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G. Chandrashekhar

MUMBAI, July 24

HAVE global agri-commodity markets bottomed out? Indications are they have. A look at last three years' international price trends for a number of widely traded soft commodities shows a definite recovery, although the rate of recovery varies from commodity to commodity.

For instance, while food crops and products in general have shown a marked improvement, plantation crops, cotton and sugar have continued to remain under pressure with no immediate prospect of an upturn.

The second half of the 1990s saw a precipitous drop in global non-energy commodity prices caused by slack demand and trade in the wake of a general downturn in world economic growth as also continued high levels of government spending on farm support.

But price movements in the first six months of the current year have provided some hope for a sustained recovery for agri-commodities. Prices of a range of products including cocoa, soyabean, palm oil, maize, rice, wheat, rubber and wool have firmed up in varying degrees.

A widely anticipated global economic recovery towards the end of the current year and into the next year is currently seen providing further hope for the commodity markets.

Interestingly, support to commodity prices is likely to be demand-driven rather than based on supply. A sustained upturn in economic activity, especially in developing countries, will lay the foundation for strengthening demand, trade and prices for agricultural products. China and Russia are seen as key markets that will impact commodity trade and prices.

Strong growth in food and feed demand for wheat, coarse grains and oilseeds is expected in developing countries where population, livestock industries and number of animal consuming units continue to expand rapidly. Rising incomes will drive demand for dairy products too.

On the flip side, it is seen that higher farm support, higher farm income and continuing productivity growth, in some cases driven by technological advancements, may boost global output to the extent of restraining price increases. Cereals and oilseeds come under this category.

World markets for tea, coffee, cotton and sugar continue to be depressed, driven by large production surpluses and slowdown in consumption. Only cotton has the prospect of some improvement in the short run following a demand-supply mismatch forecast for 2002-03.

Commodity price data compiled by World Bank— monthly, quarterly and annual averages since January 2000— make interesting reading. While revealing the extent of recovery, the data also throw light on the nightmare commodity markets went through in the last two years.

During April, May and June this year, prices of cocoa, coconut oil, palm oil, soyabean and its derivatives, maize, rice, wood and timber logs, rubber and wool improved by anything between five and ten per cent, ruling in most cases above the previous two years' annual averages.

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Global agri-markets may have bottomed out

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