Money Isn't Everything
Since America is one of the major customers for the core food commodities, UDC planners would be well advised to sit down for a few hours with US agricultural import statistics if they have not already done so. They would then discover that demand for what they have to offer is practically stagnant. The USDA classifies the nation's agricultural imports in two broad categories: "complementary" and "supplementary." "Complementary" foodstuffs are those products which cannot be grown in the US itself, like cocoa or coffee.
"Supplementary" refers to products the US can raise, but of which it wants or needs more. This category includes meat, fruits, vegetables and oils. (It also includes sugar which is both a tropical and a temperate crop, but demand for sugar is steady as well so this does not fundamentally alter the reasoning that follows).
"Complementary" product imports reached saturation levels years ago, but there is ever-increasing demand in the US for such luxury "supplementary" items as fresh or frozen strawberries. If one takes 1967 as a base year with an index of 100, then demand for coffee, tea and cocoa has inched up to all of 103 in ten years' time. Compared to the same base year, sugar reached only 105 by 1976, while the index for all complementary products hit a puny 114 (and even this was mostly because rubber rose to 158 in 1976).10 These "complementary" products are nothing but UNCTAD's core commodities under another name.
If we look at the same phenomenon from the standpoint of value, we find that during the two decades between the end of World War II and the mid-sixties, the US paid out a good deal more money for complementary than for supplementary products. Then the balance began to shift. Statistics for the seventies show a stable trend: during the seven calendar years from 1970 to 1976, the United States imported $20 billion worth of complementary (i.e. tropical, core products) but $40 billion worth of supplementary ones, or twice as much."11 The US is moreover now buying substantially more of its supplementary national diet from UDCs than from other developed countries.12 This means that the US is purchasing fewer and fewer core commodities proportionally to its total imports, but more and more food from the Third World. We will shortly examine why this is an important and a dangerous trend for the future of UDCs.
While it has become statistically evident that the Third World is progressively taking over the job of feeding already well-nourished Americans, while demand for its traditional products stagnates, the aggregate data we have just given cannot sufficiently highlight the situations individual producer countries may have to face. They must scramble (or kowtow) to keep the same customers from one year to the next. The same collection of USDA statistics illustrates this point: supplier countries can go from incomes of several million dollars to zero (or vice-versa) in a single year and have no guarantees as to the future intentions of their chief clients. Here is a sample of US imports of some core commodities; the fluctuations concern the changes that occurred between 1975 and 1976. The value of Brazil's sugar exports to the US drops from $100 million to zero. The Philippines, on the other hand, export over 800,000 lbs. of sugar to the US in 1975 and nearly three times that much in 1976. Guinea's cocoa exports to the US fall from nearly two million pounds to nothing and Chad's from over five million to nothing; while Liberia and "other West Africa" make up part of the difference by jumping from zero to over four million pounds. Mexico's cotton exports to the US are halved, while India's increase by 400% and Pakistan's drop by 90%. For long fibre cotton, Egyptian exports are multiplied by four and Sudan's by fourteen but Israel's are reduced ninefold. Peruvian cotton exports meanwhile move up from zero to nearly eight million pounds. 13
These examples are chosen among the more extreme cases, but they are meant to demonstrate the fact that major customers in the industrialized nations have an enormous choice of suppliers and that they are in a position to play one off against the other. Decisions in favor of some suppliers as against others may be made on political as well as on economic grounds.
Even assuming that prices are set at fairer floor/ceiling levels, no individual country is sure of selling uniform quantities year after year. This could make future national planning which relies on commodity revenues for replenishing the State budget just as problematical as it is today. Furthermore, it is far from sure that producer countries are fully aware of the flexibility of advanced capitalism and its adaptive capacity to the changing facts of economic life—and of trade. Substitutions for several core commodities that were unheard of ten years ago are now not only feasible but are being widely used. The case of jute is an obvious one—plastic bags and carpet backings make more durable and cheaper substitutes. Cotton has become almost a luxury fiber as synthetics have taken over greater and greater shares of developed country markets. Although everyone may know about plastic bags and polyester fibers, it might be revealing to take a poll of the economic planners in sugar-producing U DCs to find out how many appreciate the properties of high-fructose corn syrup; to learn in rubber producing countries how many persons in authority know about guayule; or in cocoa producing ones to what degree the plasticity of the soya bean is understood. Here are some of the more sophisticated steps agribusiness has taken lately.
When sugar prices skyrocketed in 1974, US agribusiness was quick to see the advantages of converting plentiful corn in to super- sweet syrup. High sugar prices at that time caused so many companies to scurry into high fructose production that investment has resulted in some over-capacity, but as the Wall Street Journal remarks, "a very major segment of the food business may never be the same again."
Indeed, high fructose corn syrup is about twice as sweet as sugar and is especially well adapted to the industrial uses (soft drinks, jams, confectionery and bakery products) that absorb three-quarters of all the sugar consumed in the U.S.(High fructose corn syrup recently received a kind of consecration when conservative Coca-Cola announced a switch from sugar to HFCS for one of its drinks) Consumer resistance to high sugar prices in 1974 also encouraged the syrup makers. US consumption of sugar hit a record 103 pounds per capita in 1973, but two years later had been curtailed to around 90 pounds. This was the result of a sort of blanket national refusal to pay the going prices for refined sugar and for products with a high sugar content. Meanwhile, per capita consumption of high fructose corn syrup is expected to double from 9 to about 18 pounds between now and 1980.14 Add to this the fact that world sugar stocks have grown by several million tons every year for the past four years and now stand at about 27 million tons, or some 30% of annual world consumption—and one is left with an ideal context for continuing depressed prices.15
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"Boom and bust cycles for primary products have occurred with such inexorable frequency and so exclusively to the detriment of the Third World countries that one wonders how they can still be taken in by the commodities shill- game."
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How were tropical sugar-growing countries reacting while the industrialized nations were busily building high-fructose plants? They apparently took high prices in 1974 as a signal of shortages. Actually, sugar was even then fairly plentiful and high prices were largely the result of what I have referred to elsewhere as "planned scarcity." These countries nonetheless assumed that high prices were here to stay and immediately took the very decision guaranteed to wipe out any temporary shortage and to drive down prices: they planted larger and larger areas with sugar cane. Boom and bust cycles for primary products have occurred with such inexorable frequency and so exclusively to the detriment of Third World countries that one wonders how they can still be taken in by the commodities shill game. It is not entirely their fault. Because no mechanism for consultations among producers has been established (this smacks of "cartel" and is energetically discouraged by the North) they regularly and mutually insure their impending collective fate by rushing into world over-production like lemmings to the sea.
By late 1975, as was inevitable, the bottom dropped out of the sugar market and producer countries were left holding several million bags. A
n occasional supermarket in the US actually gave the stuff away—but so, literally, did the producers—because world prices at 10c a pound or less do not always compensate for the costs of production, even in low-wage countries. The new International Sugar Agreement provides for slightly higher prices, but it also imposes export quotas on participating producer countries. Since the US is the world's largest sugar importer, its decision to protect its own growers automatically affects outside suppliers unfavorably by reducing their commercial prospects. As if the common or garden laws of supply and demand (plus quotas) were not enough to face, Third World sugar producers have little cause for optimism in the short or long term: a brokerage firm quoted by the Wall Street Journal observes that while cost comparisons between high fructose corn syrup and sugar "are difficult to obtain, it is generally thought that corn priced at $3.00 a bushel is competitive with ... raw sugar... at around six cents a pound." (In June 1978, corn was worth about $ 2.60 a bushel).
This economic data may seem rather dry, but what it means is that sugar exporting countries are placed in a no-win situation: If they increase sugar production, they create a glut and lower prices. They must, moreover, sell very close to cost if not below—otherwise they will encourage recourse to sugar substitutes. If they cut back production in the hopes of causing prices to rise, and if prices do rise, there will simply be even greater recourse to corn-based sweetners. Analysts of these phenomena note that once a substitute product has been adopted, the situation rarely returns to the status quo ante. Unless and until the price of corn used as raw material increases by at least 15%, there is no way poor countries can make a decent income on sugar unless they further squeeze their already low costs—which means cutting back on wages or on prices paid to individual producers. Demand could be further reduced. Even a country with a collective sweet-tooth like the USA has shown itself capable of reducing consumption by 13 pounds per head in a single year. Sugar is not, to say the least, a very sure bet for "export-led" economies in the Third World.
We may be telling a similar tale about rubber during the next ten years or so. Of course, synthetics have already cut into the natural rubber market for many uses; but the cost of petroleum (the basic ingredient in synthetic rubber) makes its use less attractive and radial tire technology requires natural rubber. This combination of circumstances has sent the price of natural rubber up to about 40c a pound and the major US tire builders are currently expanding their Third World plantations or improving the ones they have. So all is well for the rubber exporters? Not necessarily, for the companies have also rediscovered a desert shrub called guayule that grows wild in the Southwestern United States and that contains substantial quantities of latex.16 It may take another ten years of R & D, but many people are convinced that guayule will become a commercially viable substitute for natural rubber. Goodyear is already growing it experimentally and Fortune points out that guayule could have the added advantages of productively using marginal land while furnishing "potential employment for Indians." Widespread use of the shrub would also, of course, greatly reduce the current half billion dollar US import bill for natural rubber and consequently the revenues of producer countries like Indonesia, Malaysia, Thailand, Sri Lanka and Liberia. The tire companies want no part of an International Rubber Agreement that would increase prices paid to producers and if one were imposed on them "the rubber people in Akron are confident that if they are forced to they can devise new synthetics incorporating natural's remaining peculiar characteristics."17*
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" ... even if producer countries obtain guaranteed and stable prices for their primary products, no law in the present or future world can promise them that they will be in a position to sell the same quantities as before."
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So we meet another double-bind situation for another core commodity. If the price goes too high, it will encourage synthetics and a crash program for guayule. Any "fair and stable" price in a future international agreement will most likely be set by the rubber industry which is in a better position to make the rules to suit its interests than are the producer countries.
But there's nothing like the taste of fresh roasted coffee or velvety chocolate, right? Wrong. Cargill has already invented a soybean- based chocolate substitute; while Su Crest prefers molasses as the raw material for its cocoa extender. Coffee substitutes may be based on anything from barley to oats to peanuts; all are quite capable of replacing 5% to 80% ground, roast or instant coffee depending on individual taste preferences, according to trade journals.18 Consumer boycotts of high beverage prices only encourage further industrial experiments in substitutes.
What the foregoing discussion is meant to establish is that even if producer countries obtain guaranteed and stable prices for their primary products, no law in the present or future world can promise them that they will be in a position to sell the same quantities as before.
America's acceptance of the 77's most pressing demands in this area would be an intelligent move on several counts: It would bring some economic gains to the US while Europe and Japan would pay the greater share of the costs; yet it would not prevent innovative capitalism from introducing alternative solutions exactly tailored to its own needs, thereby imposing a quota system for UDC exports in all but name.
Here an important qualifier is necessary. Although the West may agree to an Integrated Commodities Program and to a Common Fund for financing it, there is very little chance that it will accept any system that would effectively allow UDCs simply to produce as much as they like of core commodity X, Y or Z and sell it at a fixed price to a central authority. Here the opponents of these measures are quite right to affirm that no international agreement on earth could then prevent prices from sinking if unwanted stocks were allowed to accumulate yet still had to be financed. UNCTAD is aware of this and recommends "internationally agreed supply management measures, including export quotas, and production policies and, where appropriate, multilateral long-term supply and purchase commitments." It is also conscious of the substitution problem and hopes for "measures to encourage research and development on the problems of natural products competing with synthetics and consideration of the harmonization, where appropriate, of the production of synthetics and substitutes in developed countries with the supply of natural products produced in developing countries."19 There is, however, no machinery proposed for allocating production among developing countries and it is hard to see how they are to be stopped from overproducing. It also seems Utopian for UNCTAD to imagine, figuratively speaking, that high-fructose corn syrup producers like Archer Daniels Midland or CPC will one day sit down at the same table with the governments of Mauritius or Guyana to determine who has the right to produce how much of what kinds of sweeteners.
Perhaps the greatest advantage that industrialized countries, especially the US, would find in granting the minimum demands of the UDCs in this area is an ideological one. Such an attitude (whatever the very cold economic and political calculations behind it) would appear to the world as a generous gesture. The Third World would doubtless feel, for a time, euphoric until this victory showed its Pyrrhic face. How much time might then elapse between the implementation of all the other provisions that ought to make up a genuine NIEO is anybody's guess. The "77" would be told, in effect, that they were inordinately greedy after obtaining such startling concessions from the industrialized nations; that they should not ask for the moon. Except on a case-by-case basis, no debt relief would be forthcoming (and debts would still have to be paid back out of export revenues). Agricultural processing, value-adding activities (although they, too, figure in the UNCTAD resolutions) would not be much furthered. Non-tariff barriers could well remain the same for the UDCs manufactured exports. Most important, no indexing of primary commodities to goods and foodgrains imported from the rich nations would have been introduced. Northern inflation would continue to be financed partially by the South.
Possibly the most alarming feature of lockin
g oneself into the single strategy of the Integrated Commodities Program and the Common Fund would be the consecration of the present international division of labor assigning Third World producers the task of supplying certain raw materials (on other people's conditions) throughout eternity. Economic diversification could be retarded. Whole societies would be geared to supplying the needs of other, richer, people. By doing this, UDCs would continue to divert necessary labor from assuring food production, while remaining without any guarantee that the food they needed to import would be sold at affordable prices.
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"One possibility of increasing UDC revenues that has been barely explored is that of increased trade between the Third World countries."
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Is there any way that the drawbacks of this situation could be converted into plus signs? For, as we have noted, it is not morally or politically possible to come out against an NIEO for the Third World, however truncated. Outside of giving unrealistic and unwelcome advice to UDC negotiators to hold out for the perfect package, there are a few things that might be helpfully said. We, in the developed world, should try to make clear to any citizen of the poorer countries willing to listen that they should expect no presents from the USA in the way of food.20 The era of relatively low grain prices in which we are currently living is not going to last if the U S government and the US grain traders can help it. No national development plans involving wheat imports at under $3.00 a bushel should be made for the middle term—50% more than that remains realistic in the longer run.
One possibility for increasing UDC revenues that has been barely explored is that of increased trade between Third World countries. The whole emphasis of UNCTAD and most of the other international forums is placed on North to South, South to North flows. This is logical enough because these are the directions in which the trading patterns, the shipping routes, the banking and insurance channels run and have run since the era of the colonial empires.
And it is true, of course, that intra-Third World trade is naturally restricted because so many UDC products are competing rather than complementary. Today, only about 6% of all world trade goes on between developing countries (only about 2.5% if oil is excluded). Surely with better communications among themselves, it should be possible to enhance inter-UDC commercial relations. These unnaturally low figures are themselves an argument for agricultural diversification—why not food trade as well between Southern hemisphere States? Such a strategy could be especially important for nations which, in a variety of ways, are attempting to make the transition to more equalitarian, democratic societies in the face of heavy odds. Mutually advantageous trade could turn out to be the most effective kind of international solidarity.
UDC negotiators could strengthen their position vis a vis the Center by making a concerted effort to buy all possible products from other UDCs before turning to Northern suppliers. They could furthermore, for many of their present imports, shift their purchases from industrialized countries whose opposition to the NIEO has been adamant (e.g. Germany) to those which have taken a more positive attitude (e.g. Holland, Scandinavia).
Such strategies will, however, be useless to the cause of true development if no overall social housecleaning and reordering of priorities takes place in the UDCs themselves. Assuming still that their NIEO strategy works, the first priority for use of any incremental income obtained through improved commodity prices should be investment in agriculture for local food consumption. Otherwise, there is every reason to fear that any gains from commodities will be literally eaten up by imports from nations producing the basic foodstuffs, and chief among them, from the USA.
However vital, such investment in agriculture will require a revolutionary change in the thinking of Third World nations that have until now conceived of "development" as industrialization at all costs. Government spending on agriculture—that is, on the sector where the vast majority of Third World people are active—is in most cases abysmally low. This state of affairs shows up clearly when summarized in the form of a table showing government choices as regards two categories of current expenditure: agriculture and defense. These figures may be usefully contrasted with those that indicate the percentage that the agricultural sector contributes to the Gross Domestic Product, i.e. to national wealth. Countries selected have all incurred serious food shortages in recent years.21
From these figures it is apparent that although farmers may contribute to their countries half or more of its GDP, they receive very little in return in the form of State services that could make their lives easier and more productive. Wealth they create is transferred into other pockets or provides new toys for generals. Investing in agriculture would not simply be more equitable, but more intelligent: when farmers' incomes rise as a result of greater productivity, their spending acts as a spur to the rest of the economy—not to mention providing it with far cheaper food than can be had via imports.