Chapter

Appendix I: The IMF Commodity Price Indices

Author(s):
International Monetary Fund
Published Date:
January 1986
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The commodity price indices used in this report are constructed using 39 individual price series representing 34 primary commodities. These price series are described in detail in Appendix II. The indices do not cover fuel (coal and petroleum) and precious metals (gold and silver). The indices are constructed by weighting indices for individual commodity price series with the average export earnings for the commodities selected during the years 1979 through 1981 in 175 countries. The overall “world” index together with separate indices for groups of commodities and for groups of countries are published on a monthly basis in the International Financial Statistics (IFS). The commodity groups for which indices are published are those used in this report: food, beverages, agricultural raw materials, and metals. Overall indices of commodity prices of exports of developing countries and of commodity prices of exports of industrial countries are also published. Information is available to enable the construction of overall commodity price indices for countries grouped by geographic region.

This set of commodity price indices has replaced an overall commodity price index with weights based on commodity exports of 98 primary producing countries in the period 1968-70 (published through February 1986 in the IFS). It is necessary periodically to redefine commodity price indices to take account of changes in the relative importance of individual commodities (Table 38). In addition, this redefinition has enabled account to be taken in the weights of the exports of primary commodities by industrial countries; the value of these exports currently exceeds the value of exports of primary commodities by developing countries by a wide margin (Table 39).

Table 38.World Non-Energy Primary Commodity Exports: Commodity Composition, 1968-70 and 1979-81(Annual averages)
Commodity GroupsWorldIndustrial CountriesOil-exporting developing countriesNon-oil Developing Countries
TotalAfricaAsiaEuropeMiddle EastWestern Hemisphere
(In billions of U.S. dollars)
Value
1968-70563312155218
1979-8124716967212236228
(In percent of total)
Value share
Total
1968-70100100100100100100100100100
1979-81100100100100100100100100100
Food
1968-70434930352930444538
1979-81545915432844543947
Beverages and tobacco
1968-70931918201013123
1979-817216172269026
Agricultural raw materials
1968-70242329242141274913
1979-8120204520163323419
Metals and minerals
1968-7024252223291816527
1979-81191924203417142018
Source: Based on United Nations, D-Series Trade data.
Table 39.World Non-Energy Primary Commodity Exports: Country Shares, 1968-70 and 1979-81(Annual averages)
Commodity GroupsWorld ValueValue Share
WorldIndustrial CountriesOil-exporting Developing CountriesNon-oil Developing Countries
TotalAfricaAsiaEuropeMiddle EastWestern Hemisphere
(In billions of U.S. dollars)(In percent of world total)
Total
1968-7056100603389103215
1979-8124710068229592112
Food
1968-702410068230673213
1979-8113210076124382110
Beverages and tobacco
1968-7051001867720114040
1979-8116100216731693045
Agricultural raw materials
1968-701310058339817338
1979-815010066528415325
Metals and minerals
1968-7013100612371072016
1979-814810067330982111
Source: Based on United Nations, D-Series Trade data.

In establishing weights for the new indices, consideration was given to all commodities accounting for more than 1 percent of non-fuel primary commodity trade of either industrial countries collectively or developing countries collectively. All commodities included in the previous index were retained, with the exception of copra which was substituted by coconut oil, a more indicative price series in the edible oils market. Apart from coconut oil, four new commodities were added to the index: soybean oil, tobacco, hardwood logs representing four classes of timber products, and phosphate rock. Crude petroleum was not included in the index, because its weight at 56 percent of the value of all primary commodities caused the movements in oil prices to overwhelm price movements of other commodities. A comparison of the commodities included and the weights used in the old and new indices is given in Table 40.

Table 40.Commodity Weights in Old and New Indices(In percent)
Old Index (Base Year: 1968-70)New Indices (Base Year: 1979-81)
WorldIndustrial CountriesDeveloping Countries
Total100.0100.0100.0100.0
Food31.442.954.428.9
Cereals8.120.730.88.5
Wheat(2.6)(10.0)(16.9)(1.6)
Maize(3.2)(7.5)(11.3)(3.0)
Rice(2.3)(3.2)(2.6)(3.9)
Vegetable oils and protein meals8.411.813.010.4
Soybeans(0.1)(4.8)(7.4)(1.6)
Soybean meal(0.2)(2.8)(3.0)(2.6)
Soybean oil(—)(1.3)(1.7)(0.8)
Palm oil(0.8)(1.2)(0.1)(2.5)
Coconut oil(copra)1(2.2)(0.7)(0.1)(1.5)
Fishmeal(1.4)(0.6)(0.6)(0.7)
Groundnut oil(2.2)(0.3)(0.1)(0.4)
Groundnut meal(1.5)(0.1)(0.0)(0.3)
Meat5.86.39.42.6
Beef(4.4)(5.4)(7.9)(2.4)
Lamb(1.4)(0.9)(1.5)(0.2)
Sugar6.73.21.15.6
Free Market(2.4)(1.6)(0.9)(2.3)
United States(3.2)(1.1)(0.2)(2.2)
European Community(1.1)(0.5)(0.0)(1.1)
Bananas2.40.90.11.8
Beverages18.211.82.522.8
Coffee12.27.41.015.0
Other milds(5.9)(4.0)(0.5)(7.8)
Robusta(6.3)(3.4)(0.5)(7.2)
Cocoa3.63.11.25.4
Tea2.41.30.32.4
Agricultural raw materials22.523.322.924.1
Logs and timber10.511.79.0
Cotton7.73.93.24.9
Medium(5.2)(3.4)(3.2)(3.7)
Long(2.5)(0.5)(0.0)(1.2)
Wool6.52.43.71.0
Fine(4.8)(1.4)(2.4)(0.4)
Coarse(1.7)(1.0)(1.3)(0.6)
Natural rubber5.22.60.15.7
Tobacco2.52.12.9
Hides1.81.22.10.2
Jute0.90.10.00.2
Sisal0.40.10.00.2
Metals and minerals27.922.020.224.2
Copper13.65.83.78.4
Aluminum2.84.55.92.9
Iron ore5.84.13.84.5
Tin3.12.10.64.0
Nickel0.81.82.21.2
Zinc1.01.42.00.7
Lead0.81.11.40.6
Phosphate rock1.20.61.9
Source: Commodities Division, IMF Research Department.

Weights and commodity price series were combined using the standard Laspeyres procedure, that is, by indexing each price series to the average price in 1979-81, multiplying each indexed price by its respective weight, the sum of weights being unity, and summing the resultant series across subgroups and groups of commodities. Aggregate indices were then rebased to 1980, rather than the three-year average, for consistency with other Fund indexed series which are published in the IFS. With the exception of the five additional commodities mentioned above, all of the price series used in the new index were the same as in the previous index (see Appendix II).

The final step in constructing the new indices was to splice the indices for developing countries with those of the previous index of primary producing countries. Splicing is the standard procedure for Laspeyres indices with weights computed at two discrete points in time, in order to prevent bias in the aggregate series due to structural changes in trade. Because weights were computed based on trade in 1968-70 and 1979-81, 1973 was chosen as the splice year; it was roughly midway between the weight periods, and prices in that year were more on trend than in 1974 when they were too high, and 1975 when they were too low. The spliced series now reflects the differences in average rates of change between the two indices, particularly the slower rate of decline in beverages of the old index before 1973, the faster rate of increase in agricultural raw materials of the new index after 1973, and the changed relative importance of the commodity subgroups, which in the new index emphasize agricultural raw materials, at 24.1 percent of the total weight, due to the inclusion of timber. The strong correlation between the two indices indicates that the different weights and commodity coverage do not significantly affect the movements over time of the aggregated price series (Chart 8). The new indices for world and industrial countries were not spliced, since no previous indices for these country groupings existed.

Chart 8.Behavior of the New and Old Commodity Price Indices, 1970-85

(Indices: 1979-81 = 100)

While the continuity of the price indices for developing countries was maintained, so that the series can continue to be used in analyzing commodity markets for this group of countries, analysis of developments in commodity markets as a whole can now be acomplished by the set of commodity price indices for the world. This set of indices gives a far greater weight to food, at 42.9 percent, than does the index for developing countries, at 28.9 percent, owing to the inclusion of exports from industrial countries where food accounted for 54.4 percent of the value of commodity exports excluding fuel.

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