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THE COMMODITY SITUATION AND OUTLOOK

UNCTAD/PRESS/IN/2007/015
27 April 2007

Key message: current and anticipated increases in demand for commodities provide a unique historical opportunity for alleviating poverty. However, this desired outcome will not come automatically.

Global Initiative on Commodities

Geneva, 27 April 2007 - Over the past few years, demand for commodities has grown faster than the long term trend, mainly under the influence of increasing Asian demand, particularly from rapidly industrializing China and India. Prices of most commodities on international markets have risen as a result of demand growth, reinforced by tight supply capacities, tense geopolitical conditions (especially with respect to the oil market) and intense speculative activity. Commodity prices reached record historical levels in nominal terms in 2006 as illustrated by the UNCTAD commodity price index, which increased by more than 30% between 2005 and 2006 (and by 80% from 2000 to 2006), mainly due to the rise in prices of crude oil, metals and minerals.

However, the 2006 prices of some commodity groups, such as vegetable oils and tropical beverages, were still far below their record levels (-25% for vegetable oils compared to the peak year of 1984 and -56% for tropical beverages compared to the peak of 1977). (see table 1)

Numerous developing countries rely on commodities for export revenues, and commodity production and trade provide employment for more than 2.5 billion people worldwide. The overwhelming majority of these people are poor, and prospects for their ever escaping poverty are linked to the development of the commodity sector. The considerable rise in prices has had an impact on incomes of developing countries. It is estimated that extra revenues resulting from commodity exports were around 6.7 percentage points of GDP for oil-exporting countries and about 3 percentage points for countries exporting mining products. Developing countries that mainly export manufactures and import raw materials, including most East and South Asian economies, have largely lost out from the rise in raw materials prices (1% of their GDPs on average per annum between 2003 and 2005). Finally, the impact on developing countries exporting agricultural products varies, with some benefiting over the period (e.g. coffee exporters) and others recording a deterioration between 2003 and 2005 (cotton or soybean exporting countries). Their gains or losses have mainly been the consequence of their import/export structures and especially the share of oil imports in their total imports. However, while the net effect on their GDPs may be positive or negative, the impact on the commodity sector is likely to be unambiguously positive, and a share will reach the poorest, including small farmers. The size of this share depends on how efficient the pass-through mechanism is -- and usually the prices received by small farmers go up less than international prices.

For the next five to ten years, demand for commodities should continue to grow, mainly due to increases in demand from developing countries stimulated by a particularly vigorous commodity consumption per unit of GDP compared to that of developed countries (including when GDP is calculated at purchasing power parities), faster economic growth, and increasing populations. The population of the 50 least developed countries (LDCs) is projected to more than double by 2050, reaching 1.7 billion (from 0.8 billion in 2005). Growth in the rest of the developing world is also projected to be robust, although less rapid, with the population rising from 4.5 billion to 6.1 billion between 2005 and 2050. These factors will lead to further growth in trade between developing countries, known as South-South trade. Such trade will make up a greater share of total commodity exports (see table 2) and will shift the centre of gravity of global commodity demand from developed to developing countries.

In addition, rises in per capita income and expanding urban populations in developing countries are expected to lead to dietary changes: consumption of such commodities as livestock products, fruits, and vegetables will increase (see table 3).

Current high energy prices -- especially for oil -- combined with environmental concerns, make biofuels more appealing as alternatives to fossil fuels. Biofuels based on sugarcane, sugar beet, and corn may heighten demand for those commodities and contribute to a rise in the prices of such products and to improvements in developing country producers´ incomes.

Considering the positive outlook for continuing growth in demand and prices for commodities, countries that depend on them have a unique opportunity to increase their incomes and take steps to diversify their economies to achieve higher economic growth and poverty reduction.

However, this desired outcome is not automatic. For benefits from the commodities boom to be more equitably distributed, supply side and value chain issues, including ways of effectively using resource rents and mobilising additional financial resources for commodity development and diversification, have to be properly addressed. It is only by putting commodity producers at the centre of development strategies that commodity trade can finally benefit the poor.



ANNEX

Tables

Table 1. Average indices for specific commodity group, 1960-2006

Table 1. Average indices for specific commodity group, 1960-2006
Source: Infocomm from UNCATD CPS database

table 2. South-South commodity trade (including fuels) by regions, 2000-2004

table 2. South-South commodity trade (including fuels) by regions, 2000-2004
Source: calculations by UNCATD secretariat on the basis on Comtrade data

Table 3. Calorie consumption by region

Table 3. Calorie consumption by region
Source: FAO, 2002, World Agriculture: towards 2015/2030. Summary report




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UNDP, Jean Fabre (Geneva)
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ACP, Viwanou Gnassounou (Brussels)
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