4 Analysis of Movements in the Productivity and Prices of Selected Tropical Commodities in Developing Countries, 1970 to 2002 Euan Fleming, Prasada Rao, and Pauline Fleming ‘The international community accepts that a secular decline has occurred in the tetms of trade of most commodities produced by developing countries, a trend thatis confirmed in this study. Yetit has been more or less indifferent to the fate of commodity producers in these countries, particularly since the collapse of international commodity agreements (such as the International Coffee Agree- ment and the International Cocoa Agreement given our special interest in agricultural commodities). Attempts have been made, albeit not very success- fully, to reduce the degree of commodity price fluctuations, Bu the problem of, a secular decline in commodity prices has not been tackled in earnest. 4.1, Background to the Study 4.1.1, The setting of the research problem UNCTAD (2004, p. 22) observed that the ‘net effect of the secular dectine in prices depends on the extent to which world market prices ate transmitted to ‘producers and whether higher export volumes (for example, through product ivity and yield improvements) make up for falling prices’. In this context, there is a need for evidence of the problem of declining prices faced by commodity exporting developing countries, of which there are many in the African, Caribbean, Pacific, and Asian regions. A pertinent issue isthe role of productivity in commodity production and its, effects on individual countries. Two related matters concerning productivity 68Analysis of Movements in Productivity and Prices tends are important. Fist, the European Commission recently communicated to the Council and the European Parliament that: Commodity prices demonstrate a long-term declining price trend, This trend has been driven mainly by significant productivity gains, which enable producers to accept lower Prices for their products. Other factors have also increased production: pressure on countries to earn more foreign exchange but few potential activities with which to do so devaluation of national currencies of many commodity-producing countries follow- Ing structural adjustment programmes; entry of new ateas into production; and produc- tion subsidies in certain countries, The demand for commodities has not kept up with ‘he increase in supply (Commission of the European Communities 2004, p. 8) If itis true that commodity export volumes have increased significantly, the next step isto establish whether or not the above statements are true—that (a) ‘This trend has been driven mainly by significant productivity gains’ and (b) producers are able ‘to accept lower prices for their products’. The validity of the first assertion depends on the extent to which export expansion is due to increased input use on the farm or increased productivity in farm production, ‘An empirical study of agricultural productivity growth is needed to confirm this statement, For the second assertion to be valid, economic growth achieved through export expansion should not be Immiserizing if productivity growth is high enough. It Is of interest to learn about the pattern of productivity improve- ‘ment across commodity-producing countries in the developing world. In particular, it is important to know whether increases in productivity have compensated for the decline in producer and export prices of commodities in Commonwealth countries that rely considerably on commodity exports to generate economic development. Much of the evidence presented in this report is used to test these two propositions. The greatest and most consistent concern about the ability of the develop: ing world to achieve significant productivity gains in agriculture has been focused on the African continent and, in particular, sub-Saharan Africa. The problems faced by agricultural producers in this region are well known and routinely spelt out. In a recent report to the United Nations on African agri- culture, @ panel of 18 experts employed by IAC, a Dutch non-government organization, observed that the sector was stagnant (M2 Presswire 2004, p. 1) ‘The panet has learned that, among other things, Aftica faced irregular rainfalland irigaton systems; low investment in agriculture; a wide variety of eros, and a lack of knovledge— largely due to brain drain, with some 50 per cent ofthe people qualified to make decisions and promote innovations towards alleviating food insecurity had lef the count. Many other factors could be added to this list such as declining soil fertility and poor to non-existent infrastructure in many areas, widespread disease and 69