Policy and Distributional Equity in Natural Resource Commodity Markets:

Commodity-Chain Analysis as a Policy Tool

A Research Concept Paper

Jesse C. Ribot

Institutions and Governance Program

World Resources Institute

10 G Street, NE, Suite 800

Washington, D.C.20009USA

1 (202) 729-7753

12 October 2005

Note: Note is based on the call for proposals sent out in October 2005. It has not been revised, only the call for proposals portion has been removed. It follows from WRI’s ‘Decentralization and Environment’ research efforts over the past four years (see Ribot 2004).The synthesis report (Ribot 2004) and an earlier article on commodity chain analysis (Ribot 1998)should be referred to as guiding documents for this current “Commodity-Chain Analysis as a Policy Tool” study. The synthesis document and case studies from the ‘Decentralization and Environment’ project are available on line at These documents and a list of all publications from this program can be obtained by writing to . These documents give essential background and provide useful definitions for the current project.

Table of Contents

Abstract

Acknowledgements

I.The Problem: Rural Access to Natural Resource Wealth

II. Objectives

III. Commodity Chain Analysis and Methods

A. Commodity Chains

B. Mapping Access along the Commodity Chains

1. Identify the actors

2. Evaluate vertical income and profit

3. Evaluate the horizontal distribution of income and profit

4. Map how access is maintained and controlled

C. Policy Analysis

D. Case Studies and Comparative Analysis

IV. Research Program

A. Work Plan

B. Article format

Annex A: Definition and Theory of Access

Annex B: Vertical Distribution of Prices

Bibliography

Abstract

This project evaluates distributional equity effects of natural resource policies and broader economic governance policies—including decentralization and liberalization. It uses commodity-chain analysis to measure and explain the current distribution of benefits in a sample of domestic natural resource markets in a selection of eight to ten countries. The study includes 1) an economic analysis of profit margins and market shares along the path of commercially exploited natural resource commodities, 2) a policy analysis that evaluates how policy shapes margins and shares, and 3) an ethnographic study to explain market access and its relation to policy—that is of entry and exit barriers and exclusionary or predatory behavior. This study has three principle objectives: increased benefit retention and poverty reduction from natural resource wealth, development of commodity-chain analysis for natural resource distributional-equity policy analysis, and research and policy analysis capacity building and training. Ultimately, the project aims to produce recommendations for the improvement of distributional equity around commercially exploited natural resources. Through ten to twelve case studies, primarily in the forestry sector, the project analyzes links between natural resource policy, equity and poverty.

Acknowledgements

I want to thank Dorian Fougeres, Paul Gellert, Nathaniel Gerhart, Amanda Hammar, Brad Kinder, Xuan Phuc, Malini Raganathan, Thomas Sikor, and Yongjun Zhao for their incisive comments on the first draft of this proposal. Support for this project has been generously furnished USAID’s Economic Growth, Agriculture and Technology division.

1

I.The Problem: Rural Access to Natural Resource Wealth

As a source of local subsistence and income and as a source of national wealth, natural resources play important political and economic roles. Their balanced use by local and national actors can shape national and local development patterns. But, over-concentration of resources in the hands of government and elites undermines development in the regions of extraction. The rural poor rarely benefit from commercial exploitation of natural resources, yet they are deeply affected by the exploitation processes. They are mobilized as cheap labor, their resource use and income are interrupted, and their health and well being is affected by effluents from or damages to the resource. Profits from natural resources—whether from oil, timber, firewood, charcoal, fruits, herbs, gums, or game—are usually concentrated in the hands of a few intermediaries, truckers, wholesalers or state agents. The spoils are divided among private commercial actors and government—as profit, taxes, fees and unofficial patronage or gifts—along the path from extraction to enduse or export.[1]

Over the past two decades, multiple reforms—including decentralization, liberalization, and community-based natural resources management—have aimed to increase local participation and benefits in natural resource control, management and use. These reforms should all have measurable effects on distributional equity. Comparative research on the effects of natural resource decentralizations conducted by WRI, however, shows little increase in income and profit for rural communities (Ribot 2004; Ribot and Larson 2005).[2] Increased revenues have been noted via fiscal aspects of these reforms. Cameroon’s community-based forestry laws and the new Chad-Cameroon pipeline community-compensation funds have provided rural communities with stumpage fees and royalties (Oyono 2005). Revenues from fines and damages have accrued to local governments in Senegal (Ba 2006; Ribot 2004). Wildlife user fees have accrued to community groups in Zimbabwe (Conyers 2002). While fiscal benefits—from fees, taxes and funds—have increased, the bulk of commercial profits continue to accrue to elite actors outside of the local arena.[3]

Establishing management, use, and property rights over resources have all been used in decentralization reforms as means of increasing local income streams. But, these rights—to manage the resource or even to have complete physical control over the resource itself—do not necessarily enable people to reap the profits that flow from the natural resource base. In Senegal, forest villagers control forests. Before decentralization they were able to maintain control via threats of violence or by mere exclusion of non-villagers from the infrastructure of village life—access to the well, shelter and food. Since the forestry decentralization reforms in 1998, rural councils have rights to forests. But in both periods, before and after decentralization, access to markets has been controlled by the forest service, so villagers continue to reap very little profit from the forests (Ribot 2000; 2004). In Senegal, Mali and Uganda, forest ownership has been transferred to the most-local level of local government, but this ownership has not enabled local people to exclude commercial users or to engage in commercial production. In many other cases, the poor hold management rights, but other, better-placed actors—large farmers, corporations, or industries can override their rights (Ambler nd:12). Clearly, rights and even direct control over the resource itself are not sufficient for rural people to derive benefits from natural resources.

Some policy makers and development professionals call for the enforcement of existing rights or creation of new more-secure ones (Ambler nd:12). This approach, however, is incomplete since most profits are not located at the farm gate or at the edge of the forests where local producers sell their goods to merchants and truckers. They are spread through the market hierarchy in the purchase and resale of these products all along the commodity chain from the forest to the centers of consumption and end use—domestic or international. The path to complementary resources, such as transport, capital, labor, processing and end markets where these products are resold, is littered with obstacles—some created by policy and others which are the sediment of social and political history. While there has been a long-standing call for reforms to open access to markets (liberalization to lift the policy-based obstacles), market access remains highly problematic for small producers and rural communities. They remain on the sidelines. They remain destitute.

Economic benefits are a key part of rural well being, poverty reduction and the meeting of basic entitlements (Blaikie 1985; Deere and deJanvry 1984; Dasgupta 1993; Drèze and Sen 1989).[4] Despite many efforts to improve the livelihoods of the rural poor, benefit retention remains low among most resource-dependent populations (Blaikie 1985; Dasgupta 1993)—even among rural people living in resource-rich areas—near forests, gold and diamond mining, or oil (Oyono 2005; Ibeanu 2003). Despite proximity to the resource and access to subsistence uses, local people lack access to equipment, capital, and end-use markets needed to reap the economic benefits from natural resource commodities. Or, how can local people be empowered to say ‘no’ to commercial production (see Ribot 1995a)? How can market access be opened? How can greater profit be reaped and retained locally? How can the wealth from nature be channeled back into resource-dependent rural communities? The answers to these questions depend partly on where that wealth is located and how that wealth is accrued—that is, the means that enable people along the chain of production, transport, transformation exchange, retail and end use to enjoy the fruits of entering into commerce.

In large part, increasing the rural share of wealth from natural resources is a policy matter. The marginal position of rural people with respect to natural resource wealth is not a natural condition of poverty or even of the ways in which markets work. Much of the observed concentration of natural resource wealth occurs with the assistance of natural resource policies. Production and transport permits, licenses, quotas, up-front fees, requirement of management plans, differential (double) standards for commercial and subsistence users or for urban versus local users enable some actors to benefit while excluding others (Ribot 2004).[5] ‘Environmental’ policies along with other regulatory and structural policies create barriers or selective forms of access to resources and markets that enable exclusionary and predatory behaviors, leading to resource and market capture (Ribot 1998). This project will focus on the role of natural resource policies in shaping distribution of profit in natural resource markets. It will do so with an eye to how natural resource policy can leverage greater benefits for resource-dependent rural populations. But, to do so, will require attention to the effects of all other forms of policy, such as international conventions, trade laws, liberalization, and other forces, such as social identity, wealth, and so on. The objective is to understand the relative role of policy, and particularly of environmental policy, in shaping distribution.

In examining rural benefit retention, this project complements the growing body of inquiry into ways that rights and representation strengthen the ability of the poor to improve their conditions (Manor 1999; Crook and Sverrisson 2001; Ambler nd; Ribot 2004). By focusing on the mechanisms of access that enable and disable benefit retention and profit from particular commercially exploited resources, the research will take an empirical approach to the ensemble of factors shaping well being. The objective is to identify the range of factors involved in benefit accrual and the relative importance of different factors in different contexts. The project will focus on the role and relative importance, among other factors, of natural resource policy. Distribution of benefits from natural resources can be attributed to rights or their absence, implementation or its absence, enforcement or corruption. To understand the causes of current distributional patterns and the role of policy in shaping them, this project will study the contextual and place-based historical and social factors that affect benefit retention at every stage of the lifecycle of natural resource commodities.

In short, this study examines the role of policies applied to natural resource markets in shaping market access. Its primary object is to evaluate the effects of these policies on destitution and well being. This is the first phase in a two phase project. The first phase will focus primarily (but not exclusively) on domestic markets, while the second phase will use the findings of the first phase to design and execute a comparative study of the distributional effects of policy on global forestry commodity chains.

II. Objectives

This project has three principle objectives: increased benefit retention and poverty reduction from natural resource wealth, development of a framework for natural resource distributional-equity policy analysis, and research and policy analysis capacity building and training.

The first objective is to identify policy means for reducing poverty by increasing access for the rural poor to the commercial benefits associated with natural resources production and exchange. The project seeks to understand the role of natural resource policy in shaping income distribution—in leveraging greater benefit retention in the local arena and in helping to concentrate income among elites. Conversely, the project aims to better understand the role of income distribution/concentration in enabling elite to shape and reshape policies to their own benefit. It also aims to understand the importance of other factors at play in shaping benefit distribution—law, technology, capital, markets, labor, knowledge, authority, identities, politics, and social relations (see Ribot and Peluso 2003). Once these roles are understood, recommendations for natural resource policy improvement can be designed.

Secondly the project aims to develop commodity chain analysis as a policy tool to facilitate the evaluation of the distributional effects of natural resource policies and other policies applied to natural resource markets. The project will hone this method of analysis for different kinds of markets (different resources, different kinds and qualities of products from a single resource, multi-stranded versus single-stranded markets, point-source versus multi-source markets). Can commodity chain analysis be generalized into a set of methods or guidelines for identifying entry barriers and anti-poor access patterns? Can it be used to develop recommendations for opening access and producing pro-poor market relations? Further, the project hopes to contribute to social theory of markets. Market mechanisms, construed in the narrow economics sense of price, quantity, supply and demand, are often viewed as the sole means for efficient resource (writ benefit) allocation (See Dasgupta 1993). The many other factors that shape allocation are considered in this body of theory to be exogenous to the market model.[6] For this reason, they have often been excluded from policy analysis. This research will contribute to a more systematic model in which these factors remain central to market analysis and the design of regulation.

The third objective is to support a new generation of young scholars to focus on natural resource-related distributional-equity and poverty-reduction problems using commodity-chain analysis. The project builds scholarly policy analytic capacity and helps form a community of practice around this new approach to policy analysis.

III. Commodity Chain Analysis and Methods

To accomplish the above objectives, this project analyzes how environmental policy enables and disables rural populations to profit from the commercially exploited natural resources around them. To do so the project examines access to profit along natural resource commodity chains—including policy-supported obstacles to entry and the complete array of socially based forms of inclusion and exclusion. The analysis will explore the effects of policy within this mix of factors. Using commodity chain analysis, this project examines how regulatory policies affect distributional equity in natural resource sectors by examining and explaining distribution of profit within natural resource markets before and after the implementation of policies such as community based natural resource management, decentralization, devaluation, and liberalization.

The project will apply commodity chain analysis to a set of ten to twelve cases. The cases will be developed as detailed economic ethnographies organized around a commodity chain study as outlined below. For each case, the project will: measure the distribution of profits through an analysis of margins and market shares; at each point of income concentration, identify and explain the mechanisms that actors use to gain and maintain their benefit; characterize the role of environmental policy, other regulatory policies and other social and political-economic factors in shaping distributional outcomes; and recommend reforms and measures to redress policy-generated inequities. The author conducted commodity chain research in the 1980s and 1990s, developing methods and analysis techniques for natural resource commodity chain studies (Ribot 1990; 1993; 1998; cf Gereffi, Korzeniewicz and Korzeniewicz 1994). These commodity-chain studies along with a theoretical framework for the empirical analysis of access will serve as a starting point for the current research (Ribot and Peluso 2003).

A. Commodity Chains

A commodity chain[7] is a series of interlinked exchanges through which a commodity and its constituents pass: extraction or harvesting, production, transformation, transport, distribution, wholesale, retail and end use.[8] As such, commodity chains serve as conduits through which commercialized natural resources—such as forest products—are ushered from the land to their final users, whether rural, urban or ‘international’. Commodity-chain analysis is a method for analyzing how and for whom such market conduits operate. It is a tool for understanding who benefits from natural resources, how they benefit, and how those patterns of benefit distribution might be changed. By tracing the interactions along natural resource commodity chains, this research project examines the dynamics of control and maintenance of access to the economic benefits from natural resources.