|No.1, April 2005
|global information and early warning system on food and agriculture(GIEWS)
Other relevant agricultural commodities
Forty three developing countries depend on exports of a single agricultural commodity for more than 20 percent of their total revenues from merchandise exports. Most of them suffer from widespread poverty, with more than three-quarters classified as least developed countries. Most common among the commodities they depend on are coffee, cocoa, cotton, sugar and bananas1/. For non oil-exporting countries, agricultural exports represent the mainstay of foreign exchange earnings. Nearly all of Malawi’s agricultural exports, for example, come from tobacco and tea. Benin depends on cotton for over 80 percent of its merchandise export earnings. Ethiopia relies on coffee for over 70 percent of agricultural exports. Cuba’s agricultural exports are about one-third from sugar, while bananas make up 30 percent of Ecuador’s agricultural export earnings. The following section of Food Outlook provides a brief overview of price trends and other developments for these commodities.
World banana prices recovered in 2004 from their low level of 2003 due to a number of factors. Banana demand increased in the northern hemisphere because of cool weather and reduced competition from summer fruits in the wake of lower local harvests. The rise in the cost of sea transportation also contributed to increasing import prices. Ten new-member countries joined the EU in May 2004 and their banana imports have become subjected to the EU’s tariff-quota system. Whereas bananas entered these countries freely until then, they are now imported under a quota that is lower than historical imports. As a result, prices have substantially increased in Europe. Export prices further rose in the first quarter of 2005, as bad weather curtailed supply in several Latin American countries while demand remained high.
Monthly ISA prices averaged US 7.17 cents per pound from January to December 2004, and increased to an average US 9.10 cents per pound in February 2005 on the back of strong market fundamentals. Preliminary harvest returns indicate a continued shortfall in supplies during 2005 largely due to a second consecutive year of unfavourable weather in India and rising import demand for both India and China.
The New York Board of Trade contract No. 11 prices in January indicate a 20 percent increase over the annual average for 2004, further underpinning the expected supply shortfall for at least the first six months of 2005.
Significant oversupply and sluggish demand growth in the world market resulted in coffee prices falling by 58 percent between 1998 and 2001 to an all time low of US 45.67 cents per pound. Prices have remained weak since and although some rises occurred in the interim period, it was only until February 2005 that prices actually reached the same level they averaged in 1999 of more than US 85 cents per pound. Preliminary returns point to a similar crop size in 2004/2005 as that harvested in 2003/04, and a continued upward trend in prices. The challenge for the coffee industry is how to sustain these better market conditions to avoid a return to the boom and bust cycles. Structural changes have occurred in the coffee market as a result of depressed conditions including the exit from the industry of higher cost producers and several major developments in the retail sector, including auctions of gourmet beans and increasing quantities of fair traded coffee beans being sold. The challenge for the industry is to encourage such initiative in order to sustain remunerative returns to producers and stimulate global demand.
After recovering from an all time low price of US 40 cents per pound in 2000, cocoa bean prices doubled in 2002 and remained steady at more than US 79 cents in 2003 as a result of reduced production and stock levels. A reversal in trend occurred in 2004 when an estimated surplus of 240 000 tonnes, the highest in 14 years, was realized. This led to prices declining to a little over US 70 cents per pound in 2004. Crop forecast for 2004/2005 indicate a continued upward trend in production along with exports. However, recent difficulties with shipments from West Africa, have led to a slight strengthening in prices in February 2005.
Despite record production in the past three years, tea prices remained relatively stable. Most of the gains were largely due to the strengthening of the Indian Rupee relative to the US dollar. The FAO Composite Price averaged US$1.65 per kg in 2004, an increase of 9 percent over the 2003 average of US$1.51 per kg. The highest monthly average was achieved in September 2004 when the FAO Composite Price reached US$1.77 per kg. In January 2005 the FAO composite price fell slightly to US$1.60 per kg, reflecting seasonal demand, but because of colder weather than normal in traditional tea markets of Europe and the Russian Federation, prices trended higher and were 3 percent more than they averaged in January 2004. Tea processing and packaging is a growing trend among tea producing countries as part of the value addition strategy aimed at increasing foreign exchange earnings. Kenya has increased the volume of value-added tea exports from below 5 percent of global sales to about 12 percent between 2002 and 2004. Similarly, major supermarket chains in Europe seek to enter into partnerships to process their own branded tea in producing countries as demand for specialty and high quality products is on the rise in major consuming developed countries.
The Cotlook ‘A’ Index, an indicator of world cotton prices, further weakened in late 2004. In November and December in 2004, the price dropped below US$0.5 per lb (US$1.12 per kg) which was about 47 percent lower than its level in November 2003. The price decline was precipitated by record output in the major cotton producing countries (Brazil, China, India, Pakistan and the United States – which together account for more than 70 percent of world production). Global output amounted to 25.6 million tonnes for the 2004/05 season, 20 percent more than the previous year with world supply significantly surpassing demand. World cotton prices have been recovering in the first three months of 2005 mostly due to expectations of lower production in 2005/06, following reduced plantings in response to low prices at sowing time.
1. The State of Agricultural Commodity Markets, FAO, 2004.