Export earnings from agricultural commodities fall as grain prices decline

Global agricultural trade in primary commodities dropped in 1997, largely as a result of a decrease in the price of cereals, according to FAO's annual Commodity Market Review 1997-98. The worldwide value of exports of all principal agricultural products, excluding fishery and forestry products, declined by more than 2 percent in 1997 compared to an increase of 3 percent the year before and large gains in the previous two years. The decline is likely to continue in 1998 in part because of weak prices and reduced demand from economically troubled Asia.

A record increase in the export of tropical beverages - coffee in particular - contributed to the 3 percent jump in developing countries' export earnings for 1997. In developed countries, total export earnings decreased by about 10 percent, with earnings from cereals falling hardest at 30 percent. Total global agricultural trade in 1997 declined by more than 2 percent.

"Developing countries came out better in terms of export earnings than the developed countries," said Jim Greenfield, Director of the Commodities and Trade Division, which issues the Review.

In developed countries, export earnings were estimated to have fallen by nearly 10 percent in 1997, in sharp contrast to the 4 percent growth rate in 1996, as grain prices reverted to their normal levels from the spike of 1996. Export earnings from cereals plummeted by an estimated 30 percent. Developing countries, on the other hand, saw their export earnings in 1997 climb by 3 percent, thanks to record prices for one of the world's favourite beverages - coffee.

Substantial gains in the tropical beverages cocoa, coffee and tea were credited with offsetting losses elsewhere in the developing world. "Export earnings from the tropical beverages rose by 26 percent, over 80 percent of the gains due to coffee alone," according to the Review. In late May 1997, the world coffee price reached the highest level in over a decade. The price rise was driven by strong demand and the tight supply of Arabica coffee, which accounts for about 70 percent of all coffee produced globally and more than 60 percent of world's coffee trade. World exports rose by almost 15 percent to 4.5 million tonnes in 1996/97 as producers increased their exports to take advantage of the high price. The largest increases occurred in Indonesia, 63 percent, and Uganda, 51 percent.

But other commodities exported by developing countries did not fare so well, according to the report. Export earnings from agricultural raw materials, the second most important commodity group for developing countries, declined by 9 percent in 1997. And earnings from all three cereals - wheat, rice and coarse grains - fell by some 20 percent.

Possible consequences of the Asian financial turmoil on global agricultural commodity markets is a special feature of the first part of the Review. The sharp income contraction in Asia since July 1997 and the large depreciation of the currencies - at 78 percent, the Indonesian rupiah fell hardest between July 1997 and the second half of January 1998 - were expected to reduce the region's import demand. At the same time, the currency depreciation would raise the region's export competitiveness. But weather-related production shortfalls in some countries - mainly as a result of the havoc caused by El Nino - and the severe squeeze on working capital would likely reduce somewhat countries' ability to take full advantage of this increased competitiveness.

The Review, however, did not expect the crisis to have a great impact on most agricultural commodities at the global level. "The effects of the crisis itself will be moderate, except for a few commodities," said Greenfield. He identified maize, bovine meat, soybean meal, temperate fruit, cotton and hides and skins as some of the import commodities expected to be most affected. Among the export commodities most affected would be tropical fruit and rubber.

Agricultural trade prospects of the 70 African, Caribbean and Pacific (ACP) countries that are parties to the Lome Convention, a preferential trading agreement between the European Union and the ACP countries due to expire in the year 2000, is another special focus in this year's Review. Negotiations for the continuation of the Convention are set to begin later this year.

The first part of the Review provides a synthesis of key developments in the global economy, commodity prices and export earnings and other developments affecting international trade in agriculture. The second part looks at the current world market situation and short-term outlook for 21 individual commodities or commodity groups.

Well-illustrated with over 30 tables, the 91-page Commodity Market Review 1997-98 is available in Arabic, English, French and Spanish, and will be published later in the year in Japanese. The Review is also available electronically on the Web site of the Commodities and Trade Division.

2 July 1998

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