Urgent steps needed to curb rising food and other commodity prices, UN warns

Supachai Panitchpakdi, Secretary-General of UNCTAD. Photo: Horasis

31 January 2011 – Senior United Nations officials today called for urgent steps to rein in the rising prices for basic farm produce, petroleum and raw industrial materials whose volatility hits the world’s poorest people the hardest.    

“Such volatility has huge negative impacts on vulnerable groups, such as low-income households in developing countries, for whom food expenditure can account for up to 80 per cent of household budgets,” UN Conference on Trade and Development (UNCTAD) Secretary-General Supachai Panitchpakdi told his agency’s second Global Commodities Forum in Geneva.

The forum brings together Government ministers, heads of leading commodity exchanges, representatives of major banks and commodity producing and trading companies, and providers of commodity trade support services, such as insurance, logistics and advisory services.

The meeting, whose theme this year is “Volatility in international commodity markets,” comes as prices for such basic products are edging upward toward the limits reached during the 2008 food and energy crises, when the UN organized an emergency summit in Rome to boost food production and revitalize agriculture to ensure long-term food security.

Over 850 million people around the globe were short of food even before the 2008 crisis, and that number ballooned with an estimated additional 100 million as a result, with the poorest of the poor hit the hardest.

Mr. Supachai, whose agency promotes the development-friendly integration of developing countries into the world economy, urged greater efforts to “identify the policy levers that can rein in excessive volatility and maintain prices within a reasonable band,” and called on commodity-dependent developing countries to continue efforts to diversify their economies so that they are less vulnerable to shifts in the market.

“There are serious concerns about the way in which commodity markets have been evolving in recent years. Since mid-2010, commodities have, for the second time in three years, been experiencing extremely high price volatility,” he said, warning of “speculative distortions that complicate the economic management of commodities production and trade.”

Natural events such as floods in Pakistan and fires in Russia, which may be linked to global warming, have spurred upward pressure on prices for agricultural goods such as wheat and cotton. Copper prices have risen 35 per cent since last summer. All this comes on top of basic increases in demand fuelled by fast-growing economies such as China.

For billions of people, the cost of meeting daily food needs takes up a significant proportion of family incomes, UN International Telecommunication Union (ITU) Secretary-General Hamadoun Touré told the forum. “We must therefore work together to ensure the long-term sustainability of the production and marketing of commodities,” he said, calling careful monitoring of the markets “vital.”

Andrey Vasilyev, Deputy Executive Secretary of the UN Economic Commission for Europe (UNECE), said the world’s advanced economies are recovering only slowly from the global recession, with unemployment distressingly high and recent rises in commodity prices possibly contributing unwelcome inflationary pressure.

It is important to limit such prices to the forces of “supply and demand alone” and reduce any influence coming from financial speculation in such goods, he added.

Pascal Lamy, Director-General of the World Trade Organization (WTO), which maintains strong ties with UN agencies, warned that 2011 will see the prices of most commodities rise since the rise in global gross domestic product (GDP) bolsters demand, led by emerging economies. Global GDP is set to grow by 4 per cent this year, with over 70 per cent of the growth coming from commodity-intensive emerging markets such as China, India and Latin America.

“Volatility is at its worst in tight and closed markets. It eases in open and, hence, deeper markets,” Mr. Lamy said, stressing that completion of the so-called Doha Round of trade liberalizing talks could calm the picture. “In fact, were this round to be completed, least developed countries would get almost entirely duty-free, quota-free access to developed world markets.”

The two-day forum will discuss a series of topics, including the state of energy markets; commodity market volatility; overcoming excessive market volatility through better regulation, data, and transparency;  and commodity price challenges for oil- and gas-producing countries.


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