Chapter

II Food Commodities

Author(s):
International Monetary Fund
Published Date:
January 1986
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This section provides analyses of market price movements for individual food commodities in the context of changing supply and demand conditions. For the food commodities which rank as most important in terms of their value in international trade—wheat, maize, rice, sugar, soybeans and soybean products, and palm oil—the analyses include annual balances of production, consumption and stocks, and estimates of export volumes and earnings in recent years. For other food commodities—copra and coconut oil, groundnuts and groundnut oil, fish meal, beef, lamb, and bananas—brief summaries of market developments are provided.

The most important factor influencing price movements from year to year for food commodities is variation in supplies of these commodities. Demand conditions for these commodities tend to be less variable than supply conditions, although changes in the level of world economic activity and in world inflation rates can greatly augment or diminish, or, in extreme cases, reverse the effects of supply changes.

In the 1960s and early 1970s there was relative stability in the prices of food commodities (Chart 4). In part, this stability was the consequence of comparatively large stocks of food commodities, especially cereals, which dampened price movements (subsection 1). The period of relative price stability ended in 1973 when the dollar prices of food commodities increased sharply. In that year the index of U.S. dollar prices for food commodities increased by 80 percent (Table 9). Both supply and demand factors contributed to this situation. In 1972 and 1973 the increase in the index of production of food commodities was of 0.1 and 9.2 percent respectively, consumption exceeded production, and the level of stocks fell.10 The increase in the GNP deflator measured in U.S. dollars for the seven major industrial countries accelerated from 6.9 percent in 1971 to 12.5 percent in 1973, reflecting both an increase in inflation rates in these countries and the depreciation of the U.S. dollar. Growth in real GNP in these major industrial countries increased to 5.5 percent in 1972 and further to 5.9 percent in 1973. In 1974 the supply situation was aggravated by a fall in production of food commodities, so that despite the beginning of a world economic recession in that year, the U.S. dollar price index for food commodities registered an increase of 24 percent. In 1975 and 1976, however, large increases in production of food commodities led to large decreases in the food price index.

Chart 4.Food Commodity Prices, 1960-85

(In U.S. dollars, indices: 1980 = 100)
Table 9.Food Commodity Prices and Underlying Factors, 1970-85(Annual percentage changes)
Food Commodity PricesReal GNP in Seven Industrial CountriesGNP Deflator (in U.S. dollars)Supply of Food Commodities1
YearNominal (in U.S. dollars)Real2Index of productionIndex of stocks3Index of supply4
19705.1-0.82.26.32.6-9.90.8
19713.3-1.73.66.96.9-23.12.7
19728.0-0.75.59.20.14.80.3
197380.453.35.912.59.2-17.46.4
197423.63.90.29.4-3.513.6-1.8
1975-19.8-29.8-0.612.16.3-2.65.3
1976-6.2-6.65.04.14.615.95.3
1977-2.8-11.03.99.12.714.64.0
197813.3-2.14.615.57.63.06.9
197916.62.03.39.92.912.33.9
19808.6-2.01.19.4-0.91.2-0.8
1981-3.21.91.61.54.22.44.0
1982-15.2-13.1-0.6-0.24.99.85.4
19838.712.72.71.8-3.915.1-1.3
1984-0.72.84.9-0.17.5-18.64.2
1985-15.5-15.72.72.32.720.14.5
Source: Commodities Division and Current Studies Division, IMF Research Department.

A second wave of food price increases occurred in the period 1978-80; the index of U.S. dollar prices of food commodities increased by 13 percent in 1978, 17 percent in 1979, and 9 percent in 1980. These increases were linked to lower rates of increase in food production, in particular to a decline of nearly 1 percent in 1980, higher inflation rates; and a further depreciation of the U.S. dollar.

Over the period 1981-85, except for 1983, the tendency has been for prices of food commodities to decline. Apart from 1983, when an exceptionally large decrease in production was recorded, year-to-year production increases were substantial, with the result that production tended to exceed consumption, causing stocks to accumulate. At the same time, rates of inflation in major industrial countries fell sharply, and the U.S. dollar appreciated so that the GNP deflator in dollar terms was at very low levels compared with the 1970s. As a consequence, despite the 3.9 percent decrease in the production of food commodities in 1983 at a time of recovery in the level of world economic activity, the index of U.S. dollar prices of food commodities in 1983 rose by only 8.7 percent. In 1985 the index was at three-fourths of its 1980 level.

The movements in U.S. dollar prices of individual food commodities (discussed below) have tended to follow the pattern of the group index. Turning points in the price series for cereals and sugar have tended to coincide with those for the group index for food commodities; the movements of prices for vegetable oils have been more independent (Chart 4).

Cereals

The prices for wheat, maize, and rice—the three major cereals in world trade—have followed similar patterns (Table 10). From the mid-1950s to the early 1970s, the prices of the major cereals remained relatively stable, with the exception of the price of rice for a brief period in the late 1960s. Potential price fluctuations in response to year-to-year changes in production were dampened by the large stocks of cereals, held mostly in the major exporting countries. Relatively smaller stocks held by the exporting countries during the 1970s and early 1980s, however, failed to cushion production changes and resulted in significantly higher price instability. A series of poor harvests, culminating in a small 1972/73 crop, sharply reduced cereal stocks; prices increased by nearly 200 percent between 1972 and 1974. This price movement was reversed by a large 1973/74 crop, which helped to replenish stocks, and good crops in the years immediately following. The situation changed again over the period 1977/78 through 1980/81 when the growth in world cereal consumption outstripped world production and declining stocks led to a substantial rise in cereal prices. Since 1981/82 there has been a tendency once again for production to exceed consumption, stocks to increase, and prices to decline.

Table 10.Prices of Cereals, 1960-85(In U.S. dollars a ton)
YearWheat1Maize2Rice3
19605850125
19615948137
19626449153
19636454143
19646855138
19655955136
19666358166
19676654221
19686348205
19695852185
19705558143
19716258130
19727056150
197314097297
1974180132542
1975149120363
1976133112254
197710395272
1978128101369
1979160116334
1980173126434
1981175131483
1982160108293
1983157136277
1984152136252
1985136112216
1984I152142254
II154147255
III152137266
IV152117234
1985I147120222
II138118223
III126108210
IV132104210
Source: Commodities Division, IMF Research Department.

The United States dominates the export market for maize, is the largest exporter of wheat, and is a major exporter of rice. As a consequence, the agricultural and trade policies of the United States can play an important role in price determination for cereals. The 1985 U.S. farm bill (officially called the Food Security Act, 1985), which covers the 1986-1990 crops, seeks to improve the competitive position of U.S. agricultural exports by making agricultural policy more market oriented. For the grains, this policy is to be implemented primarily through sharp reductions in government price supports. Loan rates for wheat and maize in 1986 have been set at the lowest levels permitted under the 1985 farm bill. In comparison with 1985, the 1986 loan rate for wheat was reduced by 27 percent and that for maize was reduced by 25 percent, while the loan rate for rice was reduced by 10 percent. Farm income will be protected by freezing target prices at 1985 levels for two years, after which they will be progessively reduced; farmer participation in federal programs is expected to increase sharply. To qualify for federal price and income supports, farmers would have to participate in acreage reduction programs, which have been increased for wheat from 20 percent in 1985 to 25 percent in 1986, for maize from 10 percent in 1985 to 20 percent in 1986, and for rice from 20 percent in 1985 to 35 percent in 1986. The farm bill provides that at least 5 percent, and possibly more, of the deficiency payments to farmers could be in the form of payment-in-kind (PIK) grain from government held stocks. The bill also contains a number of provisions designed to enhance the competitive of U.S. grain exports mainly through government credits and other forms of assistance. It is still unclear how the Gramm-Rudman-Hollings balanced budget act, which will cut spending by the U.S. Commodity Credit Corporation, will affect the U.S. farm program for 1986, but it is possible that income support payments to farmers may be reduced.

All the details of the 1985 U.S. farm bill have not been finalized yet, and though the bill might be revised to comply with the balanced budget act, the overall impact of the bill is quite bearish. The effect of supply control measures is expected to be quite limited because the target prices, which are unchanged from 1985, are expected to continue to provide strong production incentives to farmers. Given the ample world grain supply situation, unless weather conditions deteriorate sharply in major exporting or importing countries, world grain prices can be expected to weaken further and gravitate toward levels commensurate with U.S. loan rates.

Wheat

Two decades of relative stability in wheat prices ended in 1973/74, when prices more than doubled over their 1972 levels and averaged a record $180 a ton in 1974.11 The immediate cause of the sharp rise in prices was low production in the 1972/73 crop year (July/ June), which reduced world wheat stocks to a level considerably below that of the 1960s. During the following three crop years production recovered, and as stocks were rebuilt, prices declined progressively to $103 a ton in 1977. A reduction in acreage sown in the United States in the 1977/78 crop year and adverse weather conditions in a number of other producing countries, together with an increase in wheat consumption, caused prices to recover slightly in 1978. In 1978/79 heavy participation in the farmer-owned reserve program in the United States reduced the level of carryover stocks available to the market and, despite a 17 percent increase in world output, prices rose by 25 percent in 1979. Poor harvests in a number of major producing countries caused market conditions to tighten further in 1979/80. Prices rose by 8 percent in 1980 and by a further 1 percent in the following year.

Four successive record world wheat crops have kept prices under downward pressure since 1980/81 (Table 11). World wheat output increased from 443 million tons in 1980/81 to 514 million tons in 1984/85. Though world wheat utilization also increased during this period, it did not keep pace with production and a steady rise in the ratio of world stocks to utilization from 17.6 percent in 1980/81 to 23.0 percent in 1984/ 85 caused wheat prices to decline from $175 in 1981 to $136 in 1985.

Table 11.Wheat: World Commodity Balance, Market Prices, and Exports, 1980-86(In millions of tons, unless otherwise indicated)
Crop Years (July/June)
1980/811981/821982/831983/841984/851985/86
Commodity balance
Production442.8448.4479.1490.9514.7503.8
China54.259.668.481.487.886.0
European Community155.154.459.859.276.665.9
United States64.675.875.365.970.666.0
U.S.S.R.98.280.086.079.073.083.0
Other countries170.7178.6189.6205.5206.7202.9
Utilization445.7441.5467.8486.3499.7492.1
China67.972.881.491.095.292.0
United States21.123.124.730.231.429.3
U.S.S.R.116.7102.0105.797.096.193.0
Other countries240.0243.6256.0268.1277.0277.8
Closing stocks78.285.196.4101.0116.0127.7
United States26.931.541.238.138.251.4
Others51.353.655.262.977.876.3
Calendar Years
198019811982198319841985
Market prices2 (in U.S. dollars a ton)173175160157152136
Exports3
Volumes99.3105.4105.1111.5116.1112.04
Argentina4.53.83.810.27.46.94
Australia15.010.712.46.610.69.04
Canada17.416.219.622.221.622.04
France12.014.812.714.715.816.54
United States36.945.141.641.043.639.64
Other countries13.514.815.016.817.118.04
Unit values5 (in U.S. dollars a ton)1881901731601571434
Earnings (in millions of U.S. dollars)18,67020,04018,15017,92018,23016,0204
Industrial countries16,63017,78016,14015,23016,16014,0404
Developing countries1,4301,6201,3102,1701,6401,4004
Other countries66106407005204305804
Sources: Data for world commodity balance from U.S. Department of Agriculture, Foreign Agriculture Circular: Grains (Washington), various issues. Data on exports from U.N. Food and Agriculture Organization, FAO Trade Yearbook (Rome), various issues.

While the general trend in wheat prices since 1980/ 81 has been downward, there has been some variation in the direction of the price movements; seasonal lows are usually reached in July and seasonal highs in April. In 1983/84 the prospect of a record wheat crop caused prices to decline from $167 a ton in April 1983 to $147 a ton in July 1983. Prices recovered in August and September 1983, however, when it became clear that the effects of a drought in the United States and large-scale farmer participation in the 1984 U.S. maize program, as well as a poor barley crop in the European Community (EC),12 would result in a sharply lower feedgrain harvest. During the third quarter of 1983 and the first quarter of 1984, a very low wheat to maize price ratio caused by comparatively high maize prices, resulted in a sharp increase in wheat fed to livestock and poultry. This helped to sustain the wheat price within a narrow range between $151 and $154 a ton. In March and April 1984, when the market focused on the outlook for the 1984/85 crop, prices rose because of continued firmness in maize and soybean prices and uncertainties arising out of successive modifications of the U.S. wheat program for 1984. Forecasts of a 3 million ton increase in the U.S. wheat crop, the prospect of large crops in the EC and Canada, and the likelihood of a sharp increase in feedgrain supplies caused prices to weaken in May 1984. With the onset of the Northern Hemisphere wheat harvest adding to already substantial carryover stocks and declining maize and soybean prices, wheat prices declined to $147 a ton by July, virtually the same level as a year earlier.

Prices recovered from their seasonal lows in August 1984 and remained firm through November 1984 owing to less favorable crop prospects in Canada and the U.S.S.R. and heavy wheat purchases by the U.S.S.R. With the Southern Hemisphere harvest adding to already ample supplies and with a reduction in the rate of U.S.S.R. and Chinese purchases, price competition intensified among the major exporters after December 1984 and by July 1985 prices had declined to an average of $129 a ton for the month. Prices, which continued to weaken with the progress of the Northern Hemisphere harvest, fell to $125 a ton by September 1985, but recovered during the fourth quarter of the year as “free” supplies of wheat declined because of increasing use of support mechanisms by farmers. This was most evident in the United States, where by the end of November 1985 about 30 percent of the 1985 wheat harvest had been placed under the government loan rate. By December 1985, prices had recovered to $137 a ton.

The 1984/85 world wheat harvest of 514 million tons was 5 percent larger than the record 1983/84 crop of 491 million tons. Production in the major exporting countries increased by 7 percent largely because of ideal weather conditions. The increasing use of high-yielding wheat varieties boosted yields to record levels in the EC and caused production in that group of countries to increase by 17 million tons. In the United States, notwithstanding the 1984 wheat program that was designed to reduce output, production increased by 7 percent owing to an increase in the area harvested. Despite a record acreage sown to wheat, production in Canada fell by 20 percent as hot, dry weather during July and August lowered yields. The Australian wheat crop in 1984/85, of 18.3 million tons, the second largest ever, was, nevertheless, about 17 percent lower than the record 1983/84 crop. Output in Argentina was about 3 percent larger than in 1983/84.

In the major importing countries production increases in 1984/85 of 18 percent in Eastern Europe, 8 percent in China, and 5 percent in India, more than compensated for an 8 percent decline in the U.S.S.R. wheat crop. Dry weather reduced the 1984/85 U.S.S.R. wheat crop to 73.0 million tons, making it the smallest crop since 1975/76.

Increased use of wheat to offset food production shortfalls, especially in Africa, and a further increase in consumption in China contributed to a 3 percent increase in world wheat utilization in 1984/85. A very low wheat to feedgrain price ratio during the early part of the crop year resulted in larger amounts of wheat being fed to livestock and poultry, but with the recovery in feedgrain supplies in 1984/85, more typical price relationships were reestablished and the feed use of wheat in 1984/85 is estimated to be sharply lower than in the previous year.

World trade in wheat (including food aid but excluding intra-EC trade) grew by 5 percent to a record 108.2 million tons in 1984/85 largely because of a 37 percent increase in wheat imports by the U.S.S.R. Imports by China, the second largest importer, however, declined by 23 percent owing to increased domestic production. Food aid shipments of wheat to help alleviate food shortages in Africa increased during the crop year. Ending stocks, which had increased from 96.4 million tons in 1982/83 to 100.8 million tons in 1983/84, increased by 14 percent to 115.5 million tons by the end of the 1984/85 crop year.

Though the volume of world exports in calendar year 1981, at 105.4 million tons, was virtually the same as that in 1982 of 105.1 million tons, total world wheat export receipts declined from $20.04 billion in 1981 to $18.15 billion in 1982 because of a 9 percent decline in export unit value. In 1983 the world wheat export volume increased by 6 percent to 111.5 million tons, but export receipts declined to $17.92 billion as prices continued to decline. In 1984 the volume of world wheat exports increased to 116.1 million tons, and export receipts recovered to $18.23 billion. In 1985 the volume of world wheat exports is estimated to have declined by 3½ percent; this decline together with a 9 percent decline in export unit values is estimated to have resulted in a 12 percent decline in export earnings from wheat.

With the completion of the Southern Hemisphere harvest, the 1985/86 world wheat crop is estimated at 504 million tons, or slightly less than the record 514 million ton crop of the previous year. World wheat area in 1985/86 was virtually the same as in the previous year, and the reduction in output was largely the result of slightly lower yields. U.S. wheat production declined by about 5 million tons owing to a 3.7 percent reduction in the area harvested and a similar decline in yields. In the U.S.S.R., wheat production is estimated to have increased to 83 million tons, which is much higher than the previous year’s poor crop of 73 million tons. The 1985/86 wheat crop in the EC declined by 14 percent to 66 million tons owing to a 9 percent drop in average yields and a 4 percent fall in the area harvested; however, the 1985/86 EC wheat crop was still the second largest ever. In the Southern Hemisphere, production in Argentina is expected to decline by 36 percent because of extensive flooding, while Australian wheat production is forecast at 16.5 million tons, compared with 18.3 million tons in 1984/85. As world wheat utilization is expected to be about 10 million tons lower than world production, stocks are expected to continue to increase to 127.2 million tons. The volume of exports is expected to decline further in 1986, and downward pressure on prices is expected to intensify as the main exporters compete aggressively for a shrinking market.

Under the recently enacted 1985 U.S. farm bill, loan rates for wheat for the 1986 crop were set at the lowest level permitted under the Act: $2.40 a bushel in 1986 compared with $3.30 a bushel in the previous year. Despite the supply limiting provisions of the bill, including an increase in the wheat acreage reduction program to 25 percent and the introduction of a conservation reserve, U.S. wheat production is not expected to decline sharply because the target price, on which income support payments are based, will remain at the 1985 level in both 1986 and 1987. The reduction in the loan rate is expected to depress wheat prices, and if weather conditions remain normal in the major wheat exporting and importing countries, wheat prices can be expected to decline further as the competition for markets intensifies.

Maize

While maize is an important staple food in many countries, approximately one half of world maize production is used for animal feed, particularly for poultry. Maize is also used for the production of high fructose corn syrup, industrial starch, and other products. Prices of maize have been strongly influenced by production and policy in the United States, which accounts for about 45 percent of world supply and about three fourths of world exports (Table 12). A record crop in the United States in 1979/80, which resulted in an 8 percent increase in world production, caused prices to decline from an average of $120 a ton in the second half of 1979 to $106 a ton by January 1980.13 In the 1980/81 crop year (October/September), drought in both Argentina and the United States contributed to a 4 percent decline in world maize production; prices recovered to an average level of $131 a ton in 1981. This was followed in 1981/82 by a 22 percent increase in U.S. maize production and a 9 percent increase in world maize output, which caused prices to decline to $108 a ton in 1982. In 1982/83, though world production was virtually the same as in the previous year, prices began to recover, owing to increased imports by the U.S.S.R. and a reduction in free stocks in the United States because of the movement of maize into farmer-owned reserves.

Table 12.Maize: World Commodity Balance, Market Prices, and Exports, 1980-86(In millions of tons, unless otherwise indicated)
Crop Years (October/September)
1980/811981/821982/831983/841984/851985/86
Commodity balance
Production404.6439.2438.4345.9456.1480.9
China61.059.260.368.273.464.0
United States168.8206.2209.2106.0194.5225.2
Other countries174.8173.8168.9171.7188.2191.7
Utilization413.0412.7418.6409.4434.6424.3
China61.860.262.867.968.360.0
United States123.8127.3137.7119.6131.2132.8
Other countries227.4225.2218.1221.9235.1231.5
Closing stocks50.376.896.632.954.4111.0
United States26.355.279.318.435.090.6
Others24.021.617.314.519.420.4
Calendar Years
198019811982198319841985
Market prices1 (in U.S. dollars a ton)126131108136136112
Exports
Volumes79.879.470.069.068.569.82
United States63.254.948.947.649.643.92
Other countries16.624.521.121.418.925.92
Unit values3 (in U.S. dollars a ton)1481541281431491302
Earnings (in millions of U.S. dollars)11,85012,2308,9409,84010,2009,0702
Industrial countries10,1009,2807,0007,9008,5307,4902
Developing countries1,6902,8901,9001,9001,6301,5402
Other countries46060404040402
Sources: Data for world commodity balance from U.S. Department of Agriculture, Foreign Agriculture Circular: Grains (Washington) various issues; data on exports from U.N. Food and Agriculture Organization, FAO Trade Yearbook (Rome), various issues.

The introduction of an attractive payment-in-kind (PIK) component in the 1983 U.S. maize program resulted in large-scale farmer participation in that program. Reports of intended low levels of planting in the United States, and a sharp reduction in the South African maize crop, caused maize prices to rise to $134 a ton in the second quarter of 1983. A severe drought in the U.S. maize belt, the worst in 50 years, boosted prices further to $147 a ton in the third quarter of 1983. Despite the onset of the Northern Hemisphere harvest, prices remained firm because it was apparent that total available supplies in 1983/84 would be sharply lower than in the previous year. In spite of larger crops in China, the U.S.S.R., and Mexico, a 49 percent reduction in the U.S. maize crop caused global maize production to declined by 21 percent to 346 million tons in 1983/84. Total planted acreage in the United States was 26 percent lower than in 1982/83 largely on account of the PIK program, while yields declined by 28 percent owing to the effects of the severe drought.

Despite the sharp drop in world maize production in 1983/84, world maize consumption at 410 million tons was only 2 percent below consumption in the previous year. Import demand for maize remained strong because of production shortfalls in the U.S.S.R. and South Africa and, despite the sharp rise in maize prices, total maize imports in 1983/84 were only 6 percent lower than in the previous year. The result was a large drawdown in stocks from 97 million tons at the end of the 1982/83 crop year to 33 million tons at the end of the 1983/84 year. Thus, notwithstanding the relatively low wheat prices and a sharp increase in the amount of wheat fed to livestock, the global maize supply situation remained very tight, and maize prices in the 1983/84 crop year averaged $143 a ton or about 15 percent higher than in the 1982/83 crop year.

In 1984/85 world maize production recovered to 456 million tons in 1984/85 largely as a result of a recovery in U.S. production. The area planted to maize in the United States increased by 33 percent in 1984, and yields recovered by 31 percent from the drought-reduced level of 1983/84. As a result, maize production in the United States recovered from 106 million tons in 1983/84 to 195 million tons in 1984/85. Despite the sharp increase in world maize production in 1984/85, ending stocks are recovered only partially, to 54 million tons, because world maize utilization increased by 6 percent in 1984/85 to 435 million tons. Lower prices and record U.S.S.R. maize imports, resulting from a 13 percent reduction in the U.S.S.R. coarse grain crop, boosted the 1984/85 world maize imports to 66 million tons, or to a level some 9 percent higher than in 1983/84.

Despite a large increase in the area planted to maize in the United States in 1984, the prospect of a sharply lower U.S.S.R. coarse grains crop and a drawdown in maize stocks kept prices firm during the first nine months of 1984 when prices averaged $142 a ton or 7 percent higher than during the same period of 1983. The onset of the Northern Hemisphere harvest helped to alleviate the tight supply that caused prices to decline to an average level of $117 a ton in the fourth quarter of 1984. Following the seasonal pattern associated with a crop of normal size, maize prices strengthened during the first half of the 1984/85 crop year. Prices weakened, however, from $120 in April to $102 in September 1985, when the prospects for the 1985/86 crop year indicated a large increase in world maize production and a downturn in world trade, owing to sharply lower projections of imports by the U.S.S.R. With the start of the 1985/86 maize harvest in October 1985, prices declined further to $98 a ton, but recovered to $106 a ton in November and $109 a ton in December because heavy placement of crops under government loans reduced free supplies. Delays in harvesting and sizable sales to the U.S.S.R., Brazil, and Mexico also contributed to the recovery in prices. World maize production in 1985/86 is projected to be about 481 million tons or about 5 percent higher than in 1984/85, while world maize utilization in 1985/86 is expected to be about 10 million tons lower than in 1984/85. By the end of the 1985/86 crop year, closing stocks are expected to rise to 111 million tons or to a level about double that at the end of the 1984/85 crop year. This build up in stocks and the reduction in the U.S. loan rate for maize from $100 a ton in 1985 to $76 a ton in 1986 are expected to depress maize prices in 1986 and 1987.

The value of world trade in maize declined from $12.2 billion in 1981 to $8.9 billion in 1982, owing to a drop in both export volumes and export unit values. In 1983, the value of world trade recovered to $9.8 billion owing to a sharp rise in maize prices; earnings in 1984 increased to $10.2 billion as a result of an increase in export volume. As a result of a sharp fall in export values during 1985 earnings are estimated to have declined to $9.1 billion.

Rice

Most of the world’s rice is consumed in the countries where it is produced, and as only about 4 percent of production enters international trade, the world market for rice is a residual market. The bulk of the world’s rice is grown in Asia, where it is subject to the vagaries of the monsoons. As a result, relatively small changes in output can cause substantial instability in export availability and prices.

A poor crop in India in 1980 and a production shortfall in Korea in 1981 caused prices to rise by 30 percent in 1980 and by a further 11 percent to $483 a ton in 1981.14 This level of prices was second only to that recorded in 1974. Since 1981, world import demand for rice has weakened because of a steady increase in world rice production in the major rice-importing countries owing to generally favorable weather conditions World rice production (unmilled basis) has increased at an annual average rate of 3.4 percent in the 1980s (Table 13). Production in Asia, which accounts for about 90 percent of total output, increased at a more rapid rate of 3.8 percent per annum owing to production increases in China, India, and Indonesia. These production increases enabled some Asian countries which were major importers in recent years, such as Indonesia, to become increasingly self-sufficient. On the other hand, imports by African countries have risen substantially since 1980.

Table 13.Rice: World Commodity Balance, Market Prices and Exports, 1980-86(In millions of tons, unless otherwise indicated)
Crop Years1
1980/811981/821982/831983/841984/851985/86
Commodity balance
Production
(unmilled basis)398.8412.6419.5452.7467.6463.3
China139.9144.0161.2168.9178.3167.0
India80.580.070.790.288.091.5
Indonesia29.732.833.638.038.039.0
Bangladesh20.820.521.322.022.023.1
Thailand17.417.81Í.919.518.319.8
Other countries110.5117.5115.8114.1123.0122.9
Production
(milled basis)271.0280.6285.7308.0318.6315.3
Utilization
(milled basis)272.3281.4289.6308.1314.0313.3
China97.5100.5112.4117.3123.9116.1
India53.354.148.558.258.360.3
Indonesia21.322.323.725.325.126.2
Bangladesh13.614.114.614.914.915.8
Other countries86.690.490.492.491.894.9
Closing stocks
(milled basis)22.121.317.417.321.923.9
India6.55.03.56.07.08.0
Indonesia1.82.31.81.62.82.7
United States0.51.62.31.52.12.8
Others13.312.49.88.210.010.4
Calendar Years
198019811982198319841985
Market prices2 (in U.S. dollars a ton)434483293277252216
Exports
Volumes12.713.112.111.612.511.43
Thailand2.83.03.83.54.64.13
United States3.13.12.52.42.11.93
Other countries6.87.05.85.75.85.43
Unit value (in U.S. dollars a ton)43924413413113032353
Earnings (in million of U.S. dollars)5,0505,7804,1503,6103,7902,6803
Industrial countries2,1802,5601,8301,6001,4309503
Developing countries2,7203,0802,2401,9202,2801,6703
Other countries5150140809080603
Sources: Data on world commodity balance from U.S. Department of Agriculture, Foreign Agriculture Circular: Grains (Washington), various issues. Export data from U.N. Food and Agriculture Organization, F AO Trade Yearbook (Rome), various issues.

In 1983/84 world rice production increased by 8 percent to 453 million tons owing to substantial production increases in China, India, and Thailand. Production in India recovered by 28 percent to 90 million tons from the drought-reduced crop of 71 million tons in 1982/83. Production in China increased by 5 percent to 169 million tons in 1983/84 while production in Thailand increased by 15 percent. The effects of a drought and the PIK program resulted in a 36 percent reduction in U.S. production. The United States, while accounting for little more than 1 percent of world production of rice, has accounted for approximately one fourth of world rice exports in recent years.

As the 1983/84 harvest progressed, the production outlook remained favorable, and prices fell to $255 a ton during the first half of 1984. In the third quarter of 1984, a drawdown in stocks in the period between the main harvests caused prices to recover to $266 a ton, but with the prospect of ample supplies from the 1984/85 crop, prices declined to $234 a ton in the third quarter of 1984 and to $222 a ton during the first quarter of 1985. During the second half of 1985 prices fell to an average level of $213 a ton.

In calendar year 1984, world trade in rice was estimated to have risen by 8 percent to 12.5 million tons, largely on account of an estimated 22 percent increase in exports from Thailand. Extensive flood damage to the main rice crop in Bangladesh caused that country’s rice imports to increase from 0.1 million tons in 1983 to an estimated level of 0.6 million tons in 1984. Despite a good 1983/84 crop, India imported 0.3 million tons of rice in 1984 to replenish rice stocks drawn down by the shortfall in rice production in 1982/83. For the first time since 1977, the Philippines reentered the rice market as an importer in order to rebuild government rice stocks. On the other hand, favorable weather conditions and large rice stocks caused Indonesia’s rice imports to decline from 1.2 million tons in 1983 to 0.4 million tons in 1984. World rice production in 1984/85 was about 3.3 percent higher than in 1983/84, but as rice utilization increased by only 2.5 percent, ending stocks increased by 3.8 million tons.

World rice export earnings declined progressively from $5.8 billion in 1981 to $4.2 billion in 1982 and $3.6 billion in 1983, but are estimated to have recovered to $3.8 billion in 1984 because of an 8 percent increase in export volume. Not only was there a sharp decline in export unit values, but the volume of world rice exports also fell steadily each year, from 13.1 million tons in 1981 to an estimated level of 12.5 million tons in 1984. Earnings are estimated to have declined to $2.7 billion in 1985 because of a 9 percent drop in export volume and a 22 percent decline in export unit value.

In 1985/86 world rice production is expected to decline by about 1 percent largely because of lower production in China owing to pest and disease infestation of late paddy crops and a reduction in the Indian paddy harvest owing to unseasonal rainfall and heavy flooding. Nevertheless, unless weather conditions in Asia deteriorate, world import demand for rice is expected to remain weak in 1986 because of large crops and ample supplies in the main rice-importing countries. World stocks, which are expected to rise to 24 million tons by the end of 1985/86, are expected to keep world rice prices relatively low during the rest of 1986. Sharply lower U.S. loan rates for wheat—which is a substitute for rice in cereal import demand—under the 1985 U.S. farm bill and the reduction in the loan rate for rice are expected to exert further downward pressure on rice prices.

Sugar

The free market price of sugar has been one of the most volatile commodity prices. Since 1974, there have been only two years in which the annual average price has changed by less than 20 percent, and in both 1974 and 1980 the price increased by close to 200 percent (Table 14). This instability is largely the result of the structure of the world sugar market. Sugar, from either sugar cane or sugar beet, is produced in all but a few countries and is consumed worldwide; in recent years, about 30 percent of world production has entered international trade (Table 15). Of this 30 percent, more than three fourths has been traded at the free market price; the remainder has been traded at more stable prices under special arrangements. Thus, only about one fifth of annual production is traded internationally at free market prices and production swings can have an exaggerated effect on the free market.

Table 14.Prices of Sugar, 1960-85(In U.S. cents a pound)
YearFree Market1European Community2United States3
19603.15.55.7
19612.95.65.7
19623.05.65.8
19638.55.77.5
19645.95.76.3
19652.15.86.2
19661.95.96.4
19672.05.96.7
19682.05.16.9
19693.45.17.1
19703.85.17.5
19714.55.27.9
19727.56.88.5
19739.66.710.3
197429.910.629.5
197520.615.422.5
197611.613.413.3
19778.114.011.0
19787.815.914.0
19799.719.315.5
198028.722.130.0
198116.918.919.7
19828.418.119.9
19838.517.622.0
19845.216.021.7
19854.115.920.4
1984I6.716.721.8
II5.716.622.0
III4.215.921.8
IV4.214.921.4
1985I3.713.720.7
II3.015.421.14
III4.216.920.44
IV5.317.619.24
Source: Commodities Division, IMF Research Department.
Table 15.Sugar: World Commodity Balance, Market Prices, and Exports, 1980-86(In millions of tons, unless otherwise indicated)
Crop Years (September/August)
1980/811981/821982/831983/841984/851985/86
Commodity balance
Production88.5100.3101.396.7100.798.0
Australia3.43.43.53.43.53.5
Brazil8.58.49.39.49.38.2
China3.03.44.13.84.65.2
Cuba7.58.27.28.38.17.0
European Community113.316.014.711.913.613.4
India6.59.79.57.07.07.3
United States5.55.55.45.35.25.4
U.S.S.R.7.26.47.48.78.68.9
Other countries33.639.340.238.940.839.1
Consumption88.590.593.895.996.897.5
Brazil6.15.86.26.36.36.3
China3.94.54.95.05.25.6
European Community110.210.410.210.010.210.1
India6.46.87.68.99.69.5
United States8.98.48.07.97.37.1
U.S.S.R.12.913.013.013.313.413.5
Other countries40.141.643.944.544.845.4
Closing stocks25.235.042.543.347.247.7
“Normal” stock level221.221.722.523.023.223.4
Stocks/consumption ratio28.538.745.345.248.848.9
Calendar Years
198019811982198319841985
Market prices (in U.S. cents a pound)
Free market328.716.98.48.55.24.1
European Community422.118.918.117.616.015.9
United States530.019.719.922.021.720.46
Exports
Volumes (Raw equivalent)27.629.331.029.828.629.86
Unit values7 (in U.S. cents a pound)24.222.816.716.516.116.26
Earnings (in million of U.S. dollars)14,71014,75011,43010,82010,12010,0806
Industrial countries3,8705,0802,9502,3702,1001,9706
Developing countries5,9105,2903,7703,4003,1002,8906
Other countries84,9304,3804,7105,0504,9205,2206
Sources: Data for world commodity balance from U.S. Department of Agriculture, Foreign Agriculture Circular: Sugar, Molasses, and Honey (Washington), various issues. Data on exports from U.N. Food and Agriculture Organization, FAO Trade Yearbook (Rome), various issues.

In recent years, the free market price has been much lower than the U.S. and EC import prices because of the glut of sugar available on that market.15 The U.S. and the EC prices, which are set in relation to domestic price support programs, have been comparatively stable Table 14).

Since the early 1970s, the free market price of sugar has gone through two cycles with the price increases triggered by production shocks. Record high prices were realized in 1974 as a result of a sharp decline in the ratio of world stocks to consumption because of a lack of investment in sugar cultivation over a number of years and a succession of poor crops in major producing countries. Whereas the extended period of relatively low sugar prices prior to the early 1970s had led to little investment in productive capacity, the 1973/74 price rise induced large investments in capacity expansion in sugar production worldwide. After rising to a record annual average of 29.9 cents a pound in 1974, the free market price declined continuously as world production expanded rapidly again from 1974/ 75 to 1978/79, and world stocks rose. Prices in the free market fell to 7.8 cents in 1978. Because of unfavorable weather, particularly in Cuba and the U.S.S.R., prices rose rapidly once again in 1979 and 1980. An average free market price of 28.7 cents a pound was recorded in 1980. The subsequent price decline during 1981/82, following an increase in production in 1980/81 of nearly 5 percent and bumper crops in excess of 100 million tons in the two following years, was equally rapid. In 1982 the price averaged 8.4 cents a pound, and it remained near that level in 1983.

In 1984, the free market price of sugar declined further to average 5.2 cents a pound. This decline, mainly reflected the significant imbalance between world sugar supply and demand and the prospects for a further increase in the already unprecedented world stock overhang in 1984/85. The downward trend in prices continued during the first half of 1985, with prices in May and June falling below 3 cents a pound for the first time since 1969. This trend was reversed during the second half of the year, however, with prices averaging 5.4 cents a pound in November and December and 4.1 cents a pound for the year. This modest increase is attributable to the expected reversal of the rapid build-up in world stocks in recent years. Some major producing countries (the Philippines and Brazil) announced deferrals of exports and an intention to cut back future production and exports, while other important producing countries (Cuba and the Dominican Republic) reported weather-related reductions in expected production.

After two years of record crops raised world stocks to unprecedented levels, production and consumption of sugar are estimated to have been in balance in 1983/ 84, although further production and stock increases are estimated for 1984/85 (Table 15). Increased areas planted to beets as well as higher yields in the EC along with improved growing conditions in South Africa, where drought had reduced crops in 1983/84, helped raise world sugar production from 96.7 million tons in 1983/84 to 100.7 million tons in 1984/85. The estimated rise in EC production accounts for 43 percent of the increase in world production in 1984/85, while that in South Africa accounts for 25 percent. The support prices for sugar expressed in European Currency Units (ECU) remained the same in 1984/85 as in the previous year, but as a result of changes in conversion factors from the ECU to the national currencies, the average support price for beet sugar in national currencies rose by 3.6 percent in the EC in 1984/85 and by 5.8 percent in France, the largest sugar producer in the Community.

World consumption, after rising by 2 percent in 1983/84, is estimated to have increased by less than 1 percent to 96.8 million tons in 1984/85. This lower rate mainly reflects the continued decline in sugar consumption in the United States, where additional high fructose corn syrup and low caloric sweeteners are being substituted for sugar in a growing number of products. Nevertheless, this decline is more than offset by increases in consumption elsewhere, particularly in India, where a 17 percent rise in domestic consumption occurred in 1983/84, and where an 8 percent rise is estimated for 1984/85.

Also contributing to the weakening of sugar prices was the collapse in June 1984 of negotiations for a new international sugar agreement, with price stabilization provisions, to replace the 1977 Agreement, which expired at the end of 1984.16 The residual nature of the free market for sugar and the inherent volatility of the free market price have militated against successful stabilization schemes for this market. In addition, the task of reaching a new agreement on stabilization measures was made more difficult by the change in the trading position of the EC, which was not a member of the 1977 Agreement, from a net importer of sugar in the early 1970s to a large net exporter of sugar in the early 1980s. As a consequence of the expiration of the 1977 Agreement, exporting countries were released from their obligations to hold special stocks under the control of the International Sugar Organization.

A number of countries have maintained average export earnings from sugar through sales in the U.S. and EC markets, where prices are significantly higher than free market quotations. However, mainly reflecting the sharp decline in free market prices, the average unit value of sugar exports and total export earnings have fallen in recent years (Table 15). Despite a 12 percent increase in the volume of world sugar exports between 1980 and 1982, export earnings fell by 22 percent. About two thirds of the absolute decline in earnings in those years was borne by the developing countries. The volume of sugar exports of developing countries has been adversely affected by both the large •increases in export volumes by the EC and by the reduction of U.S. demand for sugar imports.

World production in 1985/86 is forecast to reach 98 million tons, about 3 percent lower than in 1984/85. Production in Brazil and Cuba is expected to fall by 12 percent and 14 percent, respectively, accounting for over 80 percent of the projected decline in world output. Production in the EC is also expected to be slightly lower than in 1984/85, as production declines in Denmark, France, and the United Kingdom more than offset higher production in Belgium, the Federal Republic of Germany, and Greece. In 1985/86 the EC support price for beet sugar expressed in ECUs remained the same as in 1984/85, but the average support price for beet sugar in national currencies rose by 1.5 percent in the EC, as a result of changes in conversion factors from the ECU to national currencies. World sugar consumption is expected to rise by about 1 percent to slightly less than 98 million tons, as consumption in industrial countries, particularly the United States, continues to decline, reflecting increased substitution of alternative sweeteners for sugar. As a result, although little change is expected in the level of world stocks, the reversal in production has caused free market prices to increase to 5.8 cents a pound in the first quarter of 1986, compared with a low of 3.0 cents in the second quarter of 1985.

Vegetable Oils and Protein Meals

Vegetable oils and protein meals are mainly derived from oilseeds. Their markets are in general characterized by high degrees of substitution in demand. While a relatively small proportion of the consumption of each vegetable oil occurs in a “captive” market, where the specific oil enjoys a strong technical advantage (e.g., coconut oil and palm kernel oil in soap manufacture and groundnut oil for culinary use in the French market), the scope for substitution is great in the rest of the market. Furthermore, new processing methods have increased the interchangeability of the various oils. Similarly, there is considerable scope for substitution among protein meals.

The supply side of the market is much more heterogeneous. There are considerable differences in the gestation lags in production of the various oilseeds, and the complexity of the market reflects the fact that all oils are to varying degrees joint products of meal production. At one extreme, soybeans is an annual crop which by weight is 80 percent meal and 18 percent oil. Meal revenues have typically been so dominant as to render to soybean oil the status of a by-product. At the other extreme, palm oil is a perennial with only minor revenues attributable to the production of meal, in this case from the palm kernel. Nevertheless, the soybean complex (Table 16) has in the past dominated the rest of the sector: in general, soybean production has been responsive primarily to meal demand, with the soybean oil jointly produced in crushing in turn strongly influencing the prices of other oils. As a result of this structure of soybean oil supply, coupled with long gestation lags for other major oils, prices for vegetable oils are highly unstable, while meal prices are relatively stable because of substitution with other feeds, particularly maize (Table 17). Moreover, buoyant growth in meal demand has typically resulted in abundant supplies of relatively low-priced oils.

Table 16.World Commodity Balance: Major Oilseeds, 1980-86(In millions of tons)
Crop Years (October/September)
1980/811981/821982/831983/841984/851985/86
Oil equivalent1
Production41.545.247.245.051.153.9
Soybeans14.615.216.714.916.517.7
Palm oil5.16.05.96.26.97.6
Groundnuts4.75.85.15.45.75.7
Copra3.13.02.92.43.03.1
Other214.015.216.616.119.019.8
Noncrush use6.07.37.47.57.68.2
Soybeans2.02.72.72.82.72.8
Groundnuts1.92.52.32.42.52.6
Other2.12.12.42.32.42.8
Crushings/oil production36.238.239.738.442.643.9
Soybean oil12.912.713.612.813.213.4
Palm oil5.16.05.96.26.97.6
Groundnut oil2.73.32.92.93.13.1
Coconut oil2.92.92.82.32.93.0
Other12.613.314.514.216.516.8
Oil consumption38.138.339.938.742.243.8
Soybean oil13.113.013.513.113.213.3
Palm oil5.55.76.26.16.87.5
Groundnut oil3.03.32.92.93.13.1
Coconut oil3.22.92.82.32.83.0
Other13.313.414.514.316.316.9
Closing stocks7.36.96.85.66.98.8
As oilseeds34.23.94.03.14.05.8
As oil43.13.02.82.52.93.0
Meal equivalent1
Production97.9106.2113.0102.2116.8123.1
Soybeans64.168.374.364.471.877.8
Other33.837.938.737.845.045.3
Noncrush use15.319.720.019.619.520.1
Crushings/meal production84.687.691.985.993.794.9
Soybeans56.957.360.555.457.658.9
Other27.730.331.430.536.136.0
Meal consumption85.288.091.385.493.895.0
Soybean meal57.857.759.955.057.959.0
Other27.430.331.430.435.936.0
Closing stocks17.816.318.015.218.726.7
As oilseeds314.713.614.711.415.023.1
As meal53.12.73.33.83.73.6
Source: U.S. Department of Agriculture, Foreign Agriculture Survey: Oilseeds and Products (Washington), various issues.
Table 17.Prices of Vegetable Oils and Protein Meals, 1960-85(In U.S. dollars a ton)
YearSoybean Oil1Palm Oil2Coconut Oil3Groundnut Oil4Soybean Meal5Groundnut Meal6Fish Meal7
19602242243123277894118
19612872282533308189131
19622272102492758998149
196322421828326891102145
196423323429731689105161
196527027334932573115203
196626223431229687107182
196721722331928385107145
196817816838627198101129
196919718534733295108172
1970286260379378103115197
1971304262353446102110168
1972241217248426129137239
1973436376513544303299542
19748326919981,058184196372
1975563420394778155158245
1976438397418691198198376
1977580530578846230245454
19786076006831,079213231410
1979662654985889243238395
1980598583673859259272504
19815075715701,043253269468
1982447445467585218208354
1983527501730711238229453
19847257291,1551,017197188373
19855765015909051571468280
1984I6948651,1171,031229225458
II8438581,2981,162214194385
III6905841,176990178168331
IV6746081,029884168163319
1985I653609818902157148293
II6756066691,007145136268
III518419468863151143259
IV4583694068491751588300
Source: Commodities Division, IMF Research Deparmtent.

During the period from the final quarter of 1983 to the third quarter of 1985, this more typical structure of oilseed product prices was temporarily altered. The soybean complex, and by implication the oilseeds sector as a whole, experienced a notable increase in the oil to meal price ratio in the two years to June 1985. Under the influence of weak meal demand stemming in the main from greater use of other feeds, the soybean meal price fell by almost 50 percent between August 1983 and June 1985, reaching $141 a ton—its lowest level in nominal terms for over 12 years—before recovering in the second half of 1985. In contrast, vegetable oil prices attained record highs in mid-1984 (the precise timing differing among oils), and despite subsequent declines, oil prices in June 1985 were generally higher than two years earlier. Typically, the meal content of soybeans has accounted for approximately two thirds of that oilseed’s value; but as the soybean oil price climbed from roughly double to more than four times the meal price, the value of soybeans attributable to its meal content fell to around 50 percent in June 1985. Subsequently, a more normal relationship between meal and oil prices emerged during the latter part of 1985, with oil prices weakening and some recovery in meal prices. Movement in the overall index for oils and meals has, as in the past, been dominated by the swings in oil prices. In October 1982 both oil and meal prices were at cyclical lows, with the index at 69.7 (1980 = 100). But while meal prices declined after peaking in August 1983, the index, under the influence of rising oil prices, peaked at 119.4 in May 1984. Subsequently, declining meal prices reinforced the downturn in oil prices with the index falling to a low of 67.4 in September 1985 before recovering slightly in the final quarter of the year.

Total export earnings from oilseeds and oilseed products are substantial. For the four oilseeds included in the index (soybeans, copra, palm, and groundnuts), total export proceeds, including earnings from product exports, amounted to $17.5 billion in 1980, rising to a peak of $19.0 billion in 1984. Within this total, the share accruing to developing countries has risen sharply from less than 39 percent in 1980 ($6.8 billion) to over 49 percent in 1984 ($9.6 billion). Two factors explain this rising share. First, growth in export volumes has been heavily concentrated in developing countries, with U.S. exports of soybean products recording no volume increases between 1979 and 1984. Second, the decline in meal prices and dramatic rise in oil prices both depressed earnings of soybean exporters (given the dominance of meal revenues in total soybean values) and sharply increased export earnings for other oilseeds with much higher oil content. In 1984, 64 percent of developing country export earnings from oilseed products of soybeans, copra, palm, and groundnuts were attributable to the oil content of these exports.

Soybeans and Soybean Products

The strength of oils prices in 1984 owed much to a sharp decline in soybean production in the 1983/84 (October/September) marketing year. Production of other oilseeds also fell, including declines of 17 percent for copra, 7 percent for sunflower seed, and 4 percent for rapeseed; but of the 5 percent fall in total oilseeds production, in terms of oil equivalent (Table 16), almost 80 percent was attributable to reduced soybean output. U.S. soybean production fell by 25 percent as drought compounded the indirect impact of the payment-in-kind (PIK) program, contributing to a 12 percent reduction in world production to 82.6 million tons (Table 18). Soybean crushing declined less, falling by 7 percent, but closing soybean stocks fell to a five-year low of less than 10 weeks crushings. The consequent decline in oil production was reflected in the soybean oil price, which peaked at $914 a ton in May 1984. In spite of the fall in soybean meal output, meal stocks continued to rise and meal prices continued to decline (Table 19).

Table 18.Soybeans: World Commodity Balance, Market Prices, and Exports, 1980-86(In millions of tons, unless otherwise indicated)
Crop Years (October/September)
1980/811981/821982/831983/841984/851985/86
Commodity balance
Production81.086.193.682.691.198.8
Brazil15.212.814.815.217.216.2
United States48.954.159.644.550.657.9
Other countries16.919.219.222.923.324.7
Crushings71.972.276.271.173.074.8
Brazil13.812.813.712.512.912.9
United States27.828.030.226.828.029.1
Other countries30.331.432.331.832.132.8
Noncrush use10.915.215.115.414.915.4
Closing stocks16.214.917.213.316.425.0
Calendar Years
198019811982198319841985
Market prices (in U.S. dollars a ton)1296288245282282224
Exports
Volumes26.926.228.926.625.824.52
Argentina2.72.21.91.43.13.52
United States21.821.925.522.719.517.02
Other countries2.42.11.52.53.24.02
Unit value (in U.S. dollars a ton)32642822432562792202
Earnings (in millions of U.S. dollars)7,1007,39j07,0306,8007,2105,3902
Industrial countries6,0006,2906,3305,9805,4903,7402
Developing countries1,1001,1007008201,7201,6502
Source: Data for world commodity balances from U.S. Department of Agriculture, Foreign Agriculture Survey: Oilseeds and Products (Washington), various issues for commodity balance; data on exports from U.N. Food and Agriculture Organization, FAO Trade Yearbook (Rome), various issues for exports and export earnings.
Table 19.Soybean Meal: World Commodity Balance, Market Prices, and Exports, 1980-86(In millions of tons, unless otherwise indicated)
Crop Years (October/September)
1980/811981/821982/831983/841984/851985/86
Commodity balance
Production56.957.360.555.457.658.9
Brazil10.69.910.69.79.910.0
European Community8.29.38.87.67.67.5
United States22.022.424.220.722.323.0
Other countries16.115.716.917.417.818.4
Consumption57.857.759.955.057.959.0
European Community13.816.915.315.015.214.9
United States16.016.117.516.017.718.0
Other countries28.024.727.124.025.026.1
Closing stocks2.42.02.63.02.72.6
Calendar Years
198019811982198319841985
Market prices (in U.S. dollars a ton)1259253218238197157
Exports
Volumes17.820.120.022.920.722.02
Brazil6.68.97.88.57.68.52
United States7.06.36.26.54.54.52
Other countries4.24.9-6.07.98.69.02
Unit value (in U.S. dollars a ton)32372512222272121552
Earnings (in millions of U.S. dollars)4,2205,0504,4305,1904,3803,4102
Industrial countries2,5802,7002,4902,7802,0801,2102
Developing countries1,6402,3501,9402,4102,3002,2002
Source: Data for world commodity balance from U.S. Department of Agriculture, Foreign Agriculture Survey: Oilseeds and Products (Washington), various issues; data on exports from U.N. Food and Agriculture Organization, FAO Trade Yearbook (Rome), various issues.

As a result of the strengthening oil price, the soybean price was well supported through the first half of 1984, despite weakening meal markets.17 Soybean production in 1984/85 is estimated to have recovered by over 10 percent. Better growing conditions returned normal yields in the United States, where in addition the higher soybean/corn price ratio and a smaller acreage reduction program boosted soybean acreage; Brazilian production also increased by 13 percent. In anticipation of the higher soybean crop, and with meal stocks plentiful, the decline in the soybean meal prices continued. After declining by 35 percent in the 12 months from the last peak in August 1983, the soybean meal price fell a further 22 percent in the 10 months to June 1985, to a low of $141 a ton.

In part, the weakness of meal prices—reflected in other oilseed meals—stemmed from lower prices for competing feedgrains and slower growth in livestock production. But other factors also contributed to the fall in the U.S. soybean meal/maize price ratio to its lowest level in more than 20 years. In the EC, which accounts for roughly one fourth of world soybean meal consumption and one half of soybean and soybean meal imports (both in terms of meal equivalent), slower growth of meal usage was accentuated by a switch toward other feeds. Higher wheat production in the EC encouraged its feed use, and protein meals derived from rising domestic production of rapeseed and sunflower seed reduced EC soybean meal imports. In addition, as U.S. production of high fructose corn syrup expanded, displacing sugar in almost all U.S. caloric soft drink production, corn wet millers have exported corn gluten by-products to the EC, where they are subject to lower duties than maize.

The overall supply/demand balance for eight major oilseeds (Table 16) and similar balance for soybeans (Table 18) illustrate the crucial role of weak meal demand in producing relatively high oil prices. In the two years to September 1984, end-year stocks of oilseed meals increased steadily with soybean meal accounting for the greater part of this rise, despite the fall in crushings in 1983/84, as soybean meal consumption declined. Stocks of oils (Tables 16 and 20) reached new lows at the end of the 1983/84. Oil prices in general, and that of soybean oil in particular, have in recent months been supported by the low level of demand for meal. This constrained the production of the soybean oil by-product of crushing, despite better availability of oilseeds in 1984/85.

Table 20.Soybean Oil: World Commodity Balance, Market Prices, and Exports, 1980-86(In millions of tons, unless otherwise indicated)
Crop Years (October/September)
1980/811981/821982/831983/841984/851985/86
Commodity balance
Production12.912.713.612.813.213.4
Brazil2.62.42.62.42.42.4
European Community1.82.01.91.71.71.7
United States5.15.05.54.95.25.3
Other countries3.43.33.63.83.94.0
Consumption13.113.013.513.113.213.3
Brazil1.51.51.61.51.51.6
European Community1.51.61.51.31.31.3
United States4.14.34.54.44.54.5
Other countries6.05.65.95.95.95.9
Closing stocks1.71.41.51.21.21.3
Calendar Years
198019811982198319841985
Market prices (in U.S. dollars a ton)1598507447527725576
Exports
Volumes3.23.53.43.64.04.02
Brazil0.71.30.81.10.91.02
United States1.10.80.90.81.00.82
Other countries1.41.41.71.72.12.22
Unit value (in U.S. dollars a ton)36255424804987166002
Earnings (in millions of U.S. dollars)2,0001,8901,6401,8202,8802,4002
Industrial countries1,4601,1401,1001,0901,6901,3602
Developing countries5307405307201,1701,0202
Other countries41010101020202
Source: Data for world commodity balance from U.S. Department of Agriculture, Foreign Agriculture Survey: Oilseeds and Products (Washington), various issues. Data on exports from U.N. Food and Agriculture Organization, FAO Trade Yearbook (Rome), various issues.

Since June 1985, protein meal prices have recovered; the price of soybean meal increased by almost 26 percent in the six months to December 1985 to $178 a ton. Despite this, protein meal prices remain at historically low levels. Demand for meals has improved, but forecasts for soybean production in 1985/86 indicate a further 8 percent rise, with closing soybean stocks rising to a record high of 25 million tons. The recovery in meal demand and hence crushings has further reduced oil prices, including soybean oil which in October fell to less than half the peak level of May 1984 before recovering slightly to $470 at the year end.

Recent export volumes for soybeans and soybean products are set out in Tables 18, 19, and 20. Soybean exports peaked at 28.9 million tons in 1982 and declined in the following three years to reach 24.5 million tons in 1985 as demand for meal slackened. A trend toward trade in soybean products largely insulated exports of soybean meal itself from the weakening demand, which had its main impact on exports of soybeans. By 1985, soybean exports had fallen 9 percent below their 1980 level; in contrast, meal exports increased by 24 percent in the same period, to stand at an estimated 22.0 million tons in 1984. In 1980, 45 percent of the total meal equivalent of soybean and soybean meal exports was traded as meal; by 1985 this share had risen to 50 percent. Exports of soybean oil rose in the five years to 1985, reaching 4.0 million tons. The same trend toward trade in products was evident for soybean oil; between 1980 and 1985 the proportion of the total oil equivalent of soybeans and soybean oil traded as oil increased from 40 percent to 48 percent.

The strength of soybean oil prices in 1984 and the high level of oil exports, brought export earnings from soybeans and soybean products to a peak of $14.5 billion in that year. This was only slightly higher than the previous peak in 1981, but the composition of earnings was markedly different. In 1981, 70 percent of total export earnings were attributable to the meal content of these exports. As meal prices weakened and export volumes declined, the proceeds from oil exports (including the oil content of soybean exports) rose to an estimated $6.0 billion in 1984, or 41 percent of total export earnings from soybean and soybean products. In line with this growth in oil export earnings, the earnings of developing countries in the soybean complex climbed sharply from $3.3 billion in 1980 to $5.2 billion in 1984, while industrial countries’ earnings, in which meal proceeds (including the meal content of soybeans) are dominant, fell from $10.1 billion in 1980 to $9.3 billion in 1984. In 1985, earnings from soybean and soybean product exports fell by an estimated 23 percent to $11.2 billion, reflecting the sizable year-on-year declines in the market prices of both oils and meals. In aggregate the volumes of oil and meal traded as soybeans or soybean products are estimated to have been little changed in 1985. Within these totals, however, volumes exported by developing countries are estimated to have risen sharply so that the decline in total earnings from soybean and soybean products was heavily concentrated in industrial countries, whose share of these earnings fell further to 56 percent as compared with an average of 73 percent between 1980 and 1983.

Palm Oil

Palm oil is the fastest growing of all vegetable oils, with production rising at an average rate of 10 percent per annum since the early 1970s. This rapid expansion, dominated by Malaysia, is projected to bring palm oil’s share of vegetable oil production in 1985/86 to over 17 percent, second only to soybean oil’s 31 percent share (Table 16). In trade, palm oil is of even greater significance, accounting for 20 percent of the oil equivalent of exports of leading oils and oilseeds.

Reflecting the high degree of substitutability in consumption between palm oil and soybean oil, the prices of the two oils have displayed broadly the same cyclical movement, with the price of palm oil rising strongly from a low of $355 a ton in October 1982, to peak at $951 a ton in May 1984.18 On average, palm oil has traded at parity to soybean oil, but there is a clear seasonal pattern to the differential. Reflecting the seasonal peak in Malaysian palm oil production in the third quarter, palm oil has in recent years traded at a discount of more than 10 percent to soybean oil during this quarter. In the final quarter of 1983, the seasonal recovery in palm oil prices was accentuated, with palm oil’s premium over soybean oil reaching over 30 percent in February 1984. As the soybean oil price rose to a peak in May 1984, this premium was eroded. Since then, palm oil has traded at a discount to soybean oil, reflecting a resumption of more rapid production growth in Malaysia, and until recently, the relative tightness of soybean oil supplies. Palm oil’s seasonal discount to soybean oil peaked at over 22 percent in September 1985, and the palm oil price reached its lowest level for almost three years in October 1985, having fallen by 63 percent from the May 1984 peak to $356 a ton. In the following two months the seasonal upturn brought a slight increase to a year-end price of $390 a ton.

Rapid growth in palm oil production was temporarily halted in 1982/83, with only a modest increase in 1983/ 84 as production in Malaysia, which accounts for over half of total production and around two thirds of total exports, first fell by 5 percent in 1982/83 and then rose by only 4 percent in 1983/84 (Table 21). This strong contrast with production growth at an average annual rate of 18 percent in 1980/81 and 1981/82 was the result of two factors: tree stress in 1982 associated with the introduction of Cameroon weevil to assist in palm pollination, and the initial and delayed effect of drought in 1982/83.

Table 21.Palm Oil: World Commodity Balance, Market Prices, and Exports, 1980-86(In millions of tons, unless otherwise indicated)
Crop Years (October/September)
1980/811981/821982/831983/841984/851985/86
Commodity balance
Production5.065.955.916.206.937.55
Indonesia0.750.880.981.061.151.25
Malaysia2.693.353.183.323.804.30
Other countries1.621.721.751.821.982.00
Consumption5.515.686.156.106.827.48
India0.430.400.600.550.650.70
Indonesia0.570.610.670.981.031.00
Other countries4.514.674.884.575.145.78
Closing stocks0.520.790.550.650.760.83
Calendar Years
198019811982198319841985
Market prices (in U.S. dollars a ton)1583571445501729501
Exports
Volumes3.483.103.683.884.224.802
Malaysia2.142.362.702.912.963.202
Other countries1.340.740.980.971.261.602
Unit value (in U.S. dollars a ton)35535184344356575312
Earnings (in millions of U.S. dollars)1,9101,6101,6001,6902,7802,5502
Developing countries1,9101,6101,6001,6902,7802,5502
Source: Data for world commodity balance from U.S. Department of Agriculture, Foreign Agriculture Survey: Oilseeds and Products (Washington), various issues for commodity balance. Data on exports U.N. Food and Agriculture Organization, FAO Trade Yearbook (Rome), various issues. These data include only exports from palm oil producing countries.

In 1984/85, production is estimated to have increased sharply as recovery from both these influences, coupled with higher fertilizer usage prompted by recent high prices for palm oil, enhanced palm fruit yield. Reflecting an increase of 15 percent in Malaysia’s production to 3.8 million tons and continued expansion in Indonesia’s production—largely for domestic consumption—total production in 1984/85 rose by 12 percent to 6.9 million tons. The impact of this return to higher production on the palm oil price was accentuated by an unexpected change in the seasonality of production in Malaysia, which is thought to be a consequence of pollination by the Cameroon weevil. This changed pattern of production was reflected in a 40 percent increase in Malaysia’s palm oil output in the first half of 1984/85 from the level of the corresponding period in the previous year, with exports showing a rise of similar magnitude. Unlike higher production of oilseeds, especially soybeans, for which the oil meal market is of greater importance, this higher palm oil production did not require a favorable crushing margin to be translated into greater oil supplies. This factor contributed to the maintenance of palm oil prices at a discount to soybean oil. Initial estimates for 1985/ 86 indicate a further 9 percent rise in palm oil production. Growth in Malaysian production to a record 4.3 million tons accounts for over 80 percent of the projected increase in total output.

World exports of palm oil (Table 21) increased by almost 39 percent to an estimated 5.0 million tons in the five years to 1985. Only in 1981 did exports fall, although the fall in production in 1982/83 was reflected in only a modest increase in exports in 1983. The sharp upturn in oil prices greatly accentuated the rise in earnings from palm oil exports, which peaked at $2.9 billion in 1984, an increased of 63 percent over 1983. In 1985 earnings are estimated to have declined by 9 percent, however, as higher volumes failed to offset the effects of the sharp fall in prices.

Copra and Coconut Oil

Copra and coconut oil prices peaked in mid-1984, reflecting the general shortage of vegetable oils in the wake of the sharply lower U.S. soybean crop and an even greater shortage of coconut oil.19 The advance in coconut oil prices was far more pronounced than for other vegetable oils: in the 20 months to June 1984, the coconut oil price surged by over $1,000 a ton to attain a record high of $1,431 a ton. Coconut oil’s premium over soybean oil climbed to over 80 percent. From near parity at the beginning of 1984, coconut oil’s premium over palm kernel oil (coconut oil’s closest substitute among the lauric oils) peaked at over 30 percent in the third quarter of the year.

This virtually unprecedented price increase was attributable to developments in the Philippines, which accounts for 40 percent of world production and an even higher percentage of exports. Exports by the Philippines fell sharply: in terms of oil equivalent, world exports of copra and coconut oil declined by 25 percent in 1983/84 according to the U.S. Department of Agriculture (USDA). Production in 1983/84 was undoubtedly adversely affected by the delayed effect of the prolonged drought of 1982 and 1983 in the Philippines; world copra production is estimated to have fallen by 17 percent.

Copra production in the Philippines in 1984/85 recovered as yields returned to more normal levels, with similar gains in Indonesia and Sri Lanka. In 1985/86 world production is expected to show a further increase to 3.1 million tons, with exports of coconut oil and copra attaining the levels that preceded 1983/84. In anticipation of this higher production, and in line with the weakening of other oil prices, the coconut oil price declined in the second half of 1984 and in 1985. This decline was no less dramatic than the advance which preceded it. By June 1985, coconut oil was trading at a discount to soybean oil for the first time in almost three years, and both copra and coconut oil prices were at their lowest levels in over two years. Continued expansion of production of palm kernel oil, a joint product of rapidly expanding palm oil production and a close substitute of coconut oil, together with the need to win back markets lost in the last two years, suggests that coconut oil prices will remain low relative to the prices of other oils.

Groundnuts and Groundnut Oil

Groundnuts typically account for over 10 percent of world oilseed production in terms of oil equivalent. Over 40 percent of this production is consumed directly as nuts, so that groundnut oil has in recent years accounted for around 7 percent of world production of vegetable oils (Table 16). In relation to total trade in oils, groundnuts are still less significant: in recent years less than 15 percent of groundnut production has entered world trade, and these exports account only for some 3 percent of the total trade in oil and oilseeds in terms of oil equivalent.

Groundnut product prices have been especially volatile,20 largely as a result of the market structure and the susceptibility of production of groundnuts to climatic change: swings in total exports are typically proportionately greater than production changes and are determined largely by production in a small number of key exporting countries, notably Argentina, Brazil, China, Senegal, Sudan, and the United States. More-over, of these countries, China and the United States export groundnuts primarily as confectionery nuts, exporting for the oil market only when oil prices are exceptionally high. After a sustained fall in the price of groundnut oil from the record high of $1,185 a ton in June 1981 (when the premium over soybean oil reached 130 percent), a low point was reached in March 1983 with groundnut oil trading at just 13 percent above soybean oil at $445 a ton. Production of groundnuts declined by 12 percent in 1982/83, but with total export volume little changed, groundnut oil prices did not pick up until soybean oil prices began to advance in the second quarter of 1983. Production increased by 5 percent in 1983/84, but this was absorbed by higher domestic consumption (mainly in India) with exports of oil and nuts (in oil equivalent) declining by over 30 percent in response to drought damage to production in Senegal and Sudan together with lower production in Brazil. The resulting shortage of groundnut oil was exacerbated by the low level of beginning stocks: the groundnut oil price peak of $1,171 a ton in May 1984 coincided with that of soybean oil, but over the cycle groundnut oil’s premium over soybean oil peaked at over 50 percent.

The subsequent decline in the groundnut oil price has been less marked than for other oils: in December 1985 at $827 a ton the price was 29 percent down from the May 1984 peak, but still well above the most recent low of $445 a ton in March 1983. Groundnut oil’s premium over soybean oil increased during most of 1985, averaging over 80 percent in the final quarter of 1985. This marked contrast with other oil price movements in turn reflected the tightness of supplies. While total groundnut production rose by over 6 percent in 1984/85, the distribution of this rise gave little scope for increased exports either of groundnut oil or groundnuts for crushing. Production of groundnuts and groundnut oil in 1985/86 is projected unchanged from 1984/85. The distribution of this production will again hold exports down close to the low levels of 1983/84. Nevertheless, the recent production increases for cottonseed and sunflowerseed—groundnut oil’s closest competitors—are expected to reduce groundnut oil’s premium to soybean oil.

While groundnut oil has increased its premium over soybean oil, the price of groundnut meal declined more rapidly than that of soybean meal. As the meal market has weakened, the concentration of import demand for groundnut meal in the EC and the problem of aflatoxin contamination further depressed groundnut meal prices. From a peak of $294 a ton in September 1983, the groundnut meal price fell 56 percent to a 12-year low of $130 a ton in June 1985. Since then groundnut meal prices have recovered following the upturn in the rest of the meal market; however the market has recently been so thin—in part because of the aflatoxin problem—that prices have not been quoted on European markets. In 1982, almost one third of the groundnut’s market value was attributable to its meal content; in 1985 this share averaged less than 17 percent.

Fish Meal

The price of fish meal has tended to move in line with other meal prices, especially that of soybean meal. Although fish meal’s premium over soybean meal has in the last five years not fallen below 50 percent and has at times reached over 100 percent, the price cycles of the two meals have been closely synchronized. From the most recent peak of $510 a ton in October 1983, the fish meal price, like those of other meals, was in continuous decline; in the 20 months to July 1985, the price fell by 50 percent to $254 a ton, its lowest dollar level in almost 10 years. In the latter part of 1985, however, the price recovered to $306 a ton at the year end.

Production of fish meal increased by 14 percent in 1983/84, to 5.6 million tons. Production declined slightly in 1984/85 and is projected to rise by just 2 percent in 1985/86. Reflecting the general weakness of demand for protein meals, however, stocks will continue to increase and relatively low prices for fish meal are expected to persist.

Exports of fish meal peaked in 1982 at 2.7 million tons, but earnings from fish meal exports were higher in 1980 at $1.1 billion. Since 1980, volume fluctuations and changes in unit values have largely offset one another to maintain export earnings at close to $1 billion. Developing countries account for roughly one half of this total; Chile alone accounts for one third of world fish meal exports.

Other Food Commodities

Beef

Increased beef supplies and sluggish consumer demand caused beef prices21 to decline from 110 cents a pound in the second semester of 1983 to 107 cents a pound in the first semester of 1984 and 99 cents a pound in the second semester of 1984 (Table 22). Prices recovered to 103 cents a pound in the first quarter of 1985 before declining to 96 cents during the second quarter and 94 cents in the third quarter. Prices recovered to 98 cents a pound in the fourth quarter of 1985. These prices are considerably below the average of 131 cents in 1979 and 125 cents in 1980.

Table 22.Prices of “Other” Food Commodities,1960-85
YearBeef1 (In U.S. cents a pound)Lamb2 (In U.S. cents a pound)Bananas3 (In U.S. dollars a 40-pound box)
196033303.66
196131253.55
196232283.38
196330293.24
196438323.11
196540342.90
196646332.80
196747312.86
196849302.77
196955342.90
197059343.01
197161372.55
197267492.93
197391632.99
197472653.34
197560684.46
197672724.69
197768784.95
1978971015.20
19791311095.91
19801251316.80
19811121257.28
19821081096.80
1983111887.79
1984103886.70
198598846.92
1984I106867.09
II109957.86
III101886.56
IV97825.30
1985I103787.70
II96858.00
III94886.68
IV98835.30
Source: Commodities Division, IMF Research Department.

World beef and veal production is estimated to have increased slightly from 41.2 million tons in 1983 to 41.8 million tons in 1984 largely because of a reduction in the size of cattle herds in the United States and the EC. Herd reduction, owing to low returns, forage shortages, and increased dairy cow slaughter, decreased the size of the U.S. cattle herd by about 4 million head in 1984. Cattle numbers in the EC declined by about 1.6 million head in 1984 as a result of measures to limit milk production. Beef and veal production in the EC increased by 8 percent to a record 7.4 million tons. These increases in beef and veal production more than offset the production declines in Australia and New Zealand which were caused by herd rebuilding.

Developed countries account for about 60 percent of world exports of beef and veal, the EC, Australia, and New Zealand being the principal exporters. Among the developing countries, Brazil, Argentina, and Uruguay export substantial quantities. In 1984 the international market for beef was dominated by the beef surpluses in the EC. Under the stimulus of attractive internal pricing policies, beef production in the EC outstripped consumption and a sharp rise in stocks led to much higher EC exports, of 825 thousand tons in 1984. In 1984 the EC displaced Australia as the world’s largest beef exporter; Australian exports were estimated at 632 thousand tons while Brazil, the third largest exporter, exported 422 thousand tons.

The availability of competitively priced EC beef kept world beef prices under pressure during most of 1984 and 1985. Prices in the United States remained weak owing to plentiful supplies of beef resulting from greater herd liquidation and a continuing decline in per capita red meat consumption owing to a health-related shift towards poultry and fish. Beef and veal exports by the EC to Asia, North Africa, and the Middle East through export restitutions and concessional credit arrangements continued throughout 1985 and were a cause of concern for Australia, Argentina, and Brazil, the traditional suppliers to these markets. Despite the weakness of the market, returns to countries that export to the United States in terms of their own currencies remained high due to an appreciation of the U.S. dollar.

Though the increased herd liquidation in 1985 is likely to result in smaller beef supplies in the United States, the dairy herd buyout program of the 1985 U.S. farm bill is expected to result in sharply higher dairy cow slaughter. Thus, an expected increase in poultry production in the United States is expected to limit any recovery in beef prices. Competition for export markets is expected to intensify as the EC attempts to run down its accumulated beef stocks.

Lamb

World sheep meat production in 1984, estimated at 4.54 million tons, was slightly lower than in the previous year owing to a rebuilding of flocks in Australia and weather-related production problems in the U.S.S.R. Production in New Zealand is estimated to have declined by about 2 percent from the high level of the previous year, while output in the EC is estimated to have increased by about 2 percent owing to an increase in production in the United Kingdom.

Developed countries account for about 80 percent of world exports of sheep meat and goat meat. New Zealand and Australia together account for about 65 percent of total world exports. Among the developing countries, Turkey is the largest exporter, while Argentina and Uruguay also export substantial amounts. The market for sheep meat remained weak in 1984 owing to the virtual withdrawal of the U.S.S.R. from the mutton market and a large buildup of lamb stocks in the United Kingdom. Lamb prices22 declined from a level of 146 cents a pound in May 1981 to an average level of 88 cents a pound in 1983 and remained at that level in 1984 Table 22).

In New Zealand, despite a devaluation in mid-1984, world market returns for lamb remained below the meat industry’s price support levels resulting in deficiency payments to sheep farmers. In 1985, an increase in world lamb supplies from Oceania and increasing competition for limited markets owing to increasing self-sufficiency in a number of major importing countries depressed prices to an average level of 84 cents a pound. The New Zealand lamb industry had a difficult season in 1985 because of record lamb production, a sharp fall in exports, and an appreciation in the New Zealand dollar relative to the U.S. dollar. Moreover, government price supports were completely removed for the 1986 season which started in October 1985, and the New Zealand Meat Producers Board (NZMPB) price schedule for lamb was sharply reduced. Starting from January 1986, the NZMPB relinquished its sole right to export New Zealand sheepmeats. These policy developments, together with a high level of lamb stocks in New Zealand, and a high level of sheepmeat production are expected to maintain downward pressure on lamb prices in major markets. Import demand for lamb in the Middle Eastern market is expected to fall because of the recent sharp decline in petroleum prices, and competition for this shrinking market is expected to intensify.

Bananas

The average monthly price in the United States of bananas of Central American and Ecuadoran origin for January-June 1985 was $6.92 a box of 40 pounds (Table 22). This average was 3 percent higher than the average for 1984, although 11 percent below the average for 1983. Prices in the first five months of 1985 were considerably higher than in the same period in 1984, apparently because of reduced shipments partly in response to the lower prices in the second half of 1984 as a result of uncertainty over reduced production activity by transnational in Costa Rica and an embargo on imports into the United States from Nicaragua. Nevertheless, the price of bananas fell by much more than the usual seasonal adjustment in June and July 1985, and prices in the second half of 1985 were at almost the same level as in the second half of 1984.

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