World review

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I. Current agricultural situation - facts and figures
II. Overall economic environment and agriculture
III. Selected issues

I. Current agricultural situation - facts and figures

1. Crop and livestock production in 1994
2. Food shortages and emergencies
3. Current cereal supply, utilization and stocks
4. External assistance to agriculture
5. Food aid flows in 1994/95
6. International agricultural prices
7. Fisheries: catch disposition and trade
8. Forestry production and trade

1. Crop and livestock production in 1994

Exhibit 1

2. Food shortages and emergencies

Exhibit 2

3. Current cereal supply, utilization and stocks

Exhibit 3

4. External assistance to agriculture

Exhibit 4

5. Food aid flows in 1994/95

Exhibit 5

6. International agricultural prices

Exhibit 6

7. Fisheries: catch disposition and trade

Exhibit 7

8. Forestry production and trade

Exhibit 8A

Exhibit 8B

II. Overall economic environment and agriculture

Agricultural outlook
Outlook for developing country economies highly dependent on agricultural trade

WORLD ECONOMIC ENVIRONMENT

The year 1994 and the first half of 1995 have seen a gradual acceleration of world economic activity, with an increasing number of countries improving their economic performance. According to IMF, the growth in global output in 1994, at 3.7 percent, was the highest so far for the decade and current forecasts point to a slight acceleration of world economic growth to about 3.8 percent in 1995. The growth in the volume of world trade is also estimated to have accelerated, from about 4 percent in 1993 to 9.4 percent in 1994, and is forecast to expand by a further 8 percent in 1995.'

In the industrialized economies, the revival in growth took place in the context of low, although in some countries rising, inflation and generally prudent fiscal and monetary policies. Fiscal consolidation has remained high on these countries' policy agendas and interest rates have tended to rise as concerns shifted from economic recession to a possible resurgence of inflation. The recovery now under way has resulted in some reduction in unemployment rates, but these remain very high in some countries.

The transition economies in Central and Eastern Europe and the former USSR showed contrasting performances. Poland, Hungary, the Czech Republic and Slovakia - where the institutional and structural reforms are already well advanced - all showed positive growth rates in 1994 and, except for Hungary, are expected to accelerate the rate of economic expansion further in 1995. The economic recession also appears to have bottomed out in the Baltic states. On the other hand, the Russian Federation and most states in the former USSR faced further sizeable declines in economic activity during 1994 and 1995 (see Regional review of Central and Eastern Europe, p. 165).

Figure 1

Economic activity has remained dynamic overall in the developing countries, with GDP growth exceeding 6 percent in 1994 and forecast to continue expanding at a slightly lower rate in 1995. The favourable economic outlook reflected a combination of external and domestic developments. External factors included the strengthening and spread of the recovery in the developed economies boosting trade and investment flows; the gains, albeit slow and uneven, in trade liberalization, along with the acceleration of regional integration (discussed in Part 111, p. 199); the strengthening of international market prices of several major traded commodities; and large capital inflows which, although slowing in the wake of the Mexican crisis, appear to have resumed as the confidence of financial markets is being restored.

Domestic factors that contributed to the improved economic outlook for developing countries included further progress in market-oriented economic reform; successful stabilization in many countries, shown by widespread - and in some cases dramatic reductions in inflation rates; and greater political and social stability in some countries and areas formerly affected by civil strife and armed confrontation.

Economic performances varied widely across the different countries and regions, however, as did the relative importance of the various domestic and external factors underlying them (see Regional review, developing country regions, p. 75).

As regards the economic outlook, Project LINK projections for 199698 point to annual growth rates of about 2.6 percent in the

Figure 2

BOX 1
EXTERNAL DEBT SITUATION OF DEVELOPING COUNTRIES

External indebtedness continued to be a major problem for many developing countries in spite of improvements in some crucial indicators of debt servicing and net transfers, and progress in debt restructuring and reduction.

The total developing country external debt stock, which at the end of 1993 reached US$1 812 billion, was estimated to be $1 945 billion at the end of 1994, up by 7 percent in nominal terms. The share of developing country long-term debt held by official creditors - bilateral lenders and multilateral institutions - continued to rise and was expected to account for 51 percent of total developing country long-term debt by the end of 1994, compared with a share in 1982 of only 35 percent.

The increase in debt stock is explained by: i) substantially higher total net flows on debt, estimated at US$108 billion in 1994, mainly in countries that have not rescheduled their debts and in some Latin American countries that have overcome their commercial debt problems; ii) the cross-currency valuation effect calculated on long-term debt and IMF credit increased the debt stock by a projected $25 billion; iii) rescheduled interest will add another $20 billion. On the other hand, officially supported debt and debt service reduction operations, market buy-backs and debt-equity swaps, as well as debt forgiveness (especially in support of the devaluation of the CFA franc) were expected to reduce the debt stock by almost $12 billion. Furthermore, accumulated interest arrears were expected to fall by over $8 billion as a result of the conclusion of restructuring arrangements.

External long-term debt to agriculture (broadly defined), of which 91 percent is owed to official bilateral and multilateral creditors, reached almost US$75 billion in 1993.

The estimated total debt service payments on all debts in 1994, at US$199 billion, represented an increase of 4 percent in nominal terms over 1993. The total debt service to export ratio, which in 1993 rose to 18 percent, reversing the downward trend of the previous few years, was expected to improve in 1994 by declining to 17 percent. The debt to GNP ratio, which has increased steadily during the 1990s, was estimated to reach almost 41 percent in 1994, the highest level since 1987.

Net transfers on total debt (i.e. disbursements minus total debt service payments), which had been negative since 1983, implying an outflow of resources from developing countries, turned positive in 1992. This reversal consolidated more recently as transfers to developing countries of almost US$29 billion and $25 billion were estimated in 1993 and 1994 respectively. The situation differed in the two more indebted regions, however. For Latin America and the Caribbean, after a positive net transfer on debt of almost $5 billion in 1993, a negative transfer of $10 billion was estimated for 1994. By contrast, in 1994 sub-Saharan Africa was estimated to have a positive net transfer, amounting to $2 billion, for the first time since 1980.

Aggregate net resource flows (which include other forms of external financing besides debt-related flows) to all developing countries, after declining for several years up to 1987, have increased every year since, both in real and nominal terms, reaching US$213 billion in 1993 and an estimated $227 billion in 1994. A striking feature is the surge in private flows, which in the 1990s have become the most important component of aggregate net long-term resource flows to developing countries. These increased from $159 billion in 1993 to an estimated $193 billion in 1994. In 1993 private flows, mainly portfolio equity investment, foreign direct investment and debt creating flows, accounted for 75 percent of the total net aggregate long-term resource flows against 44 percent in 1990. However, it is a small group of countries, mainly middle-income East Asian and Latin American, that have expanded their access to private capital flows. In absolute terms the People's Republic of China and Mexico have been the largest beneficiaries. Although almost 30 percent of net long-term private flows are debt-creating they are not due to commercial banks as they were in the 1970s, but are in the form of bonds issued by a limited number of countries that have gained the necessary creditworthiness. developed countries (accelerating in Japan and Europe and slowing in the United States); 4.5 percent in the transition economies of Europe; 3 percent in the CIS, where a return to positive growth is expected from 1996; and 5.6 percent in the developing countries.

World economic growth is expected to be driven to a large extent by dynamic trade. World merchandise exports are forecast to expand by about 10 percent per year (7.5 percent at constant prices) with the developing countries, including those of South and East Asia, showing the fastest growth in both exports and imports. Some improvement is expected in the developing countries' trade balances, more markedly those of Latin America and the Caribbean.

A less polarized regional pattern of economic performance is expected to emerge in 1996-98, with the fastest growing economies (South and East Asia and China) moderating their rate of expansion and the low-growth ones (mainly in Africa) accelerating theirs. Nevertheless, the gap between fast- and slow-growing economies is expected to remain wide. Those economies better integrated into the world economy should be better able to benefit from the overall expansion of trade and financial flows. Conversely the poorest countries, which also tend to be those less integrated and less exposed to external competition, would benefit less from the improved environment. Another factor influencing performance differential across regions is likely to be the direction of their trade links. In particular, Asia and Africa would benefit relatively more from the rising economic dynamism of Japan and Europe, their main trading counterparts, while the slower growth in the United States would negatively affect Latin America and the Caribbean.

A factor of considerable importance for the economic prospects of the developing countries will be the future course of commodity prices. The strengthening in prices of many agricultural commodities in 1994 and 1995 has resulted in large windfall gains to many developing countries. However, the longer-term outlook is for a gradual weakening of these prices. Their surge was caused by various factors of which only one the recovery in the industrialized countries - may be expected to continue exerting a positive influence. The other factors that played a greater role in the price surge, however, were transient in nature: production shortfalls caused by bad weather coinciding with low levels of stocks and supply adjustments to earlier poor market conditions. The World Bank projections (incorporated as basic assumptions in Project LINK forecasts) point to a 2.5 percent yearly decline in the prices of agricultural commodities and a 5-6 percent yearly decline in those of beverages between 1996 and 2004. Only timber is expected to appreciate, by about 2 percent a year.

Figure 3

Agricultural outlook

Figure 4 summarizes Project LINK forecasts for overall and agricultural output, exports and imports. Noteworthy features include:

Figure 4


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