World trade, commodities and communications Development

Learning outcomes Understand historical relationship of trade between LEDCs and MEDCs Know the different trade patterns associated with LEDCs and MEDCs How the present trade pattern both helps and hinders LEDCs and MEDCs

Trade Trade is the exchange of goods and services between 2 countries The natural resources of the world are unevenly distributed Europe has few reserves of minerals nor does it have a suitable climate for growing cotton or coffee

Divisions in world trade There is a major division between LEDCs and MEDCs MEDCs import raw materials from LEDCs, manufacture them and sell them on LEDCs export primary goods and these are sold at a much lower prices than manufactured goods LEDCs lack basic infrastructure, technology ad finance to establish a significant industrial base

Problems for developing countries dependent on commodity exports The main problem for LEDCs is that they are dependent on the export of 1 primary commodity E.g. Honduras 76% Bananas Ghana Cocoa 80% Cuba sugar 77%

1970s Debt Crisis The Middle East had put up the price of oil They invested their income in European and US Banks In order to pay interest in their Middle East investors, the banks encouraged LEDCs to take out loans To raise this money LEDCs had to export more commodities This then pushed down prices resulting in reduced income

International Commodity agreements (ICAs) In an attempt to maintain and stabilise commodity price in the 1970s, the ICA was set up The agreement encouraged nations to increase their productivity This led to oversupply E.g. the price of coffee fell from US $1.4 to US $ 0.70 per pound in just 4 months

Oversupply and changing demand Oversupply affects the price of commodities When supply exceeds demand- prices go down Between there was a severe frost in Brazil, fungi in Colombia and Mexico and drought in the Ivory Coast Coffee supplies ran out What do you think happened the price then?

Commodity substitutes MEDCs now manufacture cheaper, artificial alternatives for natural products E.g. cocoa butter, vanilla flavouring, food sweeteners, polyester for cotton Non- agricultural raw materials have also suffered from synthetic alternatives e.g. tin replaced by substitutes This decreases the demands for these goods

Trading policies Traditionally it was the MEDCs who established and gained the most from international trading policies Tariffs were introduced Tariffs are taxes added to the cost of goods at different stages of production Raw materials have smaller tariffs than manufactured goods Who is gaining from the tariffs?

Example of tariff costs Fresh pineapples imported to the EU attracts 9% tariff Canned pineapples attracts 32% Pineapple juice attracts 42%

World trading blocks A major feature of world trade is trading blocks Countries share geographical, political, historical or economic characteristics often form blocks to strengthen trade links Political links: Organisation of African Unity, British Commonwealth, North Atlantic Treaty Organisation (NATO) Economic links: EU, UNO, General Agreement on Tariffs and trade (GATT)

Recap Trade is widening the gap in development MEDCs are benefiting from world trade LEDCs are not benefiting The commodities that LEDCs export are not raising the same as the products MEDCs are exporting The gap between the rich and poor is widening