Market Cure Proposed For Third World’s Battered Farmers

Market Cure Proposed For Third World's Battered Farmers
By Ken Laidlaw, Gemini News Service
December 04, 2001

Third World farmers suffering from falling commodity prices are set to be offered a new international scheme to shield them from financial collapse.

A World Bank (news - web sites)-convened international task force has drafted a strategy that intends putting the tools of modern markets--such as insurance, credit, futures, and options contracts--into the hands of millions of small-scale farmers in the Third World.

Cocoa, coffee, rubber, and other commodity producers could hedge their exposure to price fluctuations that have impoverished many producers in those developing countries that are dependent on a few commodities for hard currency earnings.

The scheme--devised by a group of financial institutions, major commodity exchanges, international commodity organizations, agricultural producer associations, and economists--began as an experiment in early 1999, looking into the possibility of a commodity price insurance scheme for developing countries.

An internal World Bank meeting will examine the scheme on December 14 and decide whether to go ahead or make further studies.

"We have done four case studies and a further four might be available by the time the meeting is held," a World Bank economist connected with the task force told Gemini News Service.

The completed studies are on Tanzania, El Salvador (news - web sites) (both coffee), Thailand (rubber), and Mongolia (copper). Those due to be completed soon are on Nicaragua, Mexico, Uganda, and Ghana.

Bank president James Wolfensohn says the proposals "could make a huge change in the number of people who live in poverty, and it could make a huge change in the capacity of a lot of these countries to really have a more equitable development."

However, World Bank sources admit that as the plan is now conceived it will be primarily wealthier farmers who will have enough to get insurance credit to cover crops.

"What we need to establish is a local transmission mechanism. For instance who is going to insure them? Maybe it is a local co-operative which has a credit relationship with a bank. The bank will lend the money to the cooperative which will insure the farmer," one World Bank economist said.

More than 50 developing countries depend on three or fewer commodities for over half of their export earnings. Twenty countries are dependent on commodities for over 90 percent of their total foreign exchange earnings, says the World Bank.

Prices for many commodities from 1983-1998 swung wildly from below 50 percent to above 150 percent of average prices. Farmers using the futures market could make up to 70 percent of the final market price of the commodity, said Roy Leighton, European Head of Credit Lyonnais.

"We are not reinventing the wheel. Futures contracts have existed for at least 2000 years between farmers and merchants," Leighton added.