rules
on domestic support, export competition and market access all shape commodity producers’
opportunities, as do measures and standards and other technical regulations. In some instances

15

 
the rule is a source of problem. In others, the real issue is the capacity to deal with or make
use of the rule.

Public support to agriculture can fulfil legitimate objectives for the subsidising country, such
as social cohesion, environmental protection and rural development. However, when linked to
production, subsidies can lead to over-production. Surplus production often finds its way onto
the world market, influencing prices and production possibilities for other producers. CDDCs
tend  be  more  vulnerable  to  such  impacts  than  others  and  less  able  to  protect  themselves
against this situation.

CDDCs  usually  benefit  from  preferential  import  regimes.  For  example,  the  present  EU
Cotonou  import  regime  provides  preferential  access  to  ACP  countries  and  the  EU’s
Everything  But  Arms  (EBA)  scheme  provides  duty  and  quota  free  access  for  all  LDC
products except arms (with phasing in periods for sugar, rice and bananas). Still, tariff barriers
restrict export opportunities for certain products and certain countries. Tariff escalation is an
issue of concern for some CDDCs in certain products as it can make it more difficult for them
to  export  value  added  products  than  raw  materials  and  can  therefore  be  an  obstacle  to  the
development of a local industry. Furthermore, preferential market access has not always been
effectively  valorised.  For  example,  only  50%  of  products  imported  into  the  EU  from  its
developing  country  partners  which  are  theoretically  eligible  for  preferences9  under  the
Generalised System of Preferences (GSP) scheme actually receive them. There are  a variety
of reasons for this.

GSP  use  is  affected  by  the  conditions  linked  to  preferences.  Difficulties  in  fulfilling  the
administrative and content requirements of the Rules of Origin may restrict use. Although the
GSP provides for relaxation of these rules (cumulation with EU or regional inputs) often the
inputs  required  for  manufactured  goods  come  from  suppliers  which  are  not  entitled  to
cumulate  with  the  beneficiaries.  Exporting  countries  may  also  have  difficulties  coping  with
other  market  entry  requirements,  in  particular  Sanitary  and  Phyto-sanitary  measures.
Official/public  standards  are  not  the  only  potential  difficulty.  Private  standards  and  quality
requirements of large retailers and traders may be higher.

Finally, access to the markets of developed countries is not the only motor for development.
Whilst  such  markets  may  be  more  profitable,  they  are  more  sophisticated  and  require  high
levels  of  technical  or  health-related  standards  which  not  all  developing  countries  can  easily
reach.  Prospects  for  growth  in  demand  on  these  markets  are  often  small  and  competition  is
severe.  On  the  other  hand,  regional  markets  in  developing  countries  often  provide  an
opportunity to expand markets substantially. However tariff and Non-Tariff Barriers (NTBs)
between DCs often severely restrict regional trade, thus discouraging the investments needed
for growth and diversification.

6.1.

Policy  Response:  Maximising  opportunities  for  CDDCs  in  the  multilateral
trading system

A  range  of  trade  related  issues  of  relevance  to  CDDCs  are  at  stake  in  the  ongoing  WTO
negotiations, in particular concerning agriculture. To fulfil the development objectives of the
Doha Round, the international community will need to be particularly receptive to views and
proposals  from  the  poorest  countries,  and  seek  agreements  that  increase  the  prospects  for
poverty-reduction and growth.

9

The EBA is a special preference under the GSP and thus included in this figure

16

 
                                                
Concerns relating to subsidies will need to be addressed in the negotiations and with a focus
on reducing or eliminating those that are the most trade distorting, especially those affecting
developing  countries.  Duty-  and  quota-free  market  access  to  all  developed  country  markets
and to the most advanced developed country markets should be ensured for LDCs, as the EU
already provides. Preferential market access for other developing countries is also important.
Industrialised  countries  should  take  a  supportive  attitude  to  favourable  treatment  of  those
products  that  are  of  particular  importance  to  CDDC’s:  traditional  commodities  in  raw  and
processed form, and products of importance to diversifying out of them. The EU proposes a
substantial reduction  of tariff  escalation in the  framework  of  the  Doha  negotiations,  in  both
agricultural and industrial sectors. Access to an effective safeguard mechanism should also be
ensured.  This  is  particularly  important  for  countries  and  regions  seeking  to  diversify  by
promoting agro-food products for the local and regional markets.

The  reduction  of  preference  margins  that  are  bound  to  follow  with  progress  in  multilateral
trade liberalisation has been a cause for concern for most CDDCs. As shown below, the EU
takes these concerns  seriously,  but  it  considers  that  this  should  not  be  used  as  an  excuse  to
hold up making progress on a far wider group of products.

The  negotiations  should  seek  to  ensure  that  international  rule  making  preserves  the  policy
space  of  CDDC  governments  to  formulate  trade  policies  and  investment  strategies  which
contribute  to  their  development  objectives.  Clarification  of  the  flexibility  inherent  within
certain  rules  of  the  multilateral  trading  system  is  required  to  ensure  that  legitimate
development objectives are not undermined. However, development gains will only be reaped
if DCs themselves, especially the more developed amongst them, make a contribution to the
liberalisation process that is commensurate with their level of development.

The EU is in favour of improved rules and considers that CDDCs could also gain if the WTO
were  to  reach  consensus  on  extending  the  extra  protection  for  geographical  indications
currently limited to wines and spirits, to other products including commodities (e.g., Ceylon
tea,  Cafe  de  Jamao  etc.).  There  is  ample  evidence  that  geographical  indications  are
instrumental  in  fostering  market  differentiation  leading  to  premium  prices.  The  resulting
consumer recognition and  product reputation should therefore  be  safeguarded  against  unfair
competition and imitations via WTO-wide rules.

Finally,  as  recognised  by  the  Doha  declaration,  efforts  in  WTO  should  be  accompanied  by
trade-related technical assistance, as well as specific support actions.

6.2.

Proposed EU actions

6.2.1.

Securing a development friendly outcome in the Doha Development Agenda

The EU is committed to achieving a substantial and development friendly outcome from the
current negotiations under the DDA. Efforts need to be intensified to ensure that the needs of
the weakest countries in the multilateral trading system, including the CDDCs, are adequately
addressed,  especially  as  concerns  agriculture.  An  outcome  to  agricultural  negotiations  that
supports  these  groups  of  countries  and  their  producers  must  be  assured,  including  through
reducing  export  support  and  trade  distorting  domestic  subsidies.  To  achieve  this,  the
negotiations need to  re-start  in  earnest,  beginning with a realistic analysis of  those  products
which are of interest to DCs in order to start the process.

Successful  resumption  of  the  DDA  involves  active  participation  by  the  DC  governments  in
international rule-making, based on well-researched and -formulated arguments. Many CDDC

17

 
governments have weak capacity in this regard. The EC is committed to continue to provide
support to address this situation.

6.2.2. Monitoring the external impact of agricultural policies

At  the  internal  level,  the  EC  will  pursue  agricultural  reforms  whilst  continuing  the  move
towards support systems that avoid trade distortion. It will continue to monitor the impacts of
its domestic support policies and is committed to increase policy coherence between domestic
concerns  and  development  policies.  Moving  forward  with  the  internal  reform  process  will
help to provide further impetus to ambitious negotiations in WTO.

6.2.3. Maximising access to the EU market for CDDCs

Most  commodity-dependent  countries  are  either  LDCs  or  ACP  countries  or  both  and  thus
enjoy preferential tariffs on most or all trade with the EU. For ACP countries, the Economic
Partnership Agreements (EPAs) provide an opportunity to build upon existing preferences and
further enhance access conditions.

However,  more  can  be  done  to  secure  market  access  for  other  CDDCs.  The  EU  is  due  to
revise  its  current  GSP  scheme  in  2006.  The  specific  needs  of  CDDCs  should  be  taken  into
account in this revision. In particular, the special incentive given under the GSP to countries
that are making efforts to combat the drugs trade currently provides very low or zero tariffs to
many commodity dependent countries in Central and South America10. However this regime
has been challenged by India in the WTO. Whatever the outcome of the current panel, the EU
will seek to maintain high levels of access for current recipients in the light of the findings of
the panel report.

As  concerns  Rules  of  Origin,  the  EU  is  currently  considering  whether  their  rules  and
administration require revision in the context of the emerging international division of labour
and  will  take  account  of  the  needs  of  CDDCs  in  this  deliberation.  As  concerns  preference
erosion, the Commission recognises that there may be certain sectors and countries for which
wider  multilateral  liberalisation  may  cause  potential  difficulties.  It  considers  that  these
impacts,  if  they  occur,  should  be  addressed  on  a  case  by  case  basis  through  adjustment
support in co-ordination with other bilateral and multilateral donors. New preferences, to be
granted notably by the most advanced developing countries could also alleviate the impact of
the erosion of existing preferences.

6.2.4.

Supporting CDDCs efforts to valorise their market access

The  EU  is  committed  to  improving  preference  utilisation,  including  through  increasing
awareness  of  these  preferences.  The  EU  is  launching  a  helpdesk  at  http://export-
help.cec.eu.int for DCs to ensure that they have easy access to data on tariffs, rules of origin
and trade statistics. It will expand its operations in the near future to include information on
internal  taxation  in  the  EU  and  product  specific  export  requirements.  Awareness  of
requirements  does  not  guarantee  compliance,  however.  The  standards  applicable  on
developed  country  markets,  particularly  SPS,  can  be  considerably  higher  than  on  CDDC

10

The Drugs regime covers Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras,
Nicaragua,  Pakistan,  Panama,  Peru  and  Venezuela.  Duty  free  market  access  is  provided  for  3665
products for  which  the  general  GSP  grants  tariff  reductions.  In  addition  316  products  are  included  in
Drugs GSP that are not included in the general arrangements.

18

 
                                                
markets.  The  EU  is  providing  support  to  help  CDDCs  develop  capacity  in  this  area,  but
increased efforts will be important.

7.

ENHANCING SUSTAINABLE CORPORATE PRACTICES AND INVESTMENTS IN CDDCS

The international commodity companies and retailers play a central role in framing the future
of  the  commodity  sectors.  Mostly,  they  have  the  real  power  in  the  commodity  chains,  a
situation being reinforced by the ongoing concentration on the side of commodity buyers and
the parallel fragmentation on the side of the producers. Local entrepreneurs are often unable
to  compete  effectively  with  these  large  consolidated  corporations  whilst  remaining
independent,  and  tend  to  increasingly  link  themselves  to  these  companies,  as  subsidiaries,
agents  or  as  joint  venture  partners.  As  such,  they  too  are  increasingly  dependent  on  the
corporate policies of Multinational enterprises (MNEs).

In  addition,  commodity  processors  and  retail  chains  are  increasingly  integrated  within  the
commodity  chain,  to  ensure  stable  access  to  supply,  better  control  the  chain  and  be  able  to
trace their products down to production levels. They are also showing an increasing interest in
internalising  sustainability  concerns  -  socio-economic  and  environmental  conditions  at
producer level - into their business operations. This vertical integration presents opportunities
for producers. It offers a potential to secure premiums for “good” production practice, and can
reduce  vulnerability  by  allowing  producers  to  enter  into  more  long-term  contracts  with
buyers.  Large  companies  thus  have  a  significant  role  to  play  in  developing  sustainable
production and trading practices – environmentally, socially and economically.

7.1.

Policy  response:  Fostering  corporate  responsibility  for  sustainable  commodity
production

Foreign  direct  investment  (FDI)  should  be  promoted  to  support  the  improvement  of
productive sectors, including the emergence of processing and to bring in the technology and
market  know-how  which  they  require.  CDDCs  themselves  must  establish  a  regulatory
framework, including competition legislation, which can encourage and promote sustainable
FDI. The international community for its part should encourage international buyers (retailer,
processor  or  trader)  to  invest  in  a  long-term  relationship  with  farmers  or  local  processors.
Through various forms of public-private partnerships, they can also assist in ensuring that the
benefits of these processes accrue to local commodity producers and other local stake-holders.
In  that  framework,  transfer  of  sustainable  agricultural  techniques  and  knowledge  should  be
encouraged.

Multinational  commodity  enterprises  should  be  encouraged  to  comply  not  only  with  local
laws,  but  also  with  OECD  guidelines  and  the  ILO  declaration  on  principles  concerning
multinational  enterprises  and  social  policy.  These  include  guidance  and  principles  on  chain
accountability, rendering enterprises liable and responsible for the circumstances under which
products  are  produced.  While  it  should  be  underlined  that  codes  of  conduct  are  not  a
substitute  for  legislation  and  collective  bargaining,  they  can  be  of  help.  The  MNEs  have  a
wide  range  of  options,  from  Fair  Trade  via  individual  company  codes  to  sector  codes.  The
way ahead seems to be a combination of company and sector codes. In this way, individual
company codes with relatively high standards, including in particular proper remuneration to
farmers are backed up by codes of conduct for the whole sector.

19

 
The  “Fair  Trade”11  movement  have  been  setting  the  trend  for  a  more  socio-economically
responsible trade, including minimum prices for producers. One of the main merits of the Fair
Trade is the debate it has stimulated at consumer level. However, the mainstreaming of Fair
Trade as a code is unlikely as MNE’s often do not accept certain of its basic  tenets  such  as
minimum  prices.  Nevertheless,  many  companies  and  private  sector  organisations  are  now
developing  their  own  codes  of  conduct  relating  to  labour  issues,  human  rights  and
environment, as part of their policies on corporate social responsibility (CSR). Although these
codes  may  be  less  ambitious,  they  have  the  potential  to  increase  the  number  of  commodity
producers benefiting  from them  and  so should  be encouraged.  Furthemore,  large  companies
should be encouraged to mainstream sustainable production practices into corporate practice
on  the  whole  rather  than  as  special  brands  marketed  alongside  other  brands  not  benefiting
from these codes.

The Commission supports an integrated approach to sustainable trade that promotes all three
pillars of sustainable development equally. A socially sustainable model of production means
that  working  conditions  comply  with  core  labour  standards  (as  defined  by  the  ILO
conventions). This includes the prohibition of child labour, forced labour, non discrimination
in  employment,  freedom  of  association  and  collective  bargaining  in  order  to  ensure  decent
working  conditions.  Environmental  concerns  relate  e.g.  to  maintaining  soil  fertility,
preserving  scarce  water  and  other  resources,  eco-systems  and  biodiversity.  In  addition,
environmentally  sound  production  is  crucial  from  a  health  perspective.  It  reduces  producer
exposure to dangerous pesticides, preventing pollution of water reserves etc.. The long-term
economic costs of production should be covered.

In its communication concerning Corporate Social Responsibility12, the Commission provided
overall guidelines for the development of effective and credible codes of conduct. It believes
that such codes should: build on the ILO fundamental Conventions and the OECD guidelines
for  multinational  enterprises  as  a  common  minimum  standard  of  reference;  include
appropriate mechanisms for evaluation and verification of their implementation, as well as a
system of compliance; and involve the social partners and other relevant stakeholders which
are  affected  by  them,  including  those  in  developing  countries,  in  their  elaboration,
implementation as well as monitoring;

As concerns codes of conduct in the specific area of agricultural commodity production, these
should, in addition to the above, a) pay specific attention to involving farmers in CDDCs in
their development; b) include specific efforts to support the upgrading of producers in CDDCs
to meet international standards under these programmes and codes; and c) reward producers
financially  for  the  additional  efforts  that  they  are  making  in  meeting  additional  market
requirements

11

12

Fair  Trade  (with  capital  letters)  is  a  labelling  concept  which  guarantees  consumers  a  set  of  specific
characteristics for the product concerned. Without capitals, the concept is not “owned” such that “fair
trade” could be used by anybody wishing to classify a product
COM(2002) 347 concerning  “Corporate Social Responsibility:  A business  contribution  to  Sustainable
Development”  of  2  July  2002.  See  also  Com  (2001)  416  on  “Promoting  Core  Labour  Standards  and
Improving Social Governance in the context of Globalisation” of 18 July 2001.

20

 
                                                
7.2.

Proposed EU actions

7.2.1.

Promoting Corporate Social Responsibility internationally

The  Commission  and  MS  have  committed  themselves  to  promote  the  effectiveness  and
credibility  of  sustainable  codes  of  conducts  within  the  commodity  chain.  They  should  now
engage further in dialogue with corporations on the issues raised above, in particular ways of
ensuring that the benefits from CSR accrue to CDDCs.

The  EU  should  furthermore  take  action  to  increase  public  awareness  and  transparency  on
existing  fair,  sustainable  or  ethical  trade  initiatives  –  whether  led  by  civil  society,  private
sector  or  government  -  including  their  functioning  and  performance.  This  should  enable
consumers, companies and policy makers to take the right decisions. The EU should support a
clearinghouse  for  the  documentation  and  analysis  of  the  experiences  in  this  field.  Also,
although  the  Commission  already  sponsors  some  projects  on  public  awareness  of  fair  trade
there may be scope for a strengthening of this activity.

In  addition,  the  Commission  has  the  intention  to  explore  the  feasibility  of  developing
criteria/guidelines for fair and ethical voluntary trading schemes at Community level (whether
led by civil society, companies or government), in co-operation with Member States and key
actors within these schemes.

7.2.2.

Enabling CDDCs to benefit from CSR

The EU should support CDDCs in their efforts to benefit from CSR. It should assist them to
build the capacities needed to adhere to codes. In particular, the EC and MS should assist in
attracting foreign partners to invest in CDDCs by participating in public private partnerships
for  sustainable  commodity  production.  Such  partnerships  could  involve  local  authorities,
commodity sector organisations, international companies and donors. Local authorities would
be  responsible  for  formulation  of  a  local  development  plan,  which  includes  the  goals  and
inputs of all partners. According to terms agreed, the development agency could for instance
take  responsibility  for  boosting  the  capacity  and  power  of  the  suppliers  and  their
organisations.

Finally, the EU should also support innovative non-governmental initiatives aimed at helping
the supply side of trade flows in sustainably produced goods, such as  the Sustainable Trade
and Innovation Centre's (STICS).

7.2.3.

Promoting Competition

The  development  of  a  strong  and  competitive  private  sector  within  CDDCs  depends  on  an
open  competitive  environment  both  domestically  and  internationally.  As  indicated  earlier,
there are sometimes large differences in power between commodity producers and processors
which make most producers  price takers. The EU  remains convinced of the  need  to  lay  out
certain core principles on competition to be contained in domestic laws and regulations, such
as non-discrimination and transparency and an undertaking to outlaw hard-core cartels. It will
continue to pursue this objective within WTO, although the controversy surrounding this and
the other Singapore issues in  Cancun  makes  the  likelihood  of  a  full  multilateral  negotiation
difficult to achieve. The issue of competition rules will also be addressed within the context of
our regional negotiations, for example the EPA negotiations with our ACP partners. Stronger
co-operation between competition authorities can also help to ensure that any anti-competitive
practices are quickly identified and addressed. The EU should pursue these issues in various

21

 
relevant international fora, including the WTO  and the  international  network  of  competition
authorities.

8.

NEXT STEPS

As shown by the above, commodity dependent developing countries face major challenges. A
range  of  actions  will  be  needed  to  support  them  and  their  producers.  The  Commission
considers that progress can be made provided that attention to these issues is reinforced at all
the  different  levels  indicated  in  this  document.  It  believes  that  the  EU  (Commission  and
Member States) can contribute to a real improvement in the current situation of CDDCs, if it
acts  in  a  coherent  manner.  It  therefore  invites  the  Council  to  endorse  the  orientations  and
proposed EU Action Plan above, as soon as possible.  In  particular,  it draws the  attention of
the  Council  to  the  Action  Matrix  provided  in  Annex  and  encourages  MS  to  indicate  which
actions  they  are  willing  to  support,  jointly  or  unilaterally.  In  this  context,  the  Commission
underlines in particular the following actions:

1: Coordinated efforts by countries to support commodity chain strategies in CDDCs;
2: Joint efforts to develop regional support services and embed commodity support in regional
integration;
3: Constructive contribution to reform ICBs into effective organisations;
4: EU partnerships on commodities with international organisations (WB, FAO, UNCTAD,
CFC);
5: Specific consideration to products of interest to CDDCs in DDA; and
6: Coordinated action to promote CSR with international commodity companies.

22

 
ANNEXES

1. 

2. 

3. 

Abbreviations

Matrix on implementation of the Plan

Table on commodity dependent developing countries (agricultural commodities)

23

 
Annex 1: Abbreviations

: African, Caribbean, Pacific

: Commodity Dependent Developing Country

: Common Fund for Commodities

: Commodity Risk Management

: Corporate Social Responsibility

: Developing Country

ACP

CDDC

CFC

CRM

CSR

DC

EC/MS

: European Commission and Member States

EPA

EDF

EBA

FAO

FDI

GSP

HDI

: Economic Partnership Agreements

: European Development Fund

: Everything but Arms

: Food and Agriculture Organisation of the UN

: Foreign Direct Investment

: Generalised System of Preferences

: Human Development Index

HIPC

: Heavily Indebted Poor Countries

ICB

ICA

ICO

IF

IFI

ILO

IMF

ITC

: International Commodity Body

: International Commodity Agreement

: International Coffee Organisation

: Integrated Framework for Trade-related Capacity Building

: International Finance Institution

: International Labour Organisation

: International Monetary Fund

: International Trade Centre

ITFCRM

: International Task Force on Commodity Risk Management

LDC

MFN

: Least Developed Country

: Most Favoured Nation

MNE/C

: Multinational Enterprise/Company

NGO

NIP

: Non Governmental Organisation

: National Indicative Programme

OECD

: Organisation for Economic Cooperation and Development

24

 
OLIC

PRSC

PRSP

PSD

RIP

SPS

QUAD:

TRIPS

: Other Low Income Country

: Poverty Reduction Strategy Credit

: Poverty Reduction Strategy Paper

: Private Sector Development

: Regional Indicative Programme

: Sanitary and Phytosanitary Standards

: EU, US, Canada, Japan

: Trade Related Intellectual Property Rights

UNCTAD

: United Nations Conference on Trade and Development

UNDP

WB

WTO

: United Nations Development Programme

: World Bank

: World Trade Organisation

25

 
Annex 2: Matrix on implementation of the Action Plan

Action/by when

By whom

How

2. Addressing agricultural commodity chains and dependence as a poverty priority
Development of
commodity strategies in
CDDCs
(2004-5)

CDDCs (public-private
commodity task force)

Setting up of public private commodity task force with the
goal of developing a strategy and integrating it into national
development strategies.

Reinforcing international
strategies for individual
commodities and
improving effectiveness
of ICB’s (2004-5)

Commission/MS (e.g.
EU-CCa))

Commission/MS and
ICBs

ICBs and
Commission/MS

3. Coping with long term price decline
Implementation of CDDC
commodity strategies
(2004-07)

Commodity task force in
CDDCs, with support of
Commission/MS (and
EU-CCa))

Development of regional
support services
(2004-7)

Support regional
integration through EPAs
with ACP (2004-07)

Regional organisations,
in coordination with the
commodity task forces,
supported by EU -CCa)

CDDCs, regional
organisations,
Commission in
cooperation with MS

Policy dialogue and technical assistance (TA), including,
capacity building and identification of the links with on-
going development programs.

Impact assessment of commodity strategies, proposal for
structured action and development of the international
strategies.

EU should provide impetus for reform in ICBs and monitor
the effectiveness of the reform and work of ICB’s. EU
should assess its future support to ICBs.

Operationalise strategy, assign tasks and monitor activities:
(cid:1)  capacity building at producer level
(cid:1)  development of the regulatory environment
(cid:1)  prioritising infrastructure support
The development of regional services via the promotion of
regional cooperation between farmer networks, regulatory
bodies, research institutions, infrastructure departments, etc.

The  EC  will  seek  to  ensure  that  commodity  issues  are
effectively treated in EPA negotiations, through appropriate
efforts to harmonise standards, legislation and key business-
related  policies  to  support  development  of  commodity
sectors and key sectors for diversification.

4. Managing commodity risks and accessing finance

Facilitating access to
commodity risk insurance
and trade finance (2004-
07)

Developing shock
management schemes for
the macro-level (2004-
2006)

World Bank (via EU-
CCa)) in coordination
with UN and supported
jointly by
Commission/MS

Commission/MS 
CDDCs

and

CDDCs 
help  WB 
and Commission/MS

(MoF)  with
(EU-CCa))

Piloting of new schemes and delivery mechanism through
capacity building.

Support consolidation of International Task Force on CRM
that advises World Bank on implementation.

Promote the expansion CRM-initiative by World Bank with
management  of  commodity  shock  at  macro-level  due  to
price (export, import) and disaster management.

Pilot use of macro-level hedging schemes within public
finance management, stand alone or in relation with HIPC,
consider co-financing the premiums.

Improving access to the
EU Flex scheme (2004)

Commission 
operation 
MS/ACP

in 

co-
with

Consider revision of criteria and additionality to market-
based systems

5. Diversifying away from traditional commodities

26

 
Informing government.
choices (04-07)

Commission/MS
(incl. EU-CCa))

Provide  technical  assistance  to  evaluate  potential  policy
decisions.

Supporting implementation
of CDDC diversification and
growth strategies (2004-
2010)

Supporting local producer
diversification (04-07)

CDDC’s

Integrate  more  support  to  productive  sectors  or  private
sector development into the PRSPs

Commission/MS

Increase  support  to  more  pro-poor  growth  and  trade  based
development

implement  a  growth  strategy 

Develop  and 
the
development of domestically traded products, including the
divestment strategy for unprofitable commodities.

for 

Local governments
and NGO’s (in
Partnerships),
supported by
Commission/MS and
EU-CCa)

Strengthening private sector
support (2004-07)

Commission/MS  and
EIB

Valorise instruments for private sector development in non-
traditional sectors

6. Successfully integrating CDDCs with the international trading system
Securing a development
friendly outcome in DDA
(2004-

Commission and
other WTO members

Relaunch DDA negotiations. Ensure that needs of weakest
countries are addressed, including through supporting their
trade negotiation capacity.

Monitoring the external
impact of agricultural
policies (2004-2009)

Commission/MS

Maximising access to the EU
market for CDDCs (2004-..)

Commission/MS

Pursue agricultural reform in a manner to minimise trade
distortion. Monitor the impacts of domestic support policies.
Take adequate measures to avoid policies that affect
commodities and diversification in CDDCs

Revise GSP with CDDCs needs in mind. In particular, in the
event of losing WTO panel, seek to secure high levels of
access for CDDC regions that currently benefit from Drugs
GSP. Address on a case by case basis the impacts of loss of
preference erosion.

Supporting CDDCs to
valorise market access (04-
06)

Commission in
consultation with MS

Take into account the need to support CDDCs in any
revision of rules of origin. Strengthen helpdesk activity for
developing countries.

7. Enhancing Sustainable Corporate Practices and Investments in CDDCs
Promote CSR
(2004-07)

Commission, MS and
NGO’s

Promote the use of sustainable codes of conducts. Support
clearinghouse of experiences. Explore development of
voluntary agreed criteria for fair and ethical trading schemes
at Community level

Promoting PPPs with MNE
and CDDCs (04-07)

Commission/MS,
CDDCs, NGO’s

Promoting competition
(2004-10)

Commission and
other WTO-members.

Pilot Public Private Partnerships (PPS) in some CDDCs and
assess the lessons. Disseminate best practices via ICB’s and
CDDCs.

Seek to develop common principles to guarantee
competition within WTO. Also address in context of
regional cooperation.

a)

EU-CC: 

organisations”:
Cooperation 
The  Commission  proposes  to  set  up  a  multi-donor  cooperation  programme  on  agricultural
commodities including with World Bank, FAO, UNCTAD and CFC

international 

Commodity 

“EU 

with 

27

 
Annex 3. Characteristics of developing countries and territories depending  on  three or
less agricultural commodities for more than 20 % of their total exports

2nd  and  3d
commodity

L
D
C

O
LI
C
14

L
M
IC
15

Small
Island
State

Land-
locked

ACP

HDI
rank16

GDP  per
capita
(PPP  US$)
2000

Population17

(millions)

2000

HIPC
country
200118

LIFDC

200119

Country

Top  1/Top  3
percentage
dependence13

Sugar-
producing
(main)

St  Kitts  &
Nevis

Beverage
fat prep

X

X

12,510

44 (H)

*

35 / 38.

Cuba

35 / 43

Belize

26 / 51

Guyana

24 / 40

Cigars,
tobacco

Bananas,
orange
juice

Rice,
beverage

Fiji Islands 23
/ 25

Molassesco
coa

Mauritius

20 / 21

Swaziland

20 / 43

Dominican
Republic

13 / 24

Live
animals,
beef

Food  prep,
sugar

Coffee,
cocoa
beans

Barbados  12/
22

Beverage
food pre

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

9,023

55(M)

11.2

X20

5,606

58(M)

0.2

3,963

103(M)

0.8

X

4,668

72 (M)

0.8

10,017

67 (M)

1.2

4,492

125
(M)

0.9

6,033

94 (M)

8.4

15,494

31(H)

0.3

X

13

14

15

16

17

18

19

20

Added from ITC/UNCTAD/WTO(2002): Coffee: an exporter’s guide, p.4

**
Other low income country (per capita GNI <$745 in 2001) = OLIC
Lower middle income country = LMIC
A  ranking  of  138  or  lower  indicates  low  human  development,  and  a  ranking  between  54  and  137
indicates medium human development.
*
lacking information
World Bank classification
Low Income Food Deficit Countries (ie net food importers) FAO (2002): The LIFDC Classification -
An Exploration; http://www.fao.org/DOCREP/MEETING/004/Y6691E/Y6691E00.HTM
Country in the transitional phase. Exceeds the WB income threshold for the first year

28

 
                                                
2nd  and  3d
commodity

L
D
C

O
LI
C

L
M
IC

Small
Island
State

Land-
locked

ACP

HDI
rank

GDP  per
capita
(PPP  US$)
2000

Population

(millions)

2000

HIPC
country
2001

LIFDC

2002

Country

Top  1/Top  3
percentage
dependence

Coffee-
producing
(main)

Burundi

75 / 89

79% o.s

Ethiopia

62 / 75

64% o.s.

Uganda

54 / 63

59% o.s .

Rwanda

43 / 68

56% o.s.

Sierra
Leone**

32% o.s.

Tea, refined
sugar

Sheepskin,
crude
organic mat

Tea,  crude
organic mat

X

X

X

Tea, skins

X

X

X

Nicaragua

19 / 29

27% o.s.

El Salvador**

24% o.s

Guatemala  24
/ 40

Sugar,
bananas

Honduras**

22 / 30

23% os.

Columbia

16 / 26

Madagascar
12 / 21

Banana-
producing
(main)

St Lucia

54 / 62

St Vincent

37 / 68

Dominica

27 / 31

Ecuador

24 / 29

Bananas,
cigars

or

Crude 
mat,
bananas

Cloves,
vanilla

X

of

Beer 
barley,
fresh fruit

Wheat
flour, rice

Plantains,
coconut oil

Crude  org
mat, coffee

X

X

X

X

X

X

X

X

X

591

171 (L)

6.4

668

168 (L)

62.9

1,208

150 (L)

23.3

943

162 (L)

7.6

490

173 (L)

4.4

2,366

4,497

3,821

2,453

118
(M)

104
(M)

120
(M)

116
(M)

5.1

6.3

11.4

6.4

6,248

68 (M)

42.1

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

840

147 (L)

16

X

X

X

X

X

5,703

66 (M)

0.1

5,555

91 (M)

0.1

5,880

61 (M)

0.1

3,203

93 (M)

12.6

X

29

X

X

X

X

X

X

X

X

X

 
6,000

57 (M)

2.9

8,650

43 (H)

4.0

976

871

990

169 (L)

11.5

166 (L)

7.9

158 (L)

6.3

797

164 (L)

11.4

1,442

141 (L)

4.5

*

*

*

1,172

165 (L)

3.7

*

*

*

1,792

119
(M)

0.1

1,630

156 (L)

16.6

1,964

129
(M)

19.3

615

163 (L)

11.3

2,635

128
(M)

12.6

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

755

167 (L)

1.2

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

Sugar,
coffee

Coffee,
crude 
mat

org

Cattle,
sheep

Cattle,
goats

Cotton
seed,  palm
oil

Cattle,
sheep

Coffee,
cotton

Coffee,
cotton

Coffee,
cattle

Honey,
bananas

Coffee,
copra

Coffee,
cocoa paste

Cocoa
butter,
pineapples

Panama

23 / 29

Costa Rica

21 / 40

Cotton-
producing
(main)

Burkina Faso

39 / 45

Chad

37 / 48

Benin

33 / 38

Mali

30 / 44

Togo

23 / 36

Somalia

23 / 36

Central
African
Republic

11 / 21

Cocoa-
producing
(main)

Niue (taro)

71/75

Sao 
Tome
and  Principe
69 / 70

Cote d’Ivoire

36 / 46

Ghana

24 / 28

Tobacco
leaves

Malawi

59 / 70

Tea, sugar

X

Zimbabwe  22
/ 29

Cotton,
sugar

Cashew nuts

Guinea
Bissau

48 / 51

Pumpkins

Tonga

44 /61

Cotton,
palm

X

Crude  org
mat, vanilla

X

X

X

X

X

X

*

*

*

30

 
Country

Top  1/Top  3
percentage
dependence

2nd  and  3d
commodity

L
D
C

O
L
I
C

LMIC

Small
Island
State

Land-
locked

A
C
P

GDP 
capita 
US$) 2000

per
(PPP

HDI
rank

Population

(millions)

2000

HIPC
country

LIFDC

2002

Copra

Vanuatu

43 / 66

Kiribati

42 / 42

Samoa

12 / 33

Soybeans

Paraguay

39 / 53

(from

Ghee 
cow milk)

Veg 
beef

prod,

X

X

X

Prepared
fruit,  coconut
oil

Cake  of  soya,
cotton

Gaza  Strip  39
/ 58

Oranges,
potatoes

Nutmeg

Grenada

38 / 49

Vanilla

Cocoa  beans,
wheat flour

Comoros

Cloves, copra

X

X

X

X

X

X

X

X

2,802

131 (M)

0.2

X

*

*

*

X

5,041

101 (M)

0.2

4,426

90 (M)

5.5

*

*

*

X

7,580

83 (M)

0.1

X

1,588

137 (M)

0.7

34 / 49

Tea

Kenya

26 /44

Groundnuts

Gambia

20 / 34

Cattle

Djibouti

18 / 24

Cashew nuts

Coffee,  crude
org mat

X

X

1,022

134 (M)

30.7

Grdnut 
grdnut cake

oil,

Sugar,  crude
org matter

X

X

X

1,649

160 (L)

1.3

X

2,377

149 (L)

0.6

X

X

Tanzania

Coffee, cotton X

X

523

151 (L)

35.1

X

16 / 42

Skin (goats)

Afghanistan
14 / 38

Grapes,
raisins

X

Sesame
Seeds

Sudan

13 / 38

Sheep,  crude
org mat

X

*

*

*

X

1,797

139 (L)

31.1

X

X

X

X

X

X

X

X

X

X

X

Source : FAO (2002): Dependence on single agricultural commodity exports in developing countries: magnitude
and trends; EC (2000): The Cotonou Agreement. Annex VI List of LDLICS

31