1887

Declining Agricultural Commodity Prices

Productivity Gain or Immiserising Growth?

image of Declining Agricultural Commodity Prices

What are the best strategic options for developing country governments to improve rural living standards through agricultural growth? Tropical commodities such as coffee, sugar and rice are experiencing a longterm decline in prices. This presents a particular problem for producers, since these commodities have traditionally formed the core of agricultural exports of most developing countries since the 1960s.The European Commission has argued comfortingly that declining prices are driven mainly by productivity gains, but the analysis presented here suggests otherwise. Instead the authors find evidence that the difference in productivity levels between countries is increasing, with some falling further and further behind. Diversification into higher valueadding agricultural industries will be difficult without dramatic improvements to rural infrastructure and institutional support. Since these improvements are unlikely to be achieved, the authors conclude that the major objective for agricultural producers in developing countries must remain productivity gains in existing commodity industries.

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Background to the Study

The international community accepts that a secular decline has occurred in the terms of trade of most commodities produced by developing countries, a trend that is confirmed in this study. Yet it has been more or less indifferent to the fate of commodity producers in these countries, particularly since the collapse of international commodity agreements (such as the International Coffee Agreement and the International Cocoa Agreement, given our special interest in agricultural commodities). Attempts have been made, albeit not very successfully, to reduce the degree of commodity price fluctuations.

English

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