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.



Methods of Analysis

Most of the inputs used in developing country agriculture are fixed in the short run, offering limited opportunity to producers to alter their resource mix in production. The best examples of these types of inputs are land, operator and family labour, irrigation equipment and most other plant and machinery items. To this list we should add those tree crops that are of special interest in this study: coffee trees, cocoa trees, coconut palms, oil palms and, to some extent, sugar crops that tend to be ratooned for a few years.


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