Table 3.14 Production of oilcrops: 92 developing countries, excluding China (thousand tonnes, oil equivalent)

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Sugar is a major export commodity of many developing countries. As a whole, the developing countries are large but declining net exporters. Part of the overall decline in their aggregate net exports has been due to the support and protection policies of most major developed countries (see Borrell and Duncan, 1992), and part is due to the emergence of many developing countries as growing net importers. The two developments are not, of course, independent of each other. The lower world market prices resulting from the access restrictions to the import markets of major OECD net importers, including the emergence of the EC as one of the largest net exporters, have probably contributed to the growth of imports into the developing countries. These developments can be appreciated from the data in Table 3.15.

It is expected that there will be continued strong growth of import requirements of the importing developing countries while the OECD area as a whole would continue to be a net exporter, unless policies were to change radically." Developments in the former CPEs of Europe will play a role in limiting the growth of their aggregate consumption and import demand. Their per caput consumption may decline for some time before it recovers. It is likely that in the future more of their consumption will be supplied from domestic production. This means that although the exporting developing countries could expand further their exports, the developing countries as a whole would probably see their net exports to the developed countries decline further from the present level.

The sugar sector provides one example of the increasing role of the developing countries in world commodity markets formerly dominated by the developed countries on the import demand side. If this is considered by some to contain positive elements, it is being brought about for the wrong reasons, e.g. protectionism in the developed countries and to some extent the supply constraints of some developing countries which can ill afford sugar imports, e.g. some countries in sub-Saharan Africa. But it does contain positive elements to the extent that the growth of the import requirements of the developing countries reflects the improvements in incomes, increased consumption of sugar and comparative advantage of the exporting versus the importing countries.

Concerning production of sugarcane and beet in the developing countries, the growth rate (in raw sugar equivalent) is likely to be well below that of the past, perhaps 2.2 percent p.a. to 2010 compared with 3.5 percent p.a. in the last 20 years. This reflects partly the slowdown in the growth of their own consumption of sugar and the likely continued decline in net exports to the developed countries. But it also reflects the fact that the high production growth rates of the past were related to the sizeable production increases of sugarcane for ethanol production in the world s largest sugarcane producer, Brazil. Such use is unlikely to continue to grow at anything like the past rate when it had started from nearly zero base. No further significant growth or some decline is a more probable outcome.

Table 3.15 Sugar: net trade positions, five-year averages (million tonnes, raw sugar equivalent)

Tropical beverages (coffee, cocoa, tea)

Of these three major export commodities of the developing countries, coffee and cocoa share with some other commodities (e.g. rubber) the characteristic that they are produced exclusively in the developing countries and consumed mainly in the developed countries. The latter account for 71 percent of world consumption of coffee (the same as 20 years ago) and 83 percent of that of cocoa (87 percent in 1969/71). The case of tea is different as the developing countries account for 70 percent of world consumption. Moreover, the developing countries have increased significantly their share in world consumption of tea, but there has been only modest movement in this direction for cocoa and none for coffee.

It follows that for coffee and cocoa the production and export prospects will continue to be determined for a long time by developments in the consumption of the developed countries. The prospects are that there will be only modest further growth in per caput consumption in the main developed country markets for coffee and cocoa and, with the exception of the former CPEs, none for tea (Table 3.16). In parallel, the protracted recession and foreign exchange shortages in Eastern Europe and the former USSR are unlikely to permit growth in the per caput consumption of the region, notwithstanding the generally very low levels and considerable scope for increases. Under the circumstances the growth of production and exports of the developing countries is likely to be very slow. However, things may turn out otherwise if the reforms were to lead to a sizeable part of the population of the former CPEs moving towards consumption patterns more closely resembling those of Western Europe. Therefore, the consumption projections for these countries may be on the pessimistic side, though the recovery from the recent declines may be slow and protracted.

The preceding discussion indicates that the growth of production and exports of the developing countries in these commodities is likely to be slow and below that of the past 20 years. It is noted, however, that producing and exporting more of them, particularly coffee and cocoa, would not lead to commensurate gains in export earnings and welfare if prices were to continue falling. Indeed, the experience of recent years has amply demonstrated that falls in prices led to disastrous declines in the real value of export earnings. There have been periods when exporting more did not bring benefits to the producing exporting countries as a whole, though individual countries did benefit at a cost to others. Competition among exporting countries turned out to be a negative sum game for them (for the analytics of this issue, see Panagariya and Schiff, 1990; Mabbs-Zeno and Krissoff, 1990).

In many ways the origins of the problems facing the producers and exporters of these commodities are not unlike those facing the farmers in the developed countries. Both sell the bulk of their output to markets with low price and income elasticities of demand and slow growth of overall consumption. This means that competition among producers and gains in productivity tend to drive down the prices and benefit consumers rather than raise farm incomes. But farmers in developed countries can benefit from two features of their economies and societies which are not available to the producers in the developing countries. First, in the long-term their incomes cannot be suppressed too much even in the absence of support policies because of the high opportunity cost of their labour, given income-earning opportunities in other sectors (the supply of labour and other non-land factors of production to agriculture become more price-elastic at higher levels of per caput income, Johnson, D. G., 1994b); and second, the society and governments have the means to intervene, and do so, to support farm prices and ease the process of labour transfer to other sectors; and unlike the situation in many developing countries, the virtually zero population growth eases the pressure for agriculture to provide more jobs. In addition, agriculture in the developed countries has been aided heavily to seek outlets in the more price elastic export markets for its produce, precisely those of the developing countries. Again, this is not an avenue open to the developing countries, at least not for these products.

Table 3.16 Tropical beverages and bananas

*Including mate.

Things are different for the farmers producing these commodities in many of the developing countries which depend on the very same markets as the farmers in the developed countries, though for different products. For them, the opportunity cost of their labour is often determined by their productivity in producing food, often for subsistence. So long as this is very low, as indeed it is in many developing countries with adverse resource endowments for food production and continuing rural population growth, the scope for profiting from increased export crop productivity and production remains limited (see Lewis, 1983). And, of course, the scope for government intervention to support incomes is also very limited, no matter that some developing countries have attempted to do so at heavy cost to their macroeconomic equilibria. To some extent, the above considerations can be seen as establishing an indirect link between agricultural policies in developed countries and the vicissitudes of these commodities. If such policies depress prices in world food markets, they contribute to lower returns to food production in the developing countries and tend to keep the opportunity cost of coffee and cocoa farm labour lower than it would be otherwise. (Part of the text in this subsection and Figures 3.4 and 3.5 are from Alexandratos et al., 1994.)

Developments in export volumes and earnings are depicted in Figures 3.4 and 3.5. The real export earnings of the developing countries from coffee and cocoa were in 1991 at their lowest level of the last 30 years notwithstanding significant increases in the volumes exported. (Real net export earnings are the value of net exports of developing countries at current prices deflated by the unit value index of GS exports of manufactures to the developing countries.) Therefore, the key question is what may happen to the real prices of these commodities and what policies can be put in place to halt and reverse price declines and deal with price volatility. Policy issues are discussed in Chapter 8. Here it is noted that world commodity prices, led by those for coffee, had turned sharply upwards from early 1994 onwards. Is this a signal of a permanent reversal of the price declines? The latest assessment of these trends by the World Bank states that "between 1993 and 2000, [real] coffee prices are projected to rise by nearly 50 percent, cocoa prices by almost 25 percent and tea prices by about 6 percent. Despite these rebounds, the index of beverage prices will likely not reach its 1989 level and will be less than half its peak in 1984" (World Bank, 1994a: 15).

Bananas

The developing countries produced some 45 million tonnes of bananas in 1988/ 90 and their net exports to the developed countries were 7.5 million tonnes. The bulk of production and exports is in the Latin America/Caribbean region which accounts for 80 85 percent of all exports. There is still scope for growth in consumption in the developed countries, in particular the ex-CPEs where per caput consumption levels are under 0.5 kg compared with nearly 9.0 kg in the other developed countries. Only a small part of this growth potential may materialize and imports into the ex-CPEs may only double. The developing countries' exports will continue to depend almost entirely on the growth of consumption in the other developed countries which account for 90 percent of world imports. The prospects for further growth in their consumption are fair and their net imports may grow from 7.1 million tonnes at present to 9.6 million tonnes by the year 2010, a growth rate of 1.5 percent p.a., the same as that of the last 20 years.

Per caput consumption should also continue to grow in the developing countries themselves, particularly in the fast growing region of East Asia. It is likely that the importing developing countries will increase their imports at a high rate and their share in world imports may more than double from the present level of about 7 percent. This notwithstanding, the high dependence of the developing exporting countries on the import markets of the Western developed countries and on policies affecting such imports will remain overwhelming.

Cotton

Trading patterns in the major non-food agricultural commodities have been undergoing significant changes. These have been due to the diverging trends in consumption of the developed and the developing countries, as well as to changes in the trade of manufactures based on these commodities.

Developments in the cotton sector illustrate this process of structural change. The developed countries used to be by far the major importers of cotton 20 years ago with a share of 75 percent of world gross imports and net imports from the developing countries of 1.6 million tonnes. But their mill consumption remained virtually static (about 6.5 million tonnes) while their production of cotton continued to increase. The result has been that in recent years they turned into small net exporters.

In parallel, mill consumption in the developing countries grew fairly rapidly (3.5 percent p.a. in 1970-90). Their production of raw cotton grew at a slower rate (2.4 percent p.a.) and their sizeable net exports of raw cotton turned into small net imports. The above discussion refers to production, mill consumption and trade of raw cotton. The underlying developments in the final consumption and trade of cotton manufactures have been different and have been instrumental in causing the diverging trends in mill consumption and trade of the raw material. Part of the trends in raw cotton reflects the rapid expansion of exports of cotton manufactures from the developing to the developed countries following the migration of the textiles industry from the latter to the former. This process would have been even more pronounced but for the restrictions in the trade of textiles (see Hamilton, 1990).

The above-described trends would continue, with world production and consumption of cotton growing at about 2.6 percent p.a., to some 31 million tonnes by the year 2010. Although production would continue to rise also in the developed countries and they would still process about 8 million tonnes, mill consumption will be increasingly concentrated in the developing countries, doubling to some 23 million tonnes by the year 2010. The end-result would be that the developing countries would produce some 20 million tonnes but nonetheless would turn into major net importers of raw cotton of about 2.5 million tonnes (and growing exporters of cotton goods). Cotton thus provides an example of transformation of world industrial and trading relationships largely along the lines dictated by comparative advantage (see, for example, Anderson, 1992). To an increasing extent raw materials from the developed (and developing) countries are being combined with low-cost labour from the developing countries to generate industrial development in the latter and cheaper labour-intensive manufactures everywhere.

Natural rubber

Natural rubber, produced exclusively in the developing countries, may be following a similar path as cotton. However, for natural rubber the pace of change is likely to be much slower. The main underpinning factor for rubber would be somewhat different, namely the rapid consumption growth of rubber manufactures in the developing countries.

The share of natural rubber in world consumption of all rubber (natural and synthetic) had fallen to an all-time low of about 30 percent in 1980, but has since recovered to 36 percent, mostly due to the spread in the use of radial tyres and faster consumption growth in developing countries. This trend is expected to continue, and world consumption of natural rubber may grow at 2.6 percent p.a. over the time horizon of the study, nearly the same growth rate as in the last 20 years. By the year 2010 the developing countries (mainly in Asia) may have overtaken the developed countries as the major industrial consumer of natural rubber, with their share rising to 55 percent of world consumption, up from 43 percent in 1988/90 and 24 percent 20 years ago. These developments will essentially reflect the faster growth of the automobile industry and use in the developing countries compared with the developed countries (tyre production accounts for some 50 percent of world natural rubber use.)

Unlike cotton, however, the developing countries will remain growing net exporters, as they are the only producers in the world and the consumption (and net imports) of the developed countries would continue to grow at about 1.3 percent p.a. (against 3.8 percent p.a. in the developing countries). World production of natural rubber may continue to grow at the average rate of the past 20 years (2.5 percent p.a.). Production in East Asia will continue to dominate world production, but its share in the projected world output of 8.6 million tonnes may decline from 84 percent at present to 77 percent in 2010. This would reflect the increasing scarcity of labour in Malaysia and of land in both Malaysia and Thailand. Faster expansion in Indonesia could turn the country into the largest world producer and help keep East Asia's share from declining substantially. These developments may give sub-Saharan Africa one of the few opportunities to expand its share in world exports of a major agricultural commodity, from the present 7 percent to about double that by the year 2010. There is, therefore, scope for significant recovery of rubber production in the main African producing countries (Cameroon, Cote d'Ivoire, Nigeria and Liberia).

Tobacco

Consumption of tobacco in the developed countries has been declining, both total and per caput, with the latter having fallen particularly in the 1980s, from 2.0 kg in 1979/81 to 1.5kg at present. It may fall further to nearer I kg by year 2010. By contrast, the developing countries have been increasing their tobacco consumption relatively rapidly, with per caput consumption having reached 1.1 kg and perhaps growing to 1.4kg by the year 2010. Growth has been fastest in East Asia. It is ironic that tobacco is the one consumption item in which the developing countries are catching up fast with the developed ones and are likely to surpass them in the future. Apparently, things must get worse (on the consumption and health side) before they can get better. There is perhaps a parallel here with the process of environmental degradation (noted in Chapter 2) which seems to accelerate in some cases at the early stages of development and people endeavour, and can afford, to adopt policies to control it only when development has advanced well beyond these early stages.

The end-result of these prospective developments is that in developed countries both consumption and production of tobacco would probably continue to decline by about 1.0 percent p.a. and their net imports from the developing countries could remain constant at just over 200000 tonnes (they were 440000 tonnes 10 years ago). World consumption will be increasingly shifting to the developing countries. They may account for about 80 percent of the world consumption in the year 2010, compared with 70 percent now and only 55 percent 10 years ago. This implies a growth rate in their consumption of 2.3 percent p.a. (lower than in the past) and, given likely stagnant net exports to the developed countries, a growth rate of 1.9 percent p.a. for their production (also lower than in the past).

Conclusions

The preceding review of possible developments, by major commodity sector, has endeavoured to document the extent to which the diverging trends for each of them are likely to shape the future for total food and agriculture. Perhaps the major conclusion is that the developing countries are likely to change from their traditional position of net exporters of agricultural (crop and livestock) products into net importers. This issue is discussed later in this chapter, after a brief review of likely developments in the major commodity sectors of the developed countries.

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