DDIR:IAR/?3/26 FtEX'RICTH) June 1973

COliSULTATNEGROUPCN IKTl!XtfA~CNBL AGRICULTURALRl%%iARCH

TECXNICALAWISORY COKWi!TEE

Sixth Meeting, Washington, D.C., 25 July-3 August 1973

UHCTADRE3OLUTIOlT 50 (III): CCMPE'fITIV3iNllSSOFNATURAL PRODUCTS,SYmmCS ANDSUBSTITUTJB

(Dote for TAC Prepared by the Secretariat)

(Unscheduled Agenda Item)

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TAC SECREWBIAT FOODABD AGRICULTURFORGANIZATIQB OF THE UNITED NATICE'?S ROBrlE1973 - DDlXt:IAR/73/26 Restricted June 1973 Unscheduled Agenda Item: UWTAD Resolution 50 (III) - Competitiveness of Natural Products, Synthetics and Substitutes

(Rote for TAC Prepared by the Secretariat)

1. This note is in response to a request from the Secretariat of the Consultative Group for the TAC to discuss the research implications of this Resolution at its July meeting. Sections (i) and (ii) repeat for the information of members of TAC and CGIAR some details previously supplied to it by FAO. Section (iii) updates this information with a specific proposal for action in response to the Resolution. (i) General

2. GHCTADResolution 50 (III) reco zes the increasingly grave situation of many.of the non-food agricultural raw material 8 faced with competition from synthetics. It is becoming increasingly evident that, unless substantial research efforts are made on behalf of most of these commodities, their markets are likely to be successively captured by synthetics and other substitutes. The basic cause of this, in many cases rapid, loss of competitivity by the natural raw materials lies in the explosive growth of industrial, and particularly petrochemical, technology, supported by vast resources for research, product development and promotion for the synthetics.

3. The situation of each commodity of course differs considerably, and cere must be taken not'to overgeneraliz . The two commodities for which substantial research expenditures have been organized, wool24 and natural rubber,2/ are in fact the two commodities which have been able to defend themselves best from the inroads of synthetics and for which future prospects currently appear least pessimistic. This point can be further emphasized in the oase of rubber, where the situation of Malaysia, which has been prepared to make very large research expenditures, is radically different - and better - than that of virtually all other natural rubber producing countries, which have not been prepared or able to make such investments in research. l 4. Jute, for instance, would appear *ur,gently to need very large research expenditures, if its future situation is to be adequately safeguarded, For wool, and to a lesser extent, hides and skins and cotton, much has been done, but much more still needs to be done if these commodities are to be safeguarded from the long-run threat of synthetic substitution. In natural rubber, as stated, striking results have been achieved in frlalaysia, and the need is very much to generalize the findings and achievements to the other natural rubber producing countries. For sisal and coir, research priorities have been clarified, and the availability of relatively small resources for research could well lead to significant advances.

1/ The main commodities referred to are cotton, rubber, wool, hides and skins, j&e and kenaf, and hard fibres (sisal, henequen, abaca and coir). Developing countries' 1971 exports of these raw materials totalled over $3 billion, or between 20 and 25 percent of the value of exports of all agricultural commodities from these countries. Inclusion of their exports of cotton and wool textiles, jute and hard fibre goods and semi-manufactured and manufactured hides and skins would at least double this figure to around $6 billion, g By the main wool-producing countries through the International Wool Secretariat. g By the 1 a1 aysian Rubber Fund Board throughthe Mal,eysian Rubber Research Institute. -2-

5. However, whatever their individual situations, most, if not all, of these agricultural raw materials critically require research at all stages of production, marketing end processing, since in most cases the chain from grower to finished product is still largely based on traditional practices and concepts. Agronomic research, to raise yields and thus lower costs vis-a-vis the often already cheaper substitutes; research into the necessary marketing and quality changes, so as to provide the final consumer with the product he requires at-the lowest possible cost, on time, and in the uniformity of grade required to match the synthetics; and product development and end-use research so as to lessen the present dependence of many agricultural raw materials on their few main traditional end-uses, are all urgently required. Such research is needed not only to meet the threat posed by the synthetics, but also because other attempts to improve the competitivity of the agricultural raw materials, e.g. commodity policy schemes of various types (buffer stocks, quota arrangements, market access arrangements, etc.) have proved either politically impossible, largely ineffective, or, in some cases, irrelevant,

6. A substantial programme of internationally supported research and development is urgently required for agricultural raw materials. FAO's role would be largely focussed on agronomic research and (in cooperation with other relevant agencies) on promoting and assisting in marketing and other policy changes aimed at strengthening the competitive power of the raw materials versus synthetics. however, end-use research is in some cases the most vitalneed. This might largely have to be done in developed countries and/or with their know-how. (ii) Specific Action to Date 7. The FAO Intergovernmental Groups on Jute and on Hard Fibres have given increasing attention to the problems set out above s and in the latter case a Working Party has been set up which has a number of achievements to its credit, vsz. identification of a set of priority items for action, and publication of a series of research documents which would not otherwise have received wide diffusion. Substantial funds have however been lacking for any more concrete action.

8. LNCTAD itself, working through the above two FAO Groups end with the International. Rubber Study Group, the International Cotton Advisory Committee, and the various research institutes on hides and skins, has drawn up a first inventory of the research work currently being carried out throughout the world, and has listed agreed priorities and needs. Resolution 50 (III) follows on from this drawing together of the work of the international Study Groups and represents an attemp t to generate the really substantial funds end action which are urgently needed. (iii) Future Action Proposed by FAO c) In the opinion of FAO, action along the lines suggested in the Resolution should riceive support and further study, and FAO has been examining what it can do to assist t.he TAC and consequently the CG in identifying priorities for research. 10. In view of the wide range of crops involved and the consequent high degree of competition for available (but limited) funds, FAO believes that there is a very real need for the preparation of a detailed study or 'foverview'f which will take into account the current economic and social importance of each crop, its market potential, the extent and effectiveness on ongoing research, the probable pay-off of additional research,and the direction (production, processing and end-use) and probable cost of such research.

11. Such a study should indicate the most profitable lines of research, e.g. on crops with an expanding demand, of benefit to many countries, able with additional effort to compete with synthetics or substitutes or on which existing research was clearly inadequate; and conversely should attempt to specify probably unprofitable fields for additional research as a consequence of inelastic demand, benefit to only few countries, already adequate -3-

research or advanced substitution by synthetics, It should also give some indication of the possible benefits to be gained by modest outlay on the t3internationalizations of some existing national commodity research institutes, e.g. on ooconut, rubber or tea. Care will need to be exercised in assessing the 'benefits fro&: end--use research, in cases in which this might be found to constitute the real need, particularly if this would have to be done in a developed country and would involve using highly sophisticated industrial resources.

12. In order to provide this "overviews as soon as possible,both as a service to TAG and CGIAR in response to the UNCTADresolution ,and to help FAQmember countries, a sum of $36,000 has been allocated by the Director-General to the FAO Research Development Centre for a study to be commenced in 1973 on the research needs and priorities of the main agricultural raw materials and non-food crops. This will be undertaken with the aid of consultants,as a collaborative effort between the Research Development Centre and FAO's Commodities Division,which has considerable expertise in this field "and direct contacts with both producing and consuming countries through its various commodity study groups. 13. In a first round of discussions a list of priorities has been drawn up on the basis of agreed criteria as guidelines for the consultants,end their terms of reference defined. Contacts have been made with possible sources of expertise to provide the necessary consultant services. Once these have been identified it is proposed to commence the work as soon as possible, and the TAC and Consultative Group will be kept informed on its progress. The priori@es agreed on commodities for study and the terms of reference for the consultants are shown below. (a) Commodities to be studied 14. On the basis of discussions within FAO this list has been provisionally divided into first and second level priorities. Within these categories individual commodities have been ranked in order of probable importance for further reseach, taking into account existing research effort, etc. This listing should not be considered in any way binding. First priority Cotton Coconut (including coir) Hides and skins Soya Groundnut Sunflower Oil palm L/ Rubber 1 Jute and Kenaf Second priority Sisal and Hennequen Abaca Silk Wool (carpet wool end apparel wool) Tea, Coffee, Cocoa Sug= Sesame, Rapeseed, Safflower and other annual oilseeds Fyrethrum Tobacco

1/ In view of the magnitude of current research programmes, these commodities, although highly important, might be considered of lower priority. -4-

(b) Terms of Reference

15. To undertske, in respect of the crops and commodities included in the list of commodities to be studied under (a) abover

(i) A review of their comparative economic and social importance, globally, regionally and nationally (including country groups), in terms of their present and projected contribution to food supplies, employment, industrialisation and export earnings, in the developing countries. (ii) An analysis of market potential taking into consideration available figures on projected demand, possible substitution by synthetics and competitive production in developed countries.

(iii) A review of current research activities in both production and end-use sectors giving examples of the benefits derived from past and current research both on the crops under study and on synthetic competitors and substitutes, (iv) An assessment of the potential benefits which mi t be derived from additional research on each crop and the sector ?production or end-use) in which research might have the greatest impact.

(v) Based on the above , as assessment of the need for additional research, including local adaptive research end outreach programmes, and to the extent possible the economic justification for such research. (vi) Evaluation of the main priorities for additiond research within the group of crops, given a situation of limited resources and inevitable competitive claims, and preparation of an outline of the probable costs of any research allocated a high priority.