an economy is so dependent basically on single commodirty is
Answers
Explanation:
1. Introduction
A prominent feature of agricultural commodity exports in many developing countries is that relatively few commodities account for a large share of total export earnings. Often they depend, and continue to depend, on a single agricultural commodity for their merchandise export revenues.
The sluggish demand for primary agricultural commodities and the recurring conditions of boom and slump in their exports have created problems for commodity-dependent economies. Unstable commodity prices and export earnings are well known to make development planning more difficult and to generate adverse short-term effects on income, investment and employment. In addition, with slow demand conditions, countries specialising in production of primary commodities can be expected to have a declining share in world trade unless they have a major cost or quality advantage over competitors.
This note examines levels of dependence on single commodity exports in developing countries and describes salient market features of the commodities involved.
2. Dependence on single commodity exports
Table 1 ranks 43 developing countries and territories according to the share of the leading agricultural commodity in total merchandise export earnings as well as total agricultural export earnings. The countries comprise those for which more than 20 percent of total merchandise export revenue and more than 50 percent of total agricultural export revenue come from one agricultural commodity. These observations are worthy of note.
Countries with high dependence on a single export commodity are concentrated in certain regions: 21 in Sub-Saharan Africa, 14 in Latin America and the Caribbean and six in the South Pacific Islands. Thirty-two of these countries are LDCs and/or small island developing States (SIDS);
Dependence on a single commodity is more pronounced in tropical countries, notably with respect to sugar, coffee, bananas, cotton lint and cocoa beans. Among the 43 countries in the table, sugar was the leading export commodity for seven countries, coffee for six, bananas for six, cotton lint for five and cocoa beans for four.
Table 2 shows for the same countries, changes in the degree of dependence on a single commodity from 1986-88 to 1997-99:
In 14 out of the 43 countries, the share of the leading agricultural commodity in total export earnings increased in the latter period. The increase was pronounced in Niue, Tonga, Benin, Cyprus, Mauritius, Ecuador and Paraguay. Conversely, in seven countries - Dominica, Uganda, Cuba, Rwanda, Comoros, Ghana, Panama, Fiji and Guatemala - there was a relative decline in their single commodity-dependence.
3. Salient features of agricultural primary commodity markets, 1980-2000
Two features have dominated world agricultural primary commodity markets over the last two decades: relatively high price volatility and a generally declining trend of real prices.
Sharp fluctuations in prices: Historically, world markets of most of the agricultural commodities have been faced with recurring supply/demand imbalances that were reflected in volatile prices. The relative rigidity of short-term supply and the low price elasticity of demand in importing countries, combined with the long gestation period for many of these crops, caused alternating short periods of boom conditions and long periods of oversupply.
Figure 1 - A. Real agricultural commodity price trends (1980 = 100) (deflated by the price index of manufactured exports of industrial economies)
Figure 1 - B. Real agricultural commodity price trends (1980 = 100) (deflated by the price index of manufactured exports of industrial economies)
Table 3 ranks the major agricultural commodities in terms of the instability of annual nominal world prices for the period 1986-99. Overall, instability tends to be higher for agricultural raw materials and beverages than for temperate-zone products. As shown earlier, these are the same commodities on which single commodity exporters (SCEs) depend the most for export earnings.
Long-term decline in prices: Most of the agricultural commodities have experienced sluggish world demand and a downward trend in real prices (Figure 1), essentially because of low income elasticity of demand and the declining intensity of their use as inputs into manufacturing.
In 1999 the price index of agricultural commodities deflated by the price index of manufactured exports of industrial economies was one half of the average for 1980. For tropical beverages, sugar and cotton, the decline was steeper.
Long-term forecasts are not encouraging. According to World Bank estimates for 2015, although real prices of most agricultural commodities are projected to rise above current 2001 levels, they would still remain below their 1990s peaks.