Declining Agricultural Commodity Prices

Productivity Gain or Immiserising Growth?

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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.




Indices of export unit values of the selected tropical commodities aggregated across all countries in the sample for the period 1970–2002 are summarised in Table 5. Annual rates of price decline with standard errors were estimated by taking the logarithm of the dependent variable, export unit values, and regressing it on a trend variable. Indices for individual countries are presented in Appendix 2.


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