Categories of Income Distribution in Primary Commodities Exported by Developing Countries: Some Conceptual and Methodological Problems

CATEGORIES OF INCOME DISTRIBUTION IN PRIMARY COMMODITIES EXPORTED BY DEVELOPING COUNTRİES: SOME CONCEPTUAL AND METHODOLOGICAL PROBLEMS Korkut BORATAV I. THE FRAMEWORK The problem of primary commodities, as related vvith international trade, vvas, at times, the majör issue vvhich predominated international forea on the so-called "New International Economic Order" (NIEO) in the second half of the 1970s. As the NIEO controversy developed away from a confrontational route into a time -consuming bargaining process, certain potentially explosive demands of the Third World on commodities receded into the background, and the vvhole set of problems vvas reduced into the ways and means of securing price stability for a number of commodities, vvith a Common Fund as the institutional framevvork to realise this objeetive. The year 1979 witnessed the agreement on the essential features of the Common Fund. The compromise formula on the Fund reached in Geneva in 1979 is far from vvhat vvas originally envisaged vvhen the idea vvas launehed four years ago. But, vvhatever the deficiencies of the Common Fund as it is emerging novv, the problem of price stability ought to be considered a erossedout item in the agenda of the "North-South Dialogue", and other, and more fundamehtal problems of trade on primary commodities are likely to be dravvn into the bargaining process. One of these explosive problems is the more-or-less forgotten demand of the Third World countries on "inereasing the participation of developing countries in the transport, marketing and distribution of their exports [of primary commodities] and their share in the earnings therefrom."1 Policy proposals 1 Manila Declaration and Programme of Action of the Group of 77, Part Two, Section One, Paragraph 4 h. 1977] CATEGORıES OF ıNCOME DıSTRıBUTıON 29 which aim to "increase the share of the earnings of developing countries" from commodities exported by them should be based on an analysis of the "share of developing countries in the final consumer price." 2 In other words, taking the final price of primary commodities in the terminal markets as the starting point, categories of income distribution ought to be defined and measured as a precondition of arriving at a clear understanding the problem at hand. It is significant that UNCTAD started working on these lines in the course of the preparations for the 1976 Nairobi Conference.3 Since the Nairobi Conference pushed ali the commodity issues to the background except, naturally, price stability problems, and hence the Common Fund; a slowing-down of the studies concerning market structures was witnessed after 19764 But in the coming years, with the apparent elimination of the price stability issue, problems of improving the market structure of primary commodities with a view to in.creasing the share of the developing countries in the final price are likely to come to the fore.5 If this proves to be the case, we are likely to witn.ess an 2 UNCTAD, "Action on Commodities, Including Decisionson an Integrated Programme in the Light of the Need for Change in the World Commodity Economy" (TD /184), Paragraph 69. 3 "Rappoı t existant entre les prix â l'exportation et les prix â la consommatioıı de certains produits de base exportes par les pays en developpement" (TD / i 84/ Supp. 3); "Relations entre les prix du minerai de fer et ceux de l'acier" (TD / B / C.l / 142); "Marketing and Distribution System for Cocoa" (TD / B / C . 1 /164); "Marketing and Distribution Systems for Hides, Skins, Leather and Leather Footvvear" (TD / B / C. 1 / 163). 4 "The World Market for Manganese: Characteristics and Trends" (TD / B / IPO / MANGANESE / 2); "The World Market for Phosphates: Characteristics and Trends" (TD / B / IPC / PHOSPHATES / 2); and, "Marketing and Distribution of Tobacco" (TD / B / C.l / 205). References to these studies in this paper in the following paragraphs vvill use their UNCTAD symbols only. 5 There remain only tvvo other areas of controversy: First, indexation, vvhich is more suitable for cartel-type action, and, hence, outside the effective agenda of North-South Dialogue.Second,the establishmeııt of a complementary financial facility for compensating commodity-specific export shortfalls of developing countries; an issue vvhich does not raise majör problems of structural reform, but vvhich is, nevertheless, the subject matter of a heated controversy on competence ete. betvveen IMF and UNCTAD. 30 THE T U R K S H YEARBOOK VOL. XVıı increase in the nurnber of studies on market structure of commodities aiming at analysing processes of income distribution at the international level. The purpose of the present paper is to outline a conceptual and methodological framevvork in measuring categories of distribution for primary commodities exported mainly by developing countries. Elements of such an analysis exist in the abovementioned UNCTAD studies in which attempts were made to measure the differential between the prices paid by consumers in developed countries and prices received by (unit export values of) developing countries.6 This paper intends to carry forward the methodology used in these studies, and make a number of corrections thereto, mainly in the follovving lin.es: a) In measuring price margins, to start, not vvith the unit export value, but with the price received by producers; and to analyse the elements which accoıınt for the difference betvveen unit export value and price received by producers. b) To deduct unit production costs of the commodity in developing countries from the final price. In calculating production costs, material costs of production only, i.e. seeds, fertiüzers, insecticide, fuels, amortization of capital equipment ete. are to be taken into consideration. Wages, interest and rent, as far as they are aetual, paid-in elements are treated not as production costs, but as categories of net output; whereas implicit factor payments are altogether excluded. c) To deduct supplenıentary elements of value added, and specific costs therein, from the final price of the commodity, which necessitates: i.Deduction of the necessary costs of transportation, handling and storage, both at national and international levels; and, ii. Deduction of ali elements of value-added (and specifie costs therein) in those commodities where further processes of transformation and production ta kes place before the commodity reaches the consumer. After these deduetions and corrections, the final price of the commodity represents the net output created by the producers of the commodity in the developing country. An. analysis of dist6 Seein particular TD / 184/Supp. 3, passim;TD/ B / C. / 205, pp. 72-78; T D / B / C . 1/164, pp. 22-34. 1977] CATEGORıES OF ıNCOME DıSTRıBUTıON 31 ribution is significant only if it establishes the shares received by various economic and social categories within the net output of any product. In. the case of commodities exported by devel (...truncated)