History

History of the Common Fund for Commodities

History

The Common Fund for Commodities (CFC) is an international financial institution affiliated with the UN ecosystem, established to support commodity development and stabilize commodity markets, with a particular focus on benefiting commodity-producing developing countries. The idea of creating the CFC was first proposed during the second session of the United Nations Conference on Trade and Development (UNCTAD) held in New Delhi in 1968, following the advocacy of the Group of 77, which had identified commodity problems and price volatility as the top agenda item. This initiative built upon discussions from the first UNCTAD conference, held from 23 March to 16 June 1964 in Geneva.

Group of 77 and China pursued agenda items on bringing much needed stability in the, otherwise, volatile world of commodities even before their first “Ministerial Meeting of the Group of 77 in Algiers (Algeria) on 10 – 25 October 1967, where the following was incorporated in the Ministerial declaration.

“Developed countries and the appropriate international financial institutions should make available additional financial and technical assistance to developing countries, including specific funds, in order to facilitate the carrying out of diversification programmes, highest priority being given to diversification in the programmes on interregional, regional, and sub-regional levels in the process of trade expansion and economic integration among developing countries. These specific funds for diversification should be one of the features of commodity agreements’’.

This process snowballed into a concept of establishing the CFC under the auspices of the United Nations Conference on Trade and Development (UNCTAD) in 1976, as part of the Integrated Programme for Commodities (IPC).

Establishment of the Common Fund for Commodities

The Agreement Establishing the Common Fund for Commodities (CFC) was activated and entered into force on June 19, 1989, after meeting the required ratification threshold. The announcement of its activation was made during the tenure of Javier Pérez de Cuéllar, who served as the Secretary-General of the United Nations from 1982 to 1991. The CFC became operational in 1991, with its headquarters in Amsterdam, Netherlands.

Structure
  • The CFC operates with contributions from member countries, including both developed and developing nations.
  • It provides loans and grants for commodity-related projects, focusing on smallholder farmers, small and medium enterprises (SMEs), and sustainable practices.

The Common Fund was established to improve the socio-economic conditions of commodity producers by addressing issues such as price volatility, market access, and supply chain constraints. 

The Pioneers

Raúl Prebisch

Raúl Prebisch, the first Secretary-General of UNCTAD, played a foundational role in shaping the discourse on commodities and trade reforms. His Prebisch-Singer Hypothesis, introduced in the 1950s and further developed during UNCTAD I in 1964, highlighted the persistent decline in terms of trade for primary commodity exports relative to industrial goods. This structural inequality, he argued, necessitated international commodity agreements to stabilize prices and protect the economic interests of developing nations. Dr. Prebisch’s first report to UNCTAD I, called “Towards a New Trade Policy for Development”. Prebisch’s served as a major inspiration for Dr. Gamani Corea, who carried forward his commitment to fairer and more equitable commodity policies.

Unique Identifier: UN7745134

Credit: UN Photo     Unique Identifier: UN7745134

Hans Singer

Hans Singer, a co-author of the Prebisch-Singer Hypothesis, provided the empirical and statistical foundation for understanding the economic disadvantages faced by commodity-exporting nations. During early UNCTAD discussions, Singer consistently emphasized that free markets could not ensure fair returns for developing countries reliant on primary commodities. Singer's work advocated for mechanisms to mitigate the impact of price volatility and ensure equitable trade terms for commodity-dependent economies.

Unique Identifier: UN7738105

Credit: UN Photo/ME     Unique Identifier: UN7738105

‘’Father’’ of the Common Fund

Dr. Gamani Corea

As Secretary-General of UNCTAD from 1974 to 1984, Gamani Corea was the political architect who translated the theoretical insights of Prebisch and Singer into actionable policy. Under his leadership, extensive groundwork was laid in preparation for UNCTAD IV in Nairobi (1976). Corea actively engaged with country delegates, both formally and informally, to explain the rationale behind the International Commodity Policy (IPC), also known as the “Corea Plan,” and the necessity of a Common Fund. His diplomatic efforts culminated in the adoption of Resolution 93 (IV) at UNCTAD IV, marking a major milestone in international commodity policy and laying the foundation for future commodity cooperation initiatives. Corea championed the creation of the Common Fund for Commodities (CFC) as the financial mechanism to support the IPC, emphasizing that it represented a historic opportunity to address systemic trade inequalities through the ambitious “buffer stock” concept. Under his guidance, the IPC became a cornerstone of UNCTAD’s policy agenda, setting the stage for the formal establishment of the CFC. While the CFC did not come into operation during his tenure, its formalization in 1989 realized the vision he had tirelessly promoted.

Unique Identifier: UN7745131

Credit: UN Photo/Saw Lwin    Unique Identifier: UN7745131

Concept of Buffer Stock as Proposed by UNCTAD Secretary-General Gamani Corea

Buffer Stock is an economic mechanism designed to stabilize the prices of commodities by maintaining a reserve stock that can be used to balance supply and demand. The idea was prominently advocated by Gamani Corea, the Secretary-General of the United Nations Conference on Trade and Development (UNCTAD) during the 1970s. Corea's proposal was part of a broader effort to address the volatility of commodity prices, which disproportionately affected developing countries reliant on exports of primary commodities.

The buffer stock mechanism works as follows:

  1. Stock Accumulation: When commodity prices are low, a managing authority (the Fund) purchases and stockpiles the commodity to reduce excess supply and support prices.
  2. Stock Release: When prices are high, the authority releases the stockpiled commodity into the market to increase supply and stabilize prices.

When the Common Fund for Commodities (CFC) was conceived as part of the Integrated Programme for Commodities (IPC) in the 1970s, the anticipated financial structure included two distinct "windows" or accounts to support its objectives. The buffer stock mechanism was a central component of the first window, and the financing for this was a key aspect of the negotiations. During the negotiations and discussions surrounding the establishment of the Common Fund for Commodities (CFC) in the 1970s, the World Bank estimated that a much larger financial commitment would be required to effectively implement the ambitious buffer stock program proposed under the Integrated Programme for Commodities (IPC).

‘’ The staff report suggested that tentatively 18 commodities could be considered suitable for inclusion in such a program. For illustrative purposes, it estimated that, at 1970-74 or 1972-74 prices, the Common Fund would need a line of credit of $11 to $13 billion, with one-half of the amount required for grains alone.’[1]

First Window (Buffer stock financing):

The first window of the Common Fund was specifically designed to provide financial support for buffer stocks and other price-stabilization measures under international commodity agreements. The initial target for the capital of the Common Fund was set at $6 billion (in 1970s dollars), with contributions from member countries, intended to finance buffer stocks and other commodity stabilization mechanisms.[2] Of this total, $2 billion was expected as direct contributions from member governments, while $4 billion was to be raised through borrowing in international capital markets, leveraging the paid-in capital (Corea, 1992, p. 92; South Centre, 2014). In practice, $400 million was allocated to the First Account, the buffer stock financing window.[3]

Second Window (Project financing):

The second window of the Common Fund was intended to finance long-term development projects aimed at improving productivity, diversification, and sustainability in commodity-dependent developing countries. This window was less directly tied to the buffer stock mechanism, with at least $70 million expected to supplement voluntary contributions, for which a target of $280 million was set.[1]

Challenges and Adjustments

While the $11-13 billion target was proved to be ambitious, the actual capitalization of the Common Fund brought down to an adjusted amount of $6 billion and that too fell short of this goal due to several factors:

  • Lack of Consensus: Developed and developing countries had differing views on the feasibility and desirability of buffer stocks.
  • Economic Shifts: By the 1980s, the global economic environment had shifted toward free-market policies, reducing support for interventionist mechanisms like buffer stocks.
  • Operational Difficulties: Existing commodity agreements with buffer stocks (e.g., tin and cocoa) faced financial and operational challenges, undermining confidence in the mechanism.

As a result, when the Common Fund was formally established in 1989, its focus had shifted away from buffer stocks. The First Window was never fully utilized for its original purpose, and the Common Fund primarily operated through the Second Window, financing development projects rather than price stabilization.

 


[1] Kelegama, S. (2014). Gamani Corea and commodity price stabilization. In South Centre, A tribute to Gamani Corea: His life, work and legacy (pp. 50) South Centre.


[1] Gamani Corea was successful in some way to gain a near consensus on a capitalization of $6 billion from $11-13 billion as was initially estimated by the World Bank.

[2] Kelegama, S. (2014). Gamani Corea and commodity price stabilization. In South Centre, A tribute to Gamani Corea: His life, work and legacy (pp. 50) South Centre.

Timeline of History

November 1947 - March 1948

Havana Charter Conference

From November 21, 1947, to March 24, 1948, delegates from various countries convened in Havana, Cuba, for the United Nations Conference on Trade and Employment. The primary objective was drafting the Havana Charter. The decline in international commodity prices captured the attention of policymakers as early as the 1948 Havana Charter. Nevertheless, the Havana Charter and ECOSOC’s guidelines did not inaugurate a comprehensive framework to stabilize commodity prices; instead, they gave rise to a series of limited, ad hoc arrangements. This period was characterized by persistent debate and tension between producers and consumers over the need for commodity-specific stabilization measures. Developed countries generally advocated a targeted commodity-by-commodity approach to ensure that interventions remained focused and constrained to individual markets.[1]


[1] Ibid, 42.

UNCTAD I agenda to equitable trade systems

From March 23 to June 16, 1964, the United Nations Conference on Trade and Development (UNCTAD) convened in Geneva, Switzerland. The conference marked a pivotal moment in international economic cooperation, focusing on addressing trade disparities and promoting sustainable development in developing countries.

The conference emphasized the need for a more equitable global trade system, advocating for reduced trade barriers and enhanced access to markets for developing nations. Led by Secretary-General Raúl Prebisch, the discussions resulted in proposals for a "new trade policy for development," aiming to narrow the economic gap between industrialized and developing nations.

Developing countries, through the Group of 77, highlighted the inequities in the global trading system, particularly the impact of price instability on primary commodity exporters. The conference proposed the establishment of international mechanisms to stabilize prices and secure fair trade for these nations. Though concrete action was not immediately taken, the discussions reinforced the importance of a collective, integrated approach to commodity trade issues​.

The proceedings of the Council (UNCTAD 1964) recorded the following:

“Moreover, the terms of trade have operated to the disadvantage of the developing countries. In recent years many developing countries have been faced with declining prices for their exports of primary commodities, at a time when prices of their imports of manufactured goods, particularly capital equipment, have increased. This, together with the heavy dependence of individual developing countries on primary commodity exports, has reduced their capacity for imports. Unless these and other unfavourable trends are changed in the near future, the efforts of the developing countries to develop, diversify and industrialize their economies will be seriously hampered. 9. Deeply conscious of the urgency of the problems with which the Conference has dealt, the States participating in this Conference, taking note of the recommendations of the Conference, are determined to do their utmost to lay the foundations of a better world economic order.’’ [1]

If we read the above quote from 1964, it might seem that the world has hardly changed for the billions of commodity-producing smallholders in the developing world.


[1] Source: Final Act, Preamble, page 4. https://unctad.org/system/files/official-document/econf46d141vol1_en.pdf (accessed on January 29, 2025)

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