global economic crisis, commodity prices and development implications [ presented @ atn12, accra,...
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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
Recent trends in commodity prices: Effect of global economic crisis
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
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)
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
Period average Index, 2000=100 Linear (Index, 2000=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
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)
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
Period average Index, 2000=100 Linear (Index, 2000=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
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 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.
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
22.316.9
35.327.6
16.96.4
De
velo
pe
dco
un
trie
s
De
velo
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gco
un
trie
s
Le
ast
de
velo
pe
dco
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trie
s
Su
b-
Sa
ha
ran
Afr
ica
De
velo
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dco
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De
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trie
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trie
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Afr
ica
Agriculture value added per agricultural worker(constant 2000 USD)
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 (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
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)
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
Conclusion:Rebalancing development priorities and aid
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
rren
t
0
2
4
6
8
10
12
14
% t
ota
l D
AC
co
mm
itm
ents
Agriculture (million USD, current) Agriculture (% total)
Conclusion:Rebalancing development priorities and aid
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)
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