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Diversification, the source of growth in earnings from agricultural exports

Diversification away from selected main commodities shown in Table 5 has been the main cause for the growth in the value of exports of agricultural products in the past decade. Thus, while overall agricultural exports grew in real terms by 2 percent annually from 1979-81 to 1992, the category "other agricultural exports" in Table 5, and reproduced in the adjoining table, grew by 5 percent a year and accounted for all of the growth in the total. These "other agricultural exports" comprise: (1) those directly linked to commodities specified in Table 5, such as chocolate products; and (2) others not itemized in Table 5, such as roots and tubers, pulses and nuts and processed forms of these. The stronger growth was in group (1) especially in confectionery and in the cereal products, particularly pastry products, breakfast cereals and infant foods.

Analysis of growth in agricultural exports 1979-81 to 1992

Among the commodities in group (2), those not listed in Table 5, major contributions to growth came from: fruits and vegetables especially tomatoes, mushrooms, chilies and green peppers; pet food, corn gluten and food wastes used as feed; and cut flowers, the major item in the crude animal and vegetable materials category shown in the adjoining table.

The proportion of agricultural exports accounted for by the selected main commodities shown in Table 5 declined from 73 percent in the years 1979-81 to 58 percent in 1992. However, these statistics overstate the decline in the contribution of these selected commodities. Aggregating exports of these selected commodities with those of products derived from them, group (1) in the adjoining table, shows an increase in their value from $179 000 million to $250 000 million over the period. The share of this aggregate in total agricultural exports only fell from 80 percent in 1979-81 to 71 percent in 1992. Thus, these selected commodities have continued to make a major contribution to agricultural exports, but the form of export has changed from raw to more value-added processed products. Further, this process of vertical diversification is understated in these data as: (i) Within the categories listed in Table 5 there has also been a shift from raw to more processed products. Exports of raw sugar, for example, declined greatly over the period, partly offset by expansion of refined sugar exports. Similarly, the value of oilseed exports hardly increased in contrast to the rise in that of vegetable oils, oilseed cakes and meals. (ii) The processing of some agricultural commodities transformed them into products not categorized as agricultural, such as cotton into textiles, jute into jute products and hides into leather and shoes, and hence their exclusion from these tables. Thus, the commodities listed in Table 5 have in fact been the source of raw material for considerable growth in export earnings over the period from 1979-81 to 1992; the development being from export in raw form to export in more processed and more value-added forms.

It is also noteworthy that commodities not mentioned in Table 5 have grown greatly in importance, rising from 20 to 29 percent of agricultural exports over the period from 1979-81 to 1992. This process of horizontal diversification, by increasing the spread of products exported, has enabled some countries to move away from being overdependent on a few products. Some major new exports have emerged such as: pistachio nuts, where exports have increased from $56 million to $500 million over the period; mangoes up from $28 million to $206 million; and kiwi fruit up from $32 million to $610 million. In addition, it is estimated that exports of cut flowers exceeded $14 000 million in 1992, more than double the figure in the years 1979-81.

Commodity markets in summary

Beverages, sugar, bananas and pepper

Production of coffee was expected to rise by 6 percent in 1993/94. This mainly reflected increased production in Brazil with favourable weather and new trees entering production. Crop reductions were expected in many other countries. These stemmed from many factors but, mainly, from the past several years of very depressed prices and their effect on husbandry, disease prevention and tree replacement. However, the decline in prices had spurred consumption, which otherwise might have languished with the economic recession in many of the large markets. Price reductions led to a further large decline in export earnings in 1992, of 13 percent. However, in 1993 prices recovered somewhat and in the short run were expected to rise as the operation of a new exporters' retention scheme and smaller crops would partly counteract the failure to negotiate a new ICA with economic clauses.

Cocoa consumption in 1993/94 was forecast to exceed production for the third successive year. With consumption continuing to increase slowly and output thought unlikely to recover in the short term there are prospects for continuing deficits. Stocks fell considerably from their previously high levels and this, together with the likelihood of future deficits has lifted prices. Prices should also be sustained by the operation of a new Cocoa Agreement though doubts remain about its effective scope. Export earnings by developing countries declined again in 1993, by 3 percent, and they will continue to be restricted by slackness in the trade in cocoa products.

In 1993, global tea production was expected to have recovered considerably with larger crops in India, Sri Lanka, Kenya, Malawi and elsewhere in East Africa. The volume of trade was also expected to rise reflecting increased import demand especially from the countries of the former USSR and the United Kingdom. Tea prices in most markets, expressed in US dollars, rose from the levels of 1992. Some further lift in prices was expected in 1994.

World production of sugar was forecast to rise 1.4 percent in 1993/94, recovering from a 3 percent fall in the previous year. Despite the expected increase, production would still be short of global consumption, which was forecast to rise by 1.5 percent in 1994. Thus for a second year in a row, carryover stocks would be reduced by the end of 1993/94. Total exportable supplies, however, should be adequate as import demand was likely to decline. Export earnings from sugar totalled $10 600 million in 1992 and were not likely to show much expansion in 1993 as lower volume would offset the effect of somewhat higher prices.

In 1992, the global volume of banana exports declined by 1.5 percent, the first decline for ten years. Countries with the largest reductions were Ecuador and the Philippines and these were not offset by some increases by members of the UPEB group of countries. From 1 July 1993 the EC removed trade barriers between the banana markets of its members creating a single EC market. Since then prices have increased considerably in those EC markets that formerly had duty free imports.

Hurricane damage during 1993 resulted in some loss of banana production in Colombia and Honduras, which, however, is unlikely to reduce markedly the excess of export supply capacity over imports. Some further eradication of plantations in Ecuador was likely to remove areas of marginal production amounting to 20 percent of the total but with a lesser impact on output. A continuation of excess supply and depressed prices outside the EC was thus likely.

World pepper production declined in 1992, after two consecutive years of record harvests. The decline was mainly the result of a sharp drop in Brazil's output. World trade in pepper also contracted, and export earnings continued to fall due to both reduced export volumes and prices. The 1993 global pepper harvest was forecast to drop even further, as most major producing countries expected substantially lower output. Prices rose during 1993 as a result of smaller crops and some disruption in the flow of supplies to the market. White pepper prices rose far more than those for black pepper. A further sizeable increase in prices was considered to be unlikely in the short term as pepper production in Indonesia was expected to recover in 1994 and this would offset the expected reductions in output from most other major producers.

Cereals

For the world rice market 1993 was a year of uncertainty. Relatively large supplies early in the year led exporters to adopt competitive export measures to retain market shares. The United States increased its allocation of rice under its Export Enhancement Programme and its export prices fell sharply. Prices from other exporters also declined. The price reductions stimulated trade, which recovered later in the year, boosted, in particular, by Japan's temporary lifting of its import ban and the abrupt deterioration of the Asian rice crop. With this poor crop, global output of paddy fell in 1993. The late upsurge of import demand resulted in an increase in total trade in 1993 of 4 percent to 14.5 million tonnes. Due to the decline in prices, the value of export earnings from rice fell 17 percent in 1993. For 1994, expectations were for trade to rise to a record level and for international prices to recover. Stocks were expected to decline in total for the third consecutive year.

Following a strong recovery of global wheat production in 1992, import volume declined, world wheat stocks increased and international prices generally fell in 1992/93. However, the value of world wheat exports in calendar year 1992 actually rose 20 percent reflecting substantially increased prices during the first half of the year. The wheat import bill of the developing countries rose 25 percent to $10 000 million in 1992.

Supply and utilization were expected to more closely matched in 1993/94 as production in 1993 was unchanged but utilization was likely to expand. However, a further decline in import demand was anticipated to exert downward pressure on prices in general, although a likely shortage of high quality wheat was anticipated to result in much higher prices for wheat of this quality.

A sharp increase in coarse grain production in 1992, mainly in the United States, boosted export supplies in 1992/93. However, increased crops in the main importing countries, particularly the former USSR, reduced global import requirements. The enlarged supplies and the decline in import demand pushed prices down in 1992/93. Regionally, a notable exception to the overall import situation was where widespread crop losses due to drought led to increased imports. The 1992 import bill of developing countries leapt 27 percent to over $6000 million.

In 1993/94, in contrast, a much smaller crop was expected to be followed by a sharp reduction in carryover stocks, especially in the United States. A reversal in the price decline of the previous year occurred at the start of the season and was likely to be maintained. Global import demand and the volume of international trade were forecast to contract further in 1993/94, as a result of a strong recovery in production in southern Africa, reduced imports into the countries of the former USSR, and competition from feed wheat.

Other food and feed crops

Global cassava production rose substantially in 1993, mainly as a result of increased output in Africa. Global trade contracted, reflecting decreased shipments of cassava pellets to non-EC markets, including the Republic of Korea and the United States. Prices for cassava exported to the EC continued their downward trend in 1993, in line with falling feedgrain prices in the EC, and reached their lowest level for the last five years. Export earnings returned to those of years prior to the 1992 peak. The outlook for world production in 1994 was uncertain, with expectations of a contraction in the Far East but likely increases in the other regions. The tentative outlook for trade in 1994 was for a contraction reflecting an expected decline in shipment of pellets to the EC and to other destinations.

World production of pulses recovered in 1993, largely on account of a rise in output in the Far East, North America and the EC and prices for most pulses remained below the average of earlier years. Global utilization recovered from the low level of 1992 with increased food and feed consumption in the developing countries. The main change in the developed countries was some recovery in feed use which, however, remained below that of 1988-90. The volume of world trade was static but the pattern changed as exports from China and Australia expanded while those from Argentina contracted. Prospects for 1994 were for a slight decrease in global trade, resulting from reduced import demand in some developing countries and the EC, and lower export availabilities in developed countries. Downward pressure on the prices of some pulses was expected to continue.

Oils and oilmeals

The world oils and oilmeals economy continued to expand slowly in 1993. Growth in output and consumption of the two groups of commodities in the developing countries was well sustained although in some of these countries import demand was constrained by scarcity of foreign exchange. Output in the developed countries declined for oils, but increased somewhat for oilmeals, largely reflecting unfavourable weather and policy-induced reductions of plantings in the European Community. Unsettled economic and social conditions in Eastern Europe and countries of the former USSR continued to affect both production and demand for the two groups of commodities. Structural changes in these economies in transition were also a major factor in preventing the volume of world trade from expanding further in 1993, although its value may have increased reflecting higher international market prices, especially in the second half of the year.

Prospects for 1994 pointed to continued sluggish growth for oils and a decline for oilmeals. Demand for both groups of commodities was likely to suffer from foreign exchange scarcity in some importing developing countries and from a further decline in Eastern Europe and countries of the former USSR. Demand for oilmeals in the European Community was expected to shrink following changes in the CAP for grains, which would reduce the use of oilmeals in feed rations. A fall in the United States soybean crop would affect global output of oilmeals, while reduced output of soybean oil would be more than offset by increases in production of other oils, especially palm oil. On balance, the forecast volume of supplies of oils and oilmeals from the new crops did not seem to be sufficient to meet anticipated requirements for consumption. Old-crop stocks would thus be drawn upon and there would be upward pressure on prices.

Livestock products

Consumption and production of meat was little changed in 1993. Production was constrained, particularly by higher feed costs and animal disease problems. Sluggish economic growth and the emergence of new trade barriers had a negative impact on demand for imports and on the volume of trade. However, a strengthening in international prices contributed to unchanged overall export earnings.

The preliminary outlook for 1994 was for production growth and lower prices for some meats especially poultry. International trade volume was expected to recover despite a continuation of restrictive import policies.

Divergence in the evolution of demand for milk products was reflected in the course of production and international prices. Demand in the developing countries continued to increase and consumption there rose slightly more than the 3 percent expansion in production. In most of the developed countries consumption of products with a high fat content, notably butter, declined but this was partly offset by increased consumption of low fat liquid milk, cheese, and other products. Even with a one percent reduction in production there were further subsidized disposals of butter, particularly by the EC and the United States. Major recipients of these sales were countries of the former USSR where production declined again in 1993, by approximately 9 percent.

Public stocks of butter and skimmed milk powder in North America and the EC either declined to lower levels or remained close to those already achieved. International prices for most dairy products were lower than in 1992. For 1994 the only price likely to decline is that of butter reflecting the growing preference for other dairy products and the decline in demand for butter fat.

Fibres

World cotton production declined by 14 percent in 1992/93, as area contracted in response to lower prices and yields declined. Consumption rose by 2.6 percent, reducing stocks by 6 percent from their recent peak level. A decline in the volume traded, coupled with a further decline in prices, resulted in a 25 percent contraction in export earnings. While production was likely to recover in 1993/94, consumption was forecast to increase more rapidly leading to a further contraction in stocks and setting the stage for a recovery in prices. An expansion in volumes traded and a recovery in prices could result in a significant increase in the value of cotton traded in 1993/94.

World stocks of jute, kenaf and allied fibres were expected to fall sharply by the end of the 1993/94 season following two successive short crops. The recovery in prices, however, was likely to be constrained by recession in some markets and disruption of the markets of eastern Europe and the countries of the former USSR which dampened growth in demand for jute products. Exports of fibre fell for the third consecutive year in 1992/93, while exports of products maintained a slight upward trend, mainly because of rising imports into the developing countries. The combined export earnings of fibre and products also decreased again and was 13 percent below the average for 1988/89 to 1990/91.

Export earnings of all hard fibres and their manufactures rose slightly in 1993 following a 4 percent decline in 1992. International market prices for sisal recovered markedly and, while production contracted, exports recovered a little as stocks in producing countries were drawn down. Prices of sisal harvest twine, however, declined further. In 1994 an expected expansion of output of sisal and henequen would lead to a fall in prices for these fibres. Abaca production in 1993 was again constrained by drought in the Philippines and prices held the increased levels of the previous year. Attempts to expand production would, if successful, be likely to lead to some decline in prices in 1994. Production of brown coir fibre and of coir yarn expanded further in 1993 but, despite some lift in prices, the aggregate value of trade in coir and coir products was constrained by a further contraction in import demand for yarn.

Other raw materials

Prices for natural rubber fell in 1993 from the already low levels of the previous year. The INRO Daily Market Indicator Price (DMIP) remained around and even below the "must buy" level of 166 Malaysia/Singapore cents/kg most of the time. The decline was influenced not only by lower demand growth but also by the prospect of the collapse of the International Natural Rubber Agreement and the eventual liquidation of the INRO buffer stock. World production of natural rubber rose at a slower rate than in 1992, but nevertheless exceeded utilization, which was depressed in many major markets. Export earnings from natural rubber rose in 1992, but were estimated to fall in 1993 with the decline in export volumes and prices.

Early forecasts indicated that growth in demand for natural rubber would accelerate in 1994. A recovery was expected in the automobile and tyre industries in Western Europe and Japan, which had experienced recession in 1993, and expansion was also envisaged for the non-tyre sector in major consuming countries. Global production was anticipated to increase at a lower rate than in the previous two years. World consumption could exceed production, and thus prices were likely to rise.

The continued depression in global demand for hides and skins in 1993 reflected reduced consumer expenditures on leather manufactures in the major economies affected by persisting recession. Average prices of bovine hides recovered slightly in 1993 after declining in 1992. However, the value of leather and leather product exports from the major developing countries fell in 1992 for the first time in ten years. Global output of bovine hides and sheep and lambskins declined in 1993 and no significant changes were expected for 1994. With demand remaining depressed, prices for most types of hides and skins were unlikely to show any substantial increase in the short-term.

Never before had citrus supplies, in both fresh and processed forms, been higher than in 1992/93. Production was 7 percent more than in the record season of 1991/92 and amounted to the equivalent of 76 million tonnes of fresh fruit. In contrast, exports of processed products rose only 2 percent, and those of fresh fruit declined 2 percent. Factors affecting import demand included the availability of alternative products and the dampening effect of the continued recession in leading importing countries. The resultant price collapse was expected to continue at least into the first half of 1993/94 when supplies, although forecast to be somewhat less than 1992/93, at 72 million tonnes, were still considered to be larger than expected exports. However, several prospective developments were anticipated to favour a lift in prices, especially towards the second half of the season. These included structural re-adjustments in the production and processing sectors, and an expansion of demand.

Wine output in 1993/94 was expected to be 8 percent less than in the previous year mainly due to a fall in EC output. It was expected that production in the developing countries would be similar to the previous year reflecting stable production in Argentina and Chile but with a larger proportion of quality wine to boost exports. The recent tendency towards a greater proportion of quality wine in output and trade continued and price rises induced by lower output will be in quality wines. By contrast, prices of table wine declined in the early part of the 1993/94 season.

Production of tobacco continued to increase and was 6 percent greater than consumption in 1993. This followed a similar imbalance in the previous year and as a result stocks increased by 17 percent from the start of 1992 to the end of 1993. Most of the expansion in production was in the developing countries. In 1992 their exports increased in volume but declined in value. By contrast, leaf exports of the developed countries shrank in volume but gained in value. In addition, the value of cigarette exports by the developed countries continued to increase. Prices at leaf auctions fell sharply in 1993 and although exports from the developing countries were projected to rise, gains will be more than offset by the reduced prices. With stocks at the end of 1993 close to a year's consumption and some quantitative restrictions on imports, the outlook is for a continuation of depressed prices.

World fish catch marginally rises

In 1992, the global fish catch was 99 million tonnes, 2 million tonnes more than in 1991. However, this increase in production came exclusively from higher output by China, while all other major fish catching nations reported unchanged or declining catches. The quantity of fishery products entering international trade declined in 1992 but due to higher prices the total value of exports rose by 2 percent. A similar expansion in the global value of trade was estimated for 1993. The developing countries as a group maintained their 45 percent share of total exports in 1992. Imports by developed countries, accounting for 85 percent of the total. Japan alone accounted for 28 percent. Dramatic reports about the reduction in Chinese shrimp production overshadowed the market in 1993, leading to substantial price increases. Tuna catches continued to be disappointing in all of the main fishing areas and by the end of 1993 prices paid by canneries were about 40 percent above those of the same months in the previous year. Sales of groundfish in the United States in the summer and autumn recovered from the depressed levels of 1992 but were very sensitive to price changes. The octopus market was extremely depressed during 1993. Prices declined in the course of the year as the Japanese market was oversupplied. Supplies of salmon, which used to be a luxury item, became more and more abundant in the closing months of 1993 and sold for little more than cod.

Forest products

In 1992 there was a partial recovery of forest product markets after the severe decline in 1991. Global roundwood production rose by 1.5 percent mainly due to the growth of fuelwood production in the developing countries and the recovery of industrial roundwood markets in North America and some countries in Asia. Industrial roundwood production was, however, still well below the levels achieved in the late 1980s as demand for industrial roundwood and wood products remained depressed in Western Europe and Japan and continued to fall sharply in countries of the former USSR and in some Eastern European countries.

Production of paper and paperboard continued to grow but at a slower rate than in previous years. In contrast, high rates of growth continued in several developing countries in South East Asia. However the industry was characterized by both low profitability and capacity utilisation. Although production of paper continued to rise, output of wood pulp declined slightly reflecting the increasing trend to use waste paper, backed, in a number of countries, by legislative measures.

The value of trade in forest products grew by 6 percent in 1992 after two years of stagnation. Exports of coniferous sawnwood increased notably from Canada to the United States and from Scandinavia to Western Europe, favoured by the devaluation of the Swedish and Finnish currencies. Trade in tropical timber stagnated but reduced log exports were offset by increases in sawnwood, plywood and further manufactured products. Prices of mechanical wood products tended to rise but those for pulpwood and wood pulp, in Europe, were at their lowest level for many years because of the depressed demand and enlarged supplies.

In 1993 forest product markets in North American continued their strong recovery. In contrast, demand in Western Europe and Japan was depressed, and output of wood products in most Eastern European and in the countries of the former USSR continued to fall.

Prices in the United States increased sharply at the beginning of 1993 due in part to restrictions on supplies from the United States' Federal forests of the Pacific Northwest arising from environmental concerns for wildlife habitat protection. The effects spread to international markets especially those in Asia where coniferous logs and sawnwood have largely come from the United States. Prices for temperate timber in Asia escalated to unprecedented levels, which favoured exports from other countries such as Chile and New Zealand with their large areas of plantation forests. In addition further restrictions on the harvesting of tropical logs tended to lift export prices for tropical sawnwood and plywood. In the second half of 1993 prices of both temperate and tropical wood products in North America and East Asia declined but were yet some 30-40 percent above their levels in the previous year.

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