Press Release 98/43
FAO'S ANNUAL REVIEW OF AGRICULTURAL COMMODITIES SHOWS ASIAN FINANCIAL CRISIS AND BUMPER CEREAL CROPS IN DEVELOPED COUNTRIES LEAD THE VALUE OF AGRICULTURAL TRADE TO DECLINE
Rome, June 30 -- Asian economic turmoil and a drop in the price of cereals caused the overall value of global agricultural trade to decline last year, the UN Food and Agriculture Organization (FAO) said today in its annual Commodity Market Review 1997-98. FAO estimates the worldwide value of exports for all principal agricultural products, excluding fishery and forestry products, declined by more than 2 percent in 1997 compared to the small gain in 1996 and large gains in the previous two years.
"Export earnings for the developing countries are estimated to have increased in nominal terms by 3 percent, slightly more than the growth rate for 1996," the review said. But for developed countries, "export earnings are estimated to have declined by 10 percent in 1997, entirely due to lower volumes as the index of export prices fell by only 1 percent. This decline is in sharp contrast to the 4 percent growth rate of export earnings in 1996."
For developing countries, the review said, "the estimated increase in agricultural export earnings in 1997 was mainly on account of substantial gains in tropical beverages, which more than offset the losses elsewhere, notably on agricultural raw materials. Export earnings from tropical beverages rose by 26 percent, over 80 percent of the gains due to coffee alone."
On the other hand, the review said, "Export earnings from agricultural raw materials, the second most important commodity group for developing countries, are estimated to have declined by 9 percent in 1997, following a similar reduction in 1996. This largely reflects declines in cotton, natural rubber and jute/jute products. For cotton, both export prices and volumes fell markedly, causing export values to fall by a further 23 percent."
Export earnings of developing countries from all three cereals (wheat, rice and coarse grains) are estimated to have fallen in 1997 by some 20 percent while those of developed countries dropped by an estimated 30 percent, the review said.
The FAO Review examined the possible consequences of the financial turmoil in Asia on global agricultural commodity markets. The sharp income contraction in the region and the large depreciation of the currencies was expected to reduce the region's import demand from the rest of the world, particularly for commodities where demand was relatively income and price sensitive. At the same time, the currency depreciation would raise the region's export competitiveness.
The FAO study, however, did not expect the impact to be marked at the global level for a majority of agricultural commodities. Among the commodities imported by the countries affected, the impact was expected to be greatest for maize, bovine meat, soybean meal, temperate fruit, cotton and hides and skins, while among the export commodities the most affected would be tropical fruit and rubber. Thus, the impact is expected to be felt mainly through reduced import demand by the countries. Moreover, weather-related production shortfalls in some cases and the severe squeeze on working capital were likely to reduce to some extent the ability of the countries affected to take full advantage of their increased export competitiveness.
The FAO review also looks at the structure and growth of agricultural exports from 70 African, Caribbean and Pacific (ACP) countries and the value of tariff preferences on ACP agricultural exports to the EC. With the Fourth Lome Convention, which is a preferential trading arrangement between the European Union and the ACP countries, due to expire in February 2000, and negotiations for the continuation of the preferential relationship set to start in the autumn of 1998, the review offers a number of suggestions aimed at increasing the gains from the current preferential access opportunities. They include recommendations for ACP countries to expand trade to a wider range of products; better use of Lome IV provisions for technical assistance to help with product development and diversification for export; ensuring that trade is competitive and that a fair share of the gains from tariff preferences are passed on to the domestic producers, because if they are not, then the potential supply response of increased access to export markets would not materialize.
The FAO review says intra-ACP trade in agricultural products is relatively small. It says intra-ACP "trade in agriculture as a percentage of all agricultural exports of the ACP countries reached 5.4 percent in 1993, up from 3.3 percent in 1980," which contrasts with 30 percent for NAFTA and 73 percent for the 15 European Union countries. But it notes that intra-trade has jumped in value by 42 percent in nominal terms, from about $400 million to more than $550 million in little more than a decade. The analysis further showed that the prospects for increased intra-ACP trade has improved in recent years.
NOTE: The full 91-page Commodity Market Review 1997-98 and summary highlights of certain commodities is presented in Arabic, English, French and Spanish as well as in Japanese. The publication is also available electronically, on the FAO Website at: www.fao.org under Commodities and Trade, click on Economics or click here.
Highlights from the Review of Commodity Markets
Coffee: Coffee prices rose dramatically during the first eight months of the 1996/97 season (October/September), with the International Coffee Agreement composite daily price hitting $2.23 per pound, the highest level since 1986, and 125 percent higher than the level in October 1996. However, by September the composite price had receded to $1.33 per pound. The 1997/98 crop year started with the composite price of $1.23 per pound. The price rise in the 1996/97 season was driven by strong demand and the tightness of supply of Arabica coffee, particularly Colombian and other milds. World coffee exports increased by almost 15 percent to 4.5 million tons in 1996/97 as many countries increased their exports to take advantage of the high prices.
Tea: World tea prices at the beginning of 1998 were expected to remain firm as the recovery in Kenya would not be complete and the continuing drought in Indonesia would further reduce the supply on the world market. Some easing of prices could occur from the second quarter of the year as exports from India, Sri Lanka and China are expected to rise.
Sugar: World sugar consumption in 1997 was 120.9 million tons. The current trend in global sugar consumption is towards slower growth rates in developed countries. With global production at 122.7 million tons in 1996/97, 1.7 million tons were added to stocks which stood at 45.6 million tons at the close of the season. For the 1997/98 crop year, FAO's forecast is for a slight drop in global output, mainly due to declines in Thailand, India, Ukraine and the Russian Federation. Although production increases in Australia, Brazil and Cuba are expected to offset these declines, they would not be sufficient to match the trend increase in consumption. Global consumption is expected to rise to 123.3 million tons, while output would remain at 123 million tons, with stock and trade levels largely unchanged. However, in several Asian countries, imports and consumption in 1997 could increase at a slower rate than in recent years due to higher domestic prices because of currency devaluations.
Tropical Fruits: World production of tropical fruits in 1997 is estimated to have reached some 56 million tons, most of which were absorbed domestically in the producing countries, either in fresh or processed form. Of the 55.8 million tons of tropical fruits produced in 1997, 40 percent were mangoes, 23 percent pineapples, 9 percent papayas, 4 percent avocados. Other tropical fruits (mangosteen, lychee, rambutan, durian, etc.) made up the balance of 24 percent.
Milk and Milk Products: Global output of milk increased by 1 percent in 1997. After several years of stagnation, world milk production started to expand, although in the CIS total milk output continued its decline, largely as a result of falling production in the two major producing countries - Russian Federation the Ukraine. By contrast, production rose particularly strongly in New Zealand and, to a lesser extent, in Australia. Output also grew in a number of countries of eastern Europe in particular in Poland. In the United States, milk production expanded only marginally. As regards, 1998, milk output is expected to show a small increase over the previous year, but supplies of dairy products on the international market in 1998 should change little. For most dairy products, average international prices in 1998 are expected to be similar to those of the previous year.
Fishery Products: The value of world trade in fishery products as a whole expanded further in 1997, due to both higher volumes traded and increased prices. El Nino led to a boom in shrimp production by Ecuador, which increased its exports by 37 percent during the first nine months of 1997 compared to the corresponding period of 1996. Despite a sharp increase in tuna catches in the second half of 1997, prices of tuna raw materials stayed high. The overall outlook is for lower tuna catches in most of 1998, while demand is expected to be strong in all the main markets, especially for canned tuna.
Forest Products: Two major highlights in the global market for forest products in 1997 were: the strong recovery in the European markets and the notable increase in world pulp and paper production, after the decline in 1996. The markets for European forest products recovered from the very slack demand seen during most of 1996. Demand strengthened and consumption of nearly all forest products rose. In North America, market conditions continued to remain satisfactory as consumption of all forest products was up.