Global economic crisis, commodity prices and development implications [ presented @ ATN12, Accra,...

Global economic crisis, commodity prices and development implications

[presented @ ATN12, Accra, August’09]

Michael HerrmannEconomic Affairs Officer

Macroeconomics and Development PoliciesUNCTAD, Geneva, Switzerland

UNITED NATIONS

CONFERENCE ON TRADE AND

DEVELOPMENT (UNCTAD)

CONFÉRENCE DES NATIONS

UNIES SUR LE COMMERCE ET LE

DÉVELOPPEMENT (CNUCED)

This presentation

• Recent trends in commodity prices• Medium-term outlook for commodity prices• Addressing instability of commodity prices• Sizing opportunity of commodity boom

– Extractive industries– Agricultural sector

• Conclusion

Recent trends in commodity prices: Effect of global economic crisis

Real GDP growth (annual percent change)

2008 2009 2008 2009 2008 2009World 3.7 3.8 3.2 -1.3 -0.5 -5.1

Developed economies 1.3 1.3 0.9 -3.8 -0.4 -5.1Developing economies 6.7 6.6 6.1 1.6 -0.6 -5.0

Africa 6.3 6.4 5.2 2.0 -1.1 -4.4Asia 8.2 8.4 7.7 4.8 -0.5 -3.6Latin America 4.4 3.6 4.2 -1.5 -0.2 -5.1Middle East 6.1 6.1 5.9 2.5 -0.2 -3.6

Note: 2008 are estimates, 2009 are projections

IMF WEO, April 2008 IMF, WEO, April 2009 Difference


Long-term price developments of selected commodity groups, 1970 -2009 (January)

All commodities

0

50

100

150

200

250

300

350

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

Jan2

009

Ind

ex, 2

000=

100

Period average Index, 2000=100 Linear (Index, 2000=100)

Agricultural raw materials

0

50

100

150

200

250

300

350

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

Jan2

009

Ind

ex, 2

000=

100




Food

0

50

100

150

200

250

300

350

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

Jan2

009

Ind

ex, 2

000=

100


Minerals, ores and metals

0

50

100

150

200

250

300

350

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

Jan2

009

Ind

ex, 2

000=

100




Vegetable oilseeds and oils

0

50

100

150

200

250

300

350

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

Jan2

009

Ind

ex, 2

000=

100


Crude oil

0

50

100

150

200

250

300

350

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

Jan2

009

Ind

ex, 2

000=

100


Medium-term outlook for commodity prices:Demand likely to recover

• Population growth remains high, especially in developing economies– High demand for staple foods, and other commodities.

• Economic growth will recover, especially in emerging economies– High demand for agricultural goods, metals, minerals, ores, oil.

• Household incomes will rise, especially in emerging market economies– Rising demand for meat, and stable foods that serve as fodder.– Rising competition over scarce agricultural land.

• Biofuel use will rise, especially in developed economies– Rising demand for agricultural goods that serve as biofuel– Rising competition over scarce agricultural land.

Medium-term outlook for commodity prices:Supply likely to remain sluggish

• In extractive industries (metals, minerals, ores and crude oil), exploration has often been put hold, exploitation requires time.– Supply is likely to respond only slowly to rising demand.

• In agricultural sector (agricultural raw materials and food), expansion of production is limited, intensification of production requires time.– Supply is likely to respond slowly to rising demand

Addressing instability of commodity pricesPrice trends and forecasts for cocoa, coffee, copper and cotton, 1970-1990

Source: Deaton and Miller (1996)

Addressing instability of commodity prices

• Rational for international commodity policy– High prices are bad for consumers/ importers (revenues).– Low prices are bad for producers/ exporters (price push).

• Shortcomings of international commodity agreements– Limited focus on promoting higher prices (no price ceilings). – Management is difficult (collective action problems).

• Shortcomings of insurance schemes– Focus on income stabilization (price volatility not addressed) – Limited use by small producers (complex instruments).

• Diversification of economic activity– Most promising insurance against unstable and falling

commodity prices export revenues, and negative economic shocks.

• Discouragement of commodity speculation– Speculation explains part of the recent commodity price

variations.

Sizing the opportunities of commodity boom:Key challenge

East and South Asia

0

100

200

300

400

500

600

700

800

900

1 000

1 100

1 200

1 300

1 400

1 500

1 600

1 700

1 800

1980 1984 1988 1992 1996 2000 2004

60

70

80

90

100

110

120

130

140

150

160

170

180

190

Export volume

Purchasing pow er

of exports

Terms of trade

(right scale)

Latin America

0

100

200

300

400

500

600

700

1980 1984 1988 1992 1996 2000 2004

60

70

80

90

100

110

Africa

0

100

200

300

400

500

600

700

1980 1984 1988 1992 1996 2000 2004

60

70

80

90

100

110

Sizing opportunity of commodity boom:Extractive industries

• Use of mineral rents (much discussed). Governments of resource-rich countries must make better use of mineral rents. – Assurance of transparency, accountability. – Avoidance of corruption.

• Share in mineral rents (often neglected). Governments of resource-rich countries would benefit from a higher share in mineral rents. – Negotiation of better contracts with (foreign) investors (auctions).– Renegotiating contracts with (foreign) investors (some successes).

• Linkages with the local economy (often neglected). Resource-rich economies benefit from stronger linkages.– Creation of more and more productive and lucrative employment. – Promotion of knowledge and technology transfer.– Sourcing from local enterprises.

Sizing opportunity of commodity boom:Agricultural sector:

• Are positive price signals passed on to producers? Pass-through of rising international prices to farm gate depends on– Number of local traders (decreases with distance to main

market). – Number of international traders/ retail chains (varies by

commodity).– Bargaining power of local producers (rises with output).

• Can producers respond to price signals? Productive-capacities of producers is often low, owing to – Lack of land reforms/ property rights. – Limited access to credit.– Limited access to know-how and technologies. – Limited capacity to ensure product standards.– Limited capacity to market products.– Constraints on shipping.


Change of agricultural labor and land productivity, 1980-1985 and 2000-2005

(Per cent)

149.2

49.6

22.316.9

35.327.6

16.96.4

De

velo

pe

dco

un

trie

s

De

velo

pin

gco

un

trie

s

Le

ast

de

velo

pe

dco

un

trie

s

Su

b-

Sa

ha

ran

Afr

ica

De

velo

pe

dco

un

trie

s

De

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pin

gco

un

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s

Le

ast

de

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dco

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b-

Sa

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Afr

ica

Agriculture value added per agricultural worker(constant 2000 USD)

Cereal yields (kg per hectare)


• Rise of agricultural output has been negatively influenced by– Underinvestment in agriculture by many developing countries (anti-

rural bias). – Structural adjustment programmes implemented by low-income

countries (decrease of government spending on agricultural R&D and rural infrastructure, down-sizing of development banks, abolition of marketing boards and extension schemes, liberalization of markets).

– Trade-distorting agricultural support in many advanced countries (import surges by developing countries).

• Rise of agricultural output requires– Intensification rather than extension (because limited availability of

prime agricultural land, and negative effects of deforestation).– Intensification/ productivity increase requires reversal of past policies

(much can be achieved through conventional means rather than bio-tech, organic agriculture has great potential).

INDICATORS OF AGRICULTURAL LAND RESOURCES IN LDCS

Land in Population Irrigated Agricultural land Total fertilizers

use on fragile land per agricultural workera consumption

(% of land (% of total (hectares per worker) (kilograms per hectare

potential (% of total agricultural land)

arable land) population) land)

1994 1994 2000– 1980– 2000– % change 1980– 2000–

2003 1983 2003 between 1980- 3 1983 2003

and 2000- 3

Angola 6 30- 50 0.1 1.2 0.8 - 33.3 3.1 0.1

Benin 26 30- 50 0.4 1.4 1.8 28.6 1.9 13.9

Burkina Faso 24 50- 70 0.2 0.8 0.8 0.0 3.3 3.0

Burundi 130 20- 30 0.9 0.6 0.4 - 33.3 1.3 2.4

Central African Republic 6 30- 50 0.0 1.9 1.6 - 15.8 0.5 0.3

Chad 15 30- 50 0.1 1.6 1.3 - 18.8 1.3 4.9

Dem. Rep. of Congo 3 50- 70 0.0 0.8 0.6 - 25.0 1.1 0.6

Djibouti .. .. 0.1 0.0 0.0 0.0 .. ..

Equatorial Guinea .. 30- 50 2.7 1.7 - 37.0 0.1 0.0

Eritrea 201 >70 0.3 .. 0.4 .. .. 11.8

Ethiopia 40 30- 50 0.9 .. 0.5 .. .. 13.5

Gambia 22 30- 50 0.3 0.6 0.6 0.0 11.4 2.6

Guinea 20 30- 50 0.8 0.5 0.5 0.0 0.4 1.9

Guinea- Bissau 10 20- 30 1.5 1.0 1.1 10.0 2.5 4.4

Lesotho 160 30- 50 0.1 1.4 1.2 - 14.3 15.3 30.6

Liberia 7 20- 30 0.1 1.0 0.7 - 30.0 5.3 0.0

Madagascar 10 30- 20 3.9 0.8 0.6 - 25.0 3.7 2.6

Malawi 51 .. 1.3 0.6 0.5 - 16.7 21.3 37.7

Mali 10 50- 70 0.7 0.6 1.0 66.7 5.4 8.8

Mauritania 66 30- 50 0.1 0.4 0.8 100.0 2.0 3.9

Mozambique 4 20- 30 0.2 0.6 0.6 0.0 9.4 5.0

Niger .. >70 0.2 3.9 3.2 - 17.9 0.3 0.3

Rwanda 259 30- 50 0.5 0.4 0.3 - 25.0 0.5 3.8

Senegal .. 30- 50 1.4 1.1 0.8 - 27.3 8.6 13.7

Sierra Leone 35 30- 50 1.1 0.6 0.6 0.0 3.3 0.4

Somalia 90 50- 70 0.5 0.4 0.4 0.0 1.5 0.5

Sudan 14 50- 70 1.4 2.3 2.2 - 4.3 5.6 3.9

Togo 83 20- 30 0.2 2.6 2.2 - 15.4 1.3 7.1

Uganda 84 30- 50 0.1 1.0 0.8 - 20.0 0.1 1.0

United Rep. of Tanzania 16 30- 50 0.4 0.5 0.3 - 40.0 7.2 2.5

Zambia 14 20- 30 0.4 2.5 1.7 - 32.0 15.3 8.4


Agricultural research intensity in LDCs and other developing countries (Public investment in agriculture as % of output in agriculture)


AGRICULTURE: SHARE OF BANK LOANS, VALUE ADDED AND LABOR FORCE IN TOTAL, SELECTED AFRICAN COUNTRIES

(Per cent)

Conclusion:Commodity-dependence must not be curse

Rethink classical development strategies.Promote diversification in commodity sector.• Increasing share in and better use of mineral rents.

– Imperative of transparency and accountability (discourage corruption).– Priorities in public spending/ development and poverty reduction strategies

(ideally to encourage economic diversification)

• Development of productive capacities in general.– Access to finance (especially for small and medium-size firms and farms).– Development of infrastructure (in urban and rural areas, especially

transport and utilities).– Strengthening of managerial competencies (– Promotion of enterprise/ sector linkages (vertical/ horizontal integration,

transfer/ sharing of know-how and technology).

• Development of agriculture where feasible.– Implementation of land reforms (large potential to increase productivity on

small plots; even larger potential to increase productivity on large plots).– Encouragement of producer associations (transfer/sharing of know-how

and technology, joint marketing, joint bargaining).

Conclusion:Rebalancing development priorities and aid

CHANGE IN ODA COMMITTED BY OECD/ DAC COUNTRIES TO DEVELOPING COUNTRIES, 1990--1995, 1996--2001 AND 2002--2006

B. Distribution of developmental ODA (Per cent of developmental ODA)

4452

65

34

32

24

2116

11

1990-1995 1996-2001 2002-2006

Production Sectors

Economic Infrastructure & Services

Social Infrastructure & Services

A. Distribution of total bilateral ODA (Per cent of total ODA)

56 5951

45

7

12 8 20

4 6

5

24 2218

1990-1995 1996-2001 2002-2006

Developmental Aid Humanitarian Aid

Action Relating to Debt Administrative Costs

Other


Total bilateral ODA to agriculture, 1967-2007

(DAC commitments)

0

1000

2000

3000

4000

5000

6000

1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007

Mil

lio

n U

SD

, cu

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t

0

2

4

6

8

10

12

14

% t

ota

l D

AC

co

mm

itm

ents

Agriculture (million USD, current) Agriculture (% total)


Agriculture research, extension and education: US$ 54 million (0.1% aid)

Governance: US$ 1.3 billion (4.2% aid)

1998-2000 2003-2005 1998-2000 2003-2005

Total research 85 87 0.5 0.3Agricultural research 65 32 0.4 0.1Industrial technology and R&D 1 7 0.0 0.0Medical research 5 26 0.0 0.1Environmental research 1 16 0.0 0.1

Advanced and specific human skills 329 740 1.8 2.4Agricultural extension 14 12 0.1 0.0Agricultural education and training 23 10 0.1 0.0Vocational training 67 99 0.4 0.3Technical and managerial skills 16 16 0.1 0.1Higher education 141 428 0.8 1.4Research institutions 10 37 0.1 0.1

$, million% total aid

commitments

STI-related aid to LDCs(Commitments, average annual)

Global economic crisis, commodity prices and development implications [ presented @ ATN12, Accra,...

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