The main feature of international agricultural commodity markets in 1999 was a continued, pronounced and widespread decline in prices. The index of nominal export prices for agricultural commodities fell to its lowest level in more than 20 years. Ample supplies, underpinned in some cases by high levels of support were the main cause of this market situation. Demand, though improved from 1998 levels, remained relatively weak, and the effects of general recovery in those countries and areas adversely affected by economic crises in 1998 were felt only in the latter part of the year. The decline in prices was generalised across markets, but the collapse in sugar prices was most acute. The prices of some commodities exhibited more price variability in 1999 than in recent years, largely due to weather-related production shocks.
Mainly due to lower prices, the value of agricultural export earnings contracted sharply in 1999 for the second year in a row. Global exports of the principal primary agricultural commodities fell almost 13 percent to $146 billion. Export earnings for developing countries fell disproportionately more, by 15 percent to $68 billion.
Expenditures by developing countries for staple food imports fell again in 1999, returning to the levels that prevailed before the 1995/96 spike in cereal prices. However, this also reflects in some cases lower import volumes and increased food aid shipments. The decline in import volumes can be explained to a large extent by the recovery of domestic cereals output in a number of traditional importing developing countries.
Global economic output strengthened in 1999, particularly in North America. However, amongst the developing countries, only the Asian region experienced significant income gains in 1999 when measured in per caput terms. This is an important factor in developing countries where food demand is more income sensitive. Global economic output is forecast to strengthen further in 2000 reflecting sustained growth in many developed and developing countries, including the crisis-affected emerging markets of Asia where recovery has been faster than initially expected. This growth should help to underpin some recovery in markets.
The next round of multilateral trade negotiations in agriculture began in March 2000, after a failed start in late 1999. These negotiations include the substantially increased participation of developing countries. A section of Part I of this Review assesses the current state of play in the negotiations, and discusses some of the major issues facing WTO members. Part I concludes with a special feature on the implementation of the Uruguay Round commitments in the meat sector.
Commodity highlights
In the tropical beverages sector, world coffee and cocoa prices continued trending downward due to weaker demand in several traditional consuming countries and increased export availabilities. For coffee and a number of other commodities, downward price pressure was further exacerbated by the 40 percent devaluation of the Brazilian real that stimulated demand for more competitively priced exports in the world market. Developing countries' export earnings from coffee and cocoa plunged 26 percent, by $4.3 billion, in 1999. Further economic recovery in the economies of Asia and Latin America may be supportive of increased consumption in the 2000, although world prices are likely to remain low for the near term. Prices for tea declined steadily through the first half of 1999, but rallied in the second half as harvests were lower than expected, and renewed demand growth may support continued strengthening of prices through 2000. A special note in the Review introduces the Tea Mark, a new international trademark designed, with FAO support, to promote the benefits of tea consumption.
World sugar production exceeded consumption for the fifth consecutive year in 1998/99, resulting in record carryover stocks and continued downward pressure on prices which fell to a thirteen-year low. Global export earnings from sugar plummeted by 28 percent in 1999. Several countries, in response to continued low world prices, may be considering more restrictive trade measures in order to protect their domestic sugar industries from more competitively priced world supplies. For 1999/2000, prices are likely to remain under pressure.
Prices for fresh citrus rose in 1998/99 in major markets in the wake of much-reduced output in the main producing areas, although prices are expected to moderate in 2000 as harvests return to normal. Prices of frozen concentrated orange juice, covered for the first time in this Review, decreased markedly from the previous season under the effect of large inventories in the main producing countries and lower demand in the United States, the world's largest market for orange juice. Banana prices generally weakened in 1999 as a result of abundant supplies entering international trade coupled with constrained demand growth in a number of emerging markets. For 2000, prices could strengthen somewhat if supply reductions materialise due to the low prices of 1999 and possible weather caused damage and if the economic recovery in Asia and the Russian Federation is sustained. A small but rapidly growing share of the banana market - the market for organic produce - is surveyed in a special note of the Review.
International rice prices followed a downward trend during most of 1999, as good harvests in a number of the major exporting countries coincided with a production recovery in many of the major importing countries, resulting in ample exportable supplies that exceeded the prevailing global import demand. Although increased harvests in several traditional importing countries resulted in reduced global imports, world trade reached almost 25 million tonnes in 1999, 2.8 million less than in the previous year, but still the second highest on record. A number of countries have taken measures to limit import demand, thus rice prices are likely to remain under pressure during 2000.
Wheat production declined in 1999 but large carryover stocks in major exporting countries coupled with lacklustre demand continue to weigh heavily on prices during the 1999/2000 marketing season. International wheat prices are likely to remain weak for at least another year, as overall supply is likely to match or exceed the projected world demand. World coarse grain prices continued their downward trend since the price spike in 1995/96 and large exportable supplies have kept downward pressure on prices so far this season. For 1999/2000, global trade in coarse grains is forecast to grow by about 3 percent from the previous season, largely due to increased demand from the Republic of Korea, the Russian Federation and in some countries of sub-Saharan Africa.
International prices for oilseed products were subject to strong downward pressure during the 1998/99 season, mainly because of large harvests and abundant stocks. While the decline in prices for oilcakes and meals came to a halt at the beginning of the 1999/2000 season, prices for oils and fats dropped further, reaching their lowest level since 1992/93. The decline in oil prices has been caused by unusually sharp, but temporary, increases in palm oil production, as oil palm plantations in Asia recovered from the 1998 weather anomalies. However, towards the end of 1999, prices for most oilseeds and products moved upward, a trend that is expected to continue for the remainder of the current season.
The world meat market was influenced in 1999 by low feed prices, a recovery in Asian import demand and increased use of export programmes including export subsidies, food aid and credit packages. A rebound in growth in demand prompted global meat trade to expand 5 percent and prices witnessed a hesitant but sustained reversal of the declining trend, which prevailed since the mid-1990s. Bovine meat was responsible for most of the positive trends in the meat market in 1999; but sustained economic growth and tighter supplies are expected to support price recovery for most meat categories in 2000.
Cotton prices fell sharply during the first part of the 1999/2000 season, due in particular to the substantial decline in the price of man-made fibres. Weak demand and large crops will keep prices low through the remainder of this season, although the rise in petroleum prices and stronger economic growth should boost demand for cotton and raise prices in the future. Prices of sisal fell sharply towards the end of 1999 reflecting a slackening of demand and an accumulation of stocks duringbthe year. Rubber prices fell 40 percent in 1999 to a 30 year low. Despite some recovery in demand forecast for 2000, prices are likely to remain under downward pressure. There is potential for further growth in supplies due to more intensive tapping by smallholders in some countries such as Indonesia, and increased production capacities in others, such as Vietnam, where considerable investments have been made over the past few years. World demand for leather and leather products stagnated in 1999 for the second year in a row, putting further downward pressure on prices. Although prices may firm in 2000 on the basis of reduced production, demand is forecast to remain weak, thus any price increase for hides and skins is likely to be small.
The downward trend in international prices for forest products evident since 1995 was arrested in 1999 and, for some products, reversed. The total value of world trade in forest products is estimated to have increased 5 percent in 1999, reflecting improvements in Asian demand and continued growth in North American and European economies.
Preliminary estimates for 1999 indicate a further reduction in world fish production following a substantial decline to 117 million tonnes in 1998. Although trade in fishery products dropped in 1998 and remained depressed in the first part of 1999, signs of recovery in demand and prices were evident by the end of the year, particularly in the Japanese market.
