IV Agricultural Raw Materials

International Monetary Fund
Published Date:
January 1986
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This section contains analyses of market developments in recent years for the two major agricultural raw materials in international trade: cotton and rubber. Brief summaries are also provided of developments with respect to tropical timber, tobacco, wool, jute, sisal, and hides.

The U.S. dollar prices of agricultural raw materials were relatively stable through the 1960s and early 1970s, compared with the period beginning 1972 (Chart 6 and Table 28). Prices in this earlier period tended downwards. Prices moved sharply upwards in an irregular manner in the period 1972-80 and tended to decrease from 1981 to 1985, again in an irregular manner. Much of the year-to-year movement in the U.S. dollar prices of agricultural raw materials can be explained in terms of changes in world economic activity (Table 29). Prices fell sharply in the 1974-75 and the 1981-82 recessions. In addition, prices have been influenced by anticipated and realized movements in the price of petroleum, the base for a number of synthetic products which compete directly with agricultural raw materials. This was particularly the case with regard to the very large price increases in 1972—73 and to the substantial increase in 1979. The sharp decline in prices in 1985 is to a large degree the result of sizable increases in supply, particularly of cotton, which has a large weight in the group index and for which there was an exceptionally large increase in production in the 1984/85 crop year.

Chart 6.Prices of Agricultural Raw Materials, 1960-85

(In U.S. dollars, indices: 1980 = 100)
Table 28.Prices of Agricultural Raw Materials, 1960-85(In U.S. dollars)
YearMedium-Staple Cotton1 (a pound)Natural Rubber2 (a pound)Lauan Logs3 (a cubic meter)Tobacco4 (a pound)Coarse Wool5 (a kilogram)Jute6 (a long ton)Sisal7 (a ton)Hides8 (a pound)
Source: Commodities Division, IMF Research Department
Table 29.Prices of Agricultural Raw Materials and Selected Underlying Factors, 1970-85(Annual percentage changes)
Prices of Agricultural Raw MaterialsReal GNP in Seven Industrial CountriesPrice of PetroleumGNP Deflator (in U.S. dollars)Index of Supply of Agricultural Raw Materials2
YearNominal (in U.S. dollars)Real1
Source: Commodities Division and Current Studies Division, IMF Research Department.


Cotton prices rose sharply both in the mid-1970s and in 1980, in the wake of the oil price shocks, which substantially raised the prices of synthetic petroleum-based fibers, cotton’s principal competitor. The price increase of 1980, however, was both much smaller than that of the mid-1970s and shortlived. During 1981/82 (August/July), world cotton stocks increased by 22 percent as a consequence of a 9 percent increase in world production and a slowdown in consumption as the world economy entered into a recession; from 1980 to 1982, medium-staple cotton prices fell by 23 percent (Table 30).33 Prices recovered by 16 percent in 1983. This recovery was largely in response to (1) lower world production caused mainly by the sharp reduction in the U.S. crop as a result of a domestic policy of acreage reduction and by unfavorable weather, and (2) an improvement in the world economic situation that resulted in stronger demand for cotton. Beginning mid-1984, however, record high world production in the 1984/85 crop year caused cotton prices to fall.

Table 30.Cotton: World Commodity Balance, Market Prices, and Exports, 1980-86(In millions of tons, unless otherwise indicated)
Crop Years (August/July)
Commodity balance1
United States2.423.412.601.692.833.01
Other countries6.056.125.905.707.457.05
United States1.
Other countries7.797.738.037.838.328.42
Closing stocks24.685.715.745.569.2711.12
United States.581.441.73.60.891.91
Other countries3.443.673.283.354.444.29
Calendar Years
Market prices (in U.S. cents a pound)
United States1.821.271.391.201.501.205
Other countries2.
Unit values6 (in U.S. cents a pound)73.777.765.368.273.662.05
Earnings (in millions of U.S. dollars)7,8207,3806,3606,4706,8605,6105
Industrial countries3,0002,4502,1702,0802,6401,8105
Developing countries3,4003,4302,7003,0703,0602,7505
Other countries71,4201,5001,4901,3201,1601,0505
Source: Data for world commodity balance from International Cotton Advisory Committee, Cotton: World Statistics (Washington), various issues, and Cotton Outlook (Liverpool), various issues. Data on exports from U.N. Food and Agriculture Organization, FAO Trade Yearbook (Rome), various issues.

During 1985, prices fell by 33 percent owing to the unexpectedly high crops in producing countries around the world. In China, the largest producer, early estimates of 5.50 million tons for the 1984/85 crop were raised to 6.25 million tons. In addition, the improved quality of Chinese cotton and the infrastructural upgrading that took place during the year allowed more cotton to be exported than had been anticipated. Unexpected increases in production also took place in Australia, Brazil, India, Pakistan, Paraguay, and Peru and contributed to steadily falling prices throughout the year. At year end, prices were at the lowest monthly level since March 1975 but stabilized in December and even initiated a modest recovery. The price of long-staple cotton declined by 19 percent during the 1981-82 recession, but subsequently recovered to above prerecession levels in 1983/84 and 1984/85 as a result of poor crops in Egypt that severely reduced exportable surpluses.34 A slight drop in price occurred at the end of 1985, when the Egyptian government decided to take steps to maintain the competitive position of long-staple cotton.

World cotton production in 1984/85 is estimated to have been well above consumption as a result of a world bumper crop combined with sluggish demand resulting from continuing inroads by the synthetic fibers in world markets, particularly in the developing countries, and from a weak economic recovery in some regions. World production is estimated to have increased by 30 percent to 19.1 million tons, exceeding estimated consumption by 4.0 million tons. As a consequence, stocks at the end of the 1984/85 cotton year were at a record high level. In China, the cotton crop increased by about 35 percent to over 6 million tons or one third of total world output. Responding to increased producer incentives and the use of improved cotton varieties, China’s production has more than doubled in the span of three years. The U.S. crop is estimated at 2.8 million tons, 65 percent higher than the previous year.35 This increase reflects the termination of a payment-in-kind program—under which federally held stocks were used to compensate farmers for not planting cotton—and the implementation of a different acreage reduction program that offered smaller incentives.36 The Egyptian crop was lower than anticipated, creating shortages for the high-priced long-staple varieties.

World cotton consumption increased by 1 percent in both 1983/84 and 1984/85 after recovering by about 4 percent in 1982/83. Consumption increased very slowly in part because lower oil prices have made synthetic fibers more competitive and because the economic recovery has been uneven among countries.

World trade in cotton in 1984 is estimated to have remained at the 1981-82 recession levels and to have fallen well below this level in 1985. A major reason for the failure of the cotton trade to recover is that China has moved from being a major importer of cotton through 1982 to being a net exporter, beginning with the 1983/84 crop year. China’s exports of about 200 thousand tons in 1984 and 300 thousand tons in 1985 contrasted sharply with annual imports of around 1 million tons during 1979-81 and 750 thousand tons in 1982. In addition, world trade in cotton may have been restrained by increasing protectionist tendencies for cotton textiles in some industrial countries. These tendencies appear to have discouraged imports of raw cotton by some Asian countries for the manufacture of textiles for export. The volume of cotton imports by Asian countries, excluding China, in the mid-1980s was only marginally greater than in the late 1970s.

Export earnings are estimated to have declined in 1985, reflecting a decline in both the volume of exports of the United States, the major world exporter, and the lower level of prices. In turn, the drop in U.S. exports is attributed to the high level of domestic cotton prices that have made U.S. cotton less competitive and to the decreased need for cotton imports as most countries had relatively large crops. The recovery of U.S. exports hinges to a large extent upon domestic U.S. policies that will affect competitiveness.

Prospects for 1985/86 call for another large world cotton crop, although its size is expected to be about 6 percent below the 1984/85 record level. The new Chinese policy represents an attempt to scale back production to the level of the 1983/84 season, but plantings in other countries, such as the U.S.S.R. and Turkey, may be about the same as in 1984/85. Consumption prospects suggest that an increase of about 3 percent can be expected. The price of synthetic fibers is likely to reflect the softening of energy prices and the restructuring of the synthetic fiber industry that has led to reduced production costs, making synthetic fibers more competitive. Medium-staple cotton stocks are likely to remain large and prices are expected to remain weak through the end of 1986. In contrast, the price of long-staple cotton could remain firm because inventories are low due to poor harvests in Egypt in both 1983/84 and 1984/85. World trade in cotton could remain at low levels owing to the good crop and to the difficulties that some developing countries are experiencing in exporting textiles owing to the prevailing protectionist climate.

Natural Rubber

Under the influence of higher prices for synthetic rubber resulting from the sharp 1979 oil price increase, the price of natural rubber reached a peak of 64.6 cents a pound in 1980.37 With the onset of the inter-nationalrecession, however, prices began to decline in 1981, and in 1982 they fell to 38.9 cents a pound, 40 percent below their 1980 level. Purchases of 270 thousand tons by the buffer stock of the International Natural Rubber Agreement (INRA) between 1981 and January 1983 succeeded in arresting the price decline and in stabilizing the market indicator price (MIP) of the Agreement around the lower intervention price.38

In response to the economic recovery in industrial countries, which was reflected in sharply higher demand for automobiles, and the constraint on production of a prolonged “wintering” season in the major producing countries, the price of natural rubber rose strongly in 1983. Between December 1982 and February 1984, the price of first quality ribbed smoked sheets (RSS1) increased by 43 percent to 51.7 cents a pound. This increase, however, was reversed entirely in 1984. Beginning in April the price declined sharply to 39.9 cents a pound in June, firmed to an average of 41.1 cents a pound in the third quarter, but fell again to 35.8 cents a pound in December. This weakness continued during the first seven months of 1985 with the average price of 35.0 cents a pound being 8 percent lower than the average price realized in the recessionary conditions of the second half of 1982. A similar movement occurred in the MIP of the INRA. This price moved from below the lower intervention price (where the buffer stock manager “may buy” rubber) in January 1983 to above the upper intervention price into the “may sell” region of the price range in August 1983 and again in January and February 1984.39 It then declined sharply, returning to the “may buy” region in November 1984, where it remained until mid-January 1985 when limited support purchases by the buffer stock manager moved the price up for a few days. A reduction in supply owing to normal wintering raised the MIP above the “may buy” region again in mid-March, but the price fell back in mid-May when supply conditions returned to normal.

The downturn in prices in the second quarter of 1984 reflected both a slowing of the growth of demand as stock replenishment was completed in Europe and Japan in the first quarter, and an abnormally high seasonal supply owing to a mild wintering period in South East Asian producing countries. There was also a narrowing of the premium of RSS1 quality grades of rubber in the second quarter of 1984 owing to the relative weakness of demand in Europe (which uses mainly the former) compared with the United States (which uses mainly the latter). European demand was also affected temporarily by the German metalworkers’ strike in May-June 1984. The firming of prices, which occurred in the third quarter of 1984, resulted mainly from a resumption of purchases of RSS1 by China and the U.S.S.R. and a return to normal seasonal supply conditions. In the fourth quarter, however, there was a marked increase in production in Indonesia and Thailand, while consumption slowed as the deceleration of U.S. economic growth—which had begun in the third quarter—contributed to a build-up of stocks of final products. Downward pressure on prices also stemmed from the devaluation of the Thai baht by almost 15 percent against the U.S. dollar in November and from declining oil prices, which reduced the price of synthetic rubber substitutes.

For 1984 as a whole, world production of natural rubber rose by 4.8 percent to 4.2 million tons, and world consumption increased by 5.4 percent to approximately the same level (Table 31). There was a small increase in commercial stocks during the year, mainly because of the surge in output in the final quarter. This contrasted with earlier projections of a significant decline in stocks. Reflecting the growth of consumption, the volume of world exports is estimated to have risen by 5 percent in 1984 to a record 3.6 million tons. Although the price of RSS1 was lower, on average, in 1984 than in 1983, its premium over lower grades diminished. Owing to the preponderance of lower grades of rubber in total trade, average export unit values rose marginally in 1984 and export earnings by all producers increased by 6 percent.

Table 31.Natural Rubber: World Commodity Balance, Market Prices, and Exports, 1980-85(In thousands of tons, unless otherwise indicated)
Calendar Years
Commodity balance
Other countries794823829879980973
European Community1690640632633650672
United States585635585665751766
Other countries2,0581,9892,0242,1832,2732,326
Closing stocks21,6301,6851,9702,0202,0402,100
Of which:
INRO buffer stock(—)(50)(260)(270)(270)(375)
Market prices (in U.S. cents a pound)364.650.938.948.343.434.4
Other countries3203403403503904304
Unit values (in U.S. cents a pound)559.348.436.343.744.233.04
Earnings (in millions of U.S. dollars)4,3003,3202,4503,2903,4902,6604
Developing countries4,3003,3202,4503,2903,4902,6604
Source: Data for world commodity balance from International Rubber Study Group, Rubber Statistical Bulletin (London), various issues. Data on exports from U.N. Food and Agriculture Organization, FAO Trade Yearbook (Rome), various issues. Data include exports of only rubber-producing countries.

The continued weakness in prices in the first quarter of 1985 reflected the prevailing excess supply situation and further strengthening of the U.S. dollar. In mid-January, purchases of 3,600 tons by the buffer stock manager of the INRA failed to turn the market around. The positive impact on prices of wintering in the main producing countries between March and May 1985 also proved to be temporary, and buffer stock purchases were resumed at the end of May. The size of the buffer stock which had been 278 thousand tons in January, reached 300 thousand tons in July, the level which triggers a 3 percent downward revision in the price range of the INRA. This adjustment was made effective in August 1985. Substantial buffer stock purchases continued through September 1985, bringing the size of the buffer stock to 375 thousand tons, or the equivalent of 9 percent of annual world consumption. With uncertainty persisting about the growth of demand for automobiles in the United States and Europe and increasing supply of rubber from Indonesia and Thailand, the rubber market remained depressed through the second half of 1985. Prices averaged 34 U.S. cents a pound in 1985, their lowest level since 1976. For 1985 as a whole, world output of natural rubber is estimated to have risen by 3.3 percent, and world consumption to have increased by 2.4 percent. As a result, total stocks may have increased slightly, but with the larger INRA buffer stocks, commercial stocks almost certainly declined. The volume of world exports is estimated to have increased by 2 percent in 1985, but owing to sharply lower prices for all grades of natural rubber, total export earnings in terms of U.S. dollars are estimated to have fallen by almost one fourth.

Prospects for 1986 are for a faster growth of consumption than in 1985 as automobile demand is expected to respond favorably to lower oil prices, an easing of financial policies in Europe and Japan, and the availability of below-market financing in the United States. Assuming normal “wintering” in the second quarter of the year in the main producing countries, prices should rise modestly and move above the “may buy” price range of the INRA. Market confidence should also be supported by the extension of the INRA for two years through October 1987 and the concurrence by exporting and importing members of the Agreement to finance, if necessary, the contingency buffer stock of 150 thousand tons by direct cash contributions.

Other Agricultural Raw Materials

Tropical Timber

While world production of nonconiferous wood used for industrial purposes is about equally divided between the tropical and temperate zones, tropical hardwoods dominate world trade. Exports from developing countries of tropical hardwoods comprise about 90 percent of hardwood log exports, about 70 percent of hardwood sawnwood exports, and about 65 percent of hardwood plywood exports. Major features of the trade in tropical hardwoods in recent years have been a decline in the volume of logs exported, from 45 million cubic meters (m3) in 1978 to 27 million m3 in 1984, and a growing share of developing countries in processed product exports. The decline in the volume of logs exported was due mainly to the weakness of housing demand in Europe, Japan, and the United States, during the period of high interest rates in the late 1970s and the recession of the early 1980s. In addition, some South East Asian exporting countries have progressively restricted log exports in order to stimulate local processing industries. Log exports from Indonesia and the Philippines were each 15 million m3 in 1980 but only 1 million m3 in 1984; by contrast, Malaysian exports of 19 million m3 in 1985 were 25 percent higher than in 1980.

No comprehensive price data for tropical hardwoods are available, so the price of a major species of hardwood logs in the largest consuming country, Japan, is taken to be representative of price developments within the industry. After declining from an average of $193 a cubic meter in 1980 to $136 a cubic meter in 1983, the wholesale price of Philippine lauan logs in Japan increased by 10 percent to $150 a cubic meter in 1984. This reflected an upsurge in housing starts which commenced in the second half of 1983 in the United States and in the first half of 1984 in Japan, and log prices reached $173 a cubic meter in May 1984. Although housing starts in Japan continued to increase in the second half of 1984, housing starts in the United States fell from 1.94 million to 1.69 million (at annual rates) between the two half years, and prices fell to $136 a cubic meter in December. With contract prices generally expressed in the currency of the importing country, the decline in prices, expressed in U.S. dollars, was also partly attributable to the appreciation of the U.S. dollar.

The further strengthening of the U.S. dollar in the first quarter of 1985 led to a continuing fall in prices, as housing starts recovered in the United States and remained at a high level in Japan. But despite the reversal of exchange rate movements from the second quarter onward and the further growth of housing demand in both countries, prices did not move upward, averaging only $130 a cubic meter in the second and third quarters. The demand for logs by Japanese processors remained fairly stable, as increased demand for sawnwood and plywood in house construction was satisfied by higher imports of these products.40 In addition, increasing supplies of logs were available from Malaysia and West Africa. Only in the final quarter of 1985 did prices increase significantly to $141 a cubic meter, reflecting mainly the sharp depreciation of the U.S. dollar in that quarter. Log prices in 1986 are projected to rise modestly in response to the further weakening of the U.S. dollar and the easing of financial policies in Japan, which is expected to provide a substantial boost to housing demand.


Tobacco prices rose steadily from 1971 until 1982 but have remained virtually unchanged since that year. The largest producer of raw tobacco is China, which contributed from one fourth to one third of total world output, followed by the United States and India with much smaller production. The United States is also the largest world exporter and importer of unmanufactured tobacco. Production rose by 4.5 percent in 1985 despite declines in many countries, including the United States and India, owing to a 28 percent increase in China. Weak demand and large supplies seem to account for the recent price stagnation; in the United States, consumption of cigarettes in 1985 was 1 percent below the previous year’s, and the use of cigars and smoking tobacco continued to decline. There are no comprehensive stock data, but partial estimates suggest that the current level of stocks may be equivalent to about 15 months’ usage by the world tobacco industry. Prices are expected to remain weak in view of the high level of supplies and the demand-depressing influences on tobacco products, such as rising taxes, higher retail prices, and health concerns, particularly in developed countries. United States exports may increase somewhat owing to the high quality of the crop, lower prices on account of reduced support, and exchange rate factors.


Wool prices, like cotton prices, increased sharply in the wake of the oil price increases of 1973 and 1979, which raised the prices of synthetic substitutes. Since 1980, however, wool prices experienced a steady decline.41 The largest price decline (20 percent) occurred during the 1981-82 recession when the demand for wool fell and inventories accumulated. Despite the economic recovery since 1983, a large supply imbalance had the effect of weakening prices further; prices during 1984-85 were at their lowest level since the 1975 recession. By the first half of 1985, coarse wool prices were about one third below the 1980 level, but recovered modestly toward the end of the year.

The failure of wool prices to recover after the 1981-82 recession has been the result of persistent increases in world production, which has outpaced a rather stagnant world consumption demand. Production in 1983/84 was 1.64 million tons of clean wool, about a 1 percent increase over the previous season, bringing world production to a 15-year high. The production increase occurred despite droughts in Australia, New Zealand, and South Africa in 1983/84 because excellent weather conditions prevailed in other wool-growing regions. World production in 1984/85 is estimated to have increased again by about 2 percent, reflecting a full recovery from droughts in Australia and New Zealand, which together are estimated to account for the total increase in the season’s output.

World consumption of wool has been stagnant in recent years, mainly because of competition from synthetic fibers. The decline in oil prices and the progressive reduction of excess capacity in the synthetic fiber industry has resulted in cost reductions in the manufacture of synthetic fibers. Stagnant consumption, combined with increased production, resulted in a 23 percent increase in stocks in producing countries in 1983/84. Stocks are estimated to remain at high levels in 1984/85. Continued weakness in wool prices is expected through 1986 because of large inventories and continued competition from synthetic fibers due to declining oil prices.


The demand for raw jute have been declining or stagnant since the 1960s because of competition from synthetic substitutes (primarily polypropylene). This development was accompanied by a decline in spinning capacity in the industrial countries and increased processing of jute in jute-producing countries. Jute prices have experienced a long-term downward trend, interspersed with brief periods of high prices.

Low prices in the late 1970s and early 1980s resulted in declining jute output in the major producing countries. As a result, world jute production was less than consumption each year from 1980 through 1983. As world stocks diminished, prices began to increase in the last half of 1983. They then increased sharply from an average of $405 a ton in the first half of 1984 to $1,003 by year end as a result of persistent rain that flooded the crops and reduced the jute harvests in Bangladesh and India, which together account for over 60 percent of world production. Nevertheless, prices had fallen drastically by the end of 1985 on account of increased production. Successive years of small crops have reduced year-end stocks42 from 943 thousand tons in 1981/8243 to only 405 thousand tons at end-1984/85.

The 1984/85 crop is estimated to have been about 2 percent below the 1983/84 crop. In contrast, production in 1985/86 is projected to be over 20 percent higher than in the past two years. After their sharp decline, prices seemed to have stabilized because of the pressure to rebuild stocks and because importers have began to adjust to the more competitive jute prices.


The sisal market is divided into one for agricultural twine, largely supplied by Brazilian sisal, and one for commercial twine and cordage, for which the more expensive sisal from East Africa is used. After a sharp increase during 1979, largely as a consequence of the oil price shock, sisal prices declined steadily in the period 1980-83 owing to the contraction of economic activity and the continuing erosion of the market with the spread of non-twine harvesting techniques in agriculture and competition from polypropylene twine in all markets. The price in 1983 averaged 25 percent below its 1980 average.44

Drought conditions in several producing countries contributed to a 7 percent price increase over the period from February to August 1984, but favorable weather in Tanzania and Kenya then caused prices to stabilize. In January 1985 the price of sisal began to decline and continued to decline steadily during 1985. The average price in 1985 of $525 a ton was 10 percent lower than the average for 1984. Because of continued stagnant demand owing mainly to competition from synthetic fibers, prices are not expected to recover in the near future.


The price of cattle hides increased from an average level of 36.5 cents a pound in the first quarter of 1983 to an average level of 48 cents a pound during the next three quarters.45 The increase in prices continued in 1984; the average price in 1984 was 31 percent higher than in the previous year. The overall supply of cattle hides and calf skins is estimated to have increased slightly in 1984, with increased cattle slaughtering in Argentina, North America, Western Europe, and the U.S.S.R. outweighing a reduction in supplies from Australia and New Zealand. The demand for hides and skins, which is derived from the demand for leather and leather manufactures, recovered sharply in 1983 and 1984 owing to an increase in the overall level of tanning activity resulting from the recovery in economic activity in the main leather consuming countries.

In the United States, the world’s largest producer of bovine hides and skins, the output of hides and skins increased in 1985 owing to greater herd liquidation because of poor profit margins and the need for immediate cash. In the EC, cattle slaughter in 1985 is estimated to have been marginally lower than in 1984, owing to a slowing of dairy cow slaughter. Slaughter rates were lower in Australia and New Zealand in 1985 owing to herd rebuilding. Demand for hides and skins in 1985 was curtailed by the sluggish economic growth in a number of major consuming countries. As a result of these developments, hide prices declined from 58.9 cents a pound in 1984 to 51.0 cents a pound in 1985.

Supplies of hides and skins are expected to decline over the short run owing to an expected reduction in cattle slaughtering in Australia, New Zealand, and the United States as these countries rebuild their cattle herds. The demand for hides and skins, on the other hand, is expected to recover because of the prospect of a continuing economic recovery. As a result, prices for hides and skins are expected to recover in the short run.

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