UNITED NATIONS
CONFERENCE ON TRADE AND
DEVELOPMENT (UNCTAD)
CONFÉRENCE DES NATIONS
UNIES SUR LE COMMERCE ET LE
DÉVELOPPEMENT (CNUCED)
Global economic crisis, commodity prices
and development implications
[presented @ ATN12, Accra, August’09]
Michael Herrmann
Economic Affairs Officer
Macroeconomics and Development Policies
UNCTAD, Geneva, Switzerland
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)
World
Developed economies
Developing economies
Africa
Asia
Latin America
Middle East
IMF WEO, April 2008 IMF, WEO, April 2009
2009
2008
2009
2008
-1.3
3.2
3.8
3.7
-3.8
0.9
1.3
1.3
1.6
6.1
6.6
6.7
2.0
5.2
6.4
6.3
4.8
7.7
8.4
8.2
-1.5
4.2
3.6
4.4
2.5
5.9
6.1
6.1
Note: 2008 are estimates, 2009 are projections
Difference
2009
2008
-5.1
-0.5
-5.1
-0.4
-5.0
-0.6
-4.4
-1.1
-3.6
-0.5
-5.1
-0.2
-3.6
-0.2
Recent trends in commodity prices:
Effect of global economic crisis
Long-term price developments of selected commodity groups, 1970 -2009 (January)
Agricultural raw materials
350
300
300
250
250
Index, 2000=100
350
200
150
200
150
100
50
50
0
0
Period average
Index, 2000=100
Linear (Index, 2000=100)
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
Ja 06
n2
00
9
100
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
Ja 06
n2
00
9
Index, 2000=100
All commodities
Period average
Index, 2000=100
Linear (Index, 2000=100)
Recent trends in commodity prices:
Effect of global economic crisis
Long-term price developments of selected commodity groups, 1970 -2009 (January)
Minerals, ores and metals
350
300
300
250
250
Index, 2000=100
350
200
150
200
150
100
50
50
0
0
Period average
Index, 2000=100
Linear (Index, 2000=100)
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
Ja 06
n2
00
9
100
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
Ja 06
n2
00
9
Index, 2000=100
Food
Period average
Index, 2000=100
Linear (Index, 2000=100)
Recent trends in commodity prices:
Effect of global economic crisis
Long-term price developments of selected commodity groups, 1970 -2009 (January)
Crude oil
350
300
300
250
250
Index, 2000=100
350
200
150
100
200
150
100
50
0
0
Period average
Index, 2000=100
Linear (Index, 2000=100)
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
Ja 06
n2
00
9
50
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
19
97
20
00
20
03
20
Ja 06
n2
00
9
Index, 2000=100
Vegetable oilseeds and oils
Period average
Index, 2000=100
Linear (Index, 2000=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 prices
Price 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
Latin Am erica
1800
190
1700
Export volume
180
1600
700
110
600
100
500
170
1500
1400
160
400
90
300
80
1300
150
200
1200
Purchasing pow er
of exports
1100
140
70
100
0
1000
130
60
1980
1984
1988
900
800
1992
1996
2000
2004
Africa
Terms of trade
(right scale)
120
700
110
700
110
600
100
600
100
500
90
400
500
90
400
300
300
80
80
200
200
100
0
1980
1984
1988
1992
1996
2000
2004
70
70
100
60
0
60
1980
1984
1988
1992
1996
2000
2004
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? Passthrough 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? Productivecapacities 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.
Sizing opportunity of commodity boom:
Agricultural sector:
Change of agricultural labor and land productivity,
1980-1985 and 2000-2005
(Per cent)
149.2
49.6
35.3
22.3
27.6
16.9
16.9
Agriculture value added per agricultural worker
(constant 2000 USD)
SubSaharan
Africa
Least
developed
countries
Developing
countries
Developed
countries
SubSaharan
Africa
Least
developed
countries
Developing
countries
Developed
countries
6.4
Cereal yields (kg per hectare)
Sizing opportunity of commodity boom:
Agricultural sector:
• Rise of agricultural output has been negatively influenced by
– Underinvestment in agriculture by many developing countries (antirural 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 biotech, organic agriculture has great potential).
I NDICATORS OF AGRICUL TURAL LAND RESOURCES IN LDC S
Land in
Population
Irrigated
use
on fragile
land
(% of
potential
land
(% of total
arable land) population)
1994
1994
(% of total
Agricultural land
Total fertilizers
per agricultural workera
consumption
(hectares per worker)
(kilograms per hectare
agricultural
land)
land)
2000–
2003
1980–
2000–
1983
2003
% change
between 1980-3
1980–
2000–
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
130
20-30
0.9
0.6
0.4
-33.3
1.3
2.4
6
30-50
0.0
1.9
1.6
-15.8
0.5
0.3
Burundi
Central African Republic
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
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
160
30-50
0.1
1.4
1.2
-14.3
15.3
30.6
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
259
30-50
0.5
0.4
0.3
-25.0
0.5
3.8
Eritrea
Lesotho
Liberia
Rwanda
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
20-30
0.4
2.5
1.7
-32.0
15.3
8.4
14
Sizing opportunity of commodity boom:
Agricultural sector:
Agricultural research intensity in LDCs and other developing countries
(Public investment in agriculture as % of output in agriculture)
Sizing opportunity of commodity boom:
Agricultural sector:
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)
11
16
21
A. Distribution of total bilateral ODA
(Per cent of total ODA)
24
22
4
6
12
8
5
24
32
18
34
20
5
4
7
65
52
56
59
1990-1995
1996-2001
51
44
1990-1995
1996-2001
2002-2006
2002-2006
Production Sectors
Developmental Aid
Humanitarian Aid
Economic Infrastructure & Services
Action Relating to Debt
Administrative Costs
Social Infrastructure & Services
Other
Conclusion:
Rebalancing development priorities and aid
Total bilateral ODA to agriculture,
1967-2007
(DAC commitments)
6000
14
Million USD, current
10
4000
8
3000
6
2000
4
1000
2
0
0
1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
Agriculture (million USD, current)
Agriculture (% total)
% total DAC commitments
12
5000
Conclusion:
Rebalancing development priorities and aid
STI-related aid to LDCs
(Commitments, average annual)
% total aid
commitments
$, million
1998-2000
Total research
Agricultural research
Industrial technology and R&D
Medical research
Environmental research
Advanced and specific human skills
Agricultural extension
Agricultural education and training
Vocational training
Technical and managerial skills
Higher education
Research institutions
85
65
1
5
1
329
14
23
67
16
141
10
2003-2005
87
32
7
26
16
740
12
10
99
16
428
37
1998-2000
0.5
0.4
0.0
0.0
0.0
1.8
0.1
0.1
0.4
0.1
0.8
0.1
2003-2005
0.3
0.1
0.0
0.1
0.1
2.4
0.0
0.0
0.3
0.1
1.4
0.1
Agriculture research, extension and education: US$ 54 million (0.1% aid)
Governance: US$ 1.3 billion (4.2% aid)