IV Agricultural Raw Materials

International Monetary Fund
Published Date:
January 1989
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After rising substantially in 1987, the overall price index for agricultural raw materials increased only modestly in 1988 (Table 49 and Chart 6). Price increases were recorded for logs, natural rubber, hides, and especially wool and jute, while prices for other agricultural raw materials declined. In the cases of tobacco and sisal, these declines were slight, but the price of cotton fell by nearly 20 percent (measured in SDRs).

Table 49.Prices of Agricultural Raw Materials, 1979–First Quarter 1989
YearIndex of

Prices of


Raw Materials1

(Cubit meter)










(1980 = 100)(In SDRs)
(1980 = 100)(In U.S. dollars)
Source: Commodities Division, IMF Research Department.

Chart 6.Prices of Agriculture Raw Materials in SDRs, January 1980–April 1989

(1980 = 100)

The weakening trend of prices for agricultural raw materials would appear to be related predominantly to the gradual decline in growth of world consumption of agricultural raw materials since 1987. The growth in the index of world consumption for these commodities fell from an average of about 5 percent a year during 1984–86 to under 2 percent in 1987 and 1988 (Table 50). Although the rate of growth of world production also fell in 1988, from over 5 percent in the previous year to 3 percent, the adjustment was insufficient to sustain the sharp rise in agricultural raw material prices observed in 1987.

Table 50.Movements in Prices of Agricultural Raw Materials and Related Economic Indicators, 1982–88(Annual percentage change)
Prices of agricultural raw materials1
In SDRs2.25.311.6–14.0–
In U.S. dollars––15.0–1.633.69.3
Petroleum prices3
In SDRs1.7–6.63.9–3.6–55.716.8–23.5
In U.S. dollars–8.0–9.6–0.4–4.5–48.828.7–20.4
Unit value of manufactured exports
In SDRs4.
In U.S. dollars–2.1–2.8–
Domestic prices in major industrial countries4
Consumer price index
In SDRs6.
In U.S. dollars–
GNP deflator
In SDRs6.
In U.S. dollars–
Economic activity in major industrial countries4
Real GNP–
Industrial production–
Domestic fixed investment–
World consumption of agricultural raw materials5
Index of consumption2.
World supply of agricultural raw materials5
Index of production0.–
Index of supply60.
Index of closing stocks4.0–2.736.77.7–19.2–5.00.0
Sources: Commodities Division and Current Studies Division, IMF Research Department.

As with most other non-fuel primary commodities, price developments in 1989 will be influenced greatly by the growth in the world economy. Against the background of the price adjustments in 1988, if economic growth remains strong, the rate of growth of consumption of agricultural raw materials could match the rates of the mid-1980s. Other factors, however, will continue to be important. These include the increasing productivity of agricultural producers in industrial as well as developing countries, and technological factors that may be adversely influencing world demand for some agricultural raw materials.


The average annual price of hardwood logs, in terms of U.S. dollars, has increased steadily from $136 a cubic meter in 1985 to $233 a cubic meter in 1988.56 The rate of increase of hardwood log prices increased from 11 percent in 1986 to 46 percent in 1987, but decelerated to 5 percent in 1988. The major factors contributing to the deceleration were the sharp slowdown in housing starts in Japan from the second quarter of the year and a buildup in log inventories. The U.S. dollar price of sawn hardwood,57 which rose by 4 percent in 1987, increased by 11 percent in 1988. Sawnwood prices tend to be more stable than log prices because they mainly reflect average long-term contract prices.

In 1988, world production of hardwood logs is estimated to have decreased moderately, while production of sawn hardwood increased slightly (Table 51). These developments reflected the adverse effects of intermittent bad weather on logging operations of tropical hardwood log producers in Asia and the maintenance of restraints on log exports by the Philippines and Indonesia. In North America, forest fires and the summer drought hindered logging operations. In addition, groups of loggers in Canada and the United States were on strike during part of the second half of the year.

Table 51.Hardwood Logs and Sawnwood: World Production, 1982–88(In millions of cubic meters)
Industrial countries56616363686969
Developing countries153158163158161170168
U.S.S.R. and Eastern European countries33333434353536
Industrial countries29303130313131
Developing countries61636567676970
U.S.S.R. and Eastern European countries18181818181919
Source: United Nations, Food and Agriculture Organization, 1986 Yearbook of Forest Products (Rome).

On the demand side, the housing boom in Japan, which started in mid-1986 in response to the expansion of concessional housing loans, had tapered off by April 1988. For 1988 as a whole, Japanese housing starts increased by about 1 percent, compared with 23 percent in the previous year, thereby slowing demand for hardwood logs to be processed into sawnwood in Japan. In the United States, housing starts, which had declined by 10 percent in 1987, declined further by about 11 percent in 1988, primarily because of rising interest rates. The resulting adverse impact on the demand for sawn hardwood in the United States was not as strong as the decline in housing starts indicated. The incidence of the decline in housing starts involved mainly multifamily dwellings, which are less wood-intensive than single family dwellings. Moreover, demand for sawnwood was buoyed by furniture industry needs and the increased rehabilitation of existing dwellings in the face of escalating new housing prices. Demand for hardwood in the EC appears to have declined, although demand was supported by the prolongation of the construction season because of a mild winter. Imports of tropical logs, which declined by about 8 percent in 1987, declined further by 4 percent in 1988. Imports of tropical sawnwood, which rose by 19 percent in 1987, declined by an estimated 2 percent in 1988.

The volume of hardwood log exports is estimated to have declined by 6 percent in 1988, reflecting mainly reduced exports by Malaysia (Table 52). Nevertheless, because of the increase in international prices, world export earnings are estimated to have declined only slightly in terms of both U.S. dollars and SDRs. The volume of exports of sawn hardwood is estimated to have risen slightly in 1988, reflecting continued efforts by developing country producers to export sawnwood rather than logs and sustained demand for sawnwood in major markets. As a result, world export earnings from sawnwood are estimated to have grown slightly in terms of U.S. dollars.

Table 52.Hardwood Logs and Sawnwood: Export Earnings, 1985–88
(In SDRs)(In U.S. dollars)
Earnings (in billions)
Industrial countries0.
Developing countries1.
Unit values (a cubic meter)26963696870748992
Industrial countries102100102104104117133140
Developing countries6659656667698589
Market prices (a cubic meter)3134129171173136151221233
(In millions of cubic meters)
Industrial countries2.
Developing countries26.925.629.227.326.925.629.227.3
(In SDRs)(In U.S. dollars)
Earnings (in billions)
Industrial countries0.
Developing countries1.
Unit values (a cubic meter)2192181169168195213220226
Industrial countries243250241244247294312328
Developing countries175157151149177184195200
Market prices (a cubic meter)4272227213225276266276302
(In millions of cubic meters)
Industrial countries2.
Developing countries8.
Sources: United Nations, Food and Agriculture Organization, 1986 Yearbook of Forest Products (Rome); and Commodities Division, IMF Research Department.

The volume of trade in hardwood logs and sawnwood in 1989 is expected to remain close to 1988 levels. Housing starts in Japan are expected to remain at about the previous year’s level. In the United States, some further decline in housing starts is anticipated if interest rates do not ease in the latter part of the year. In the absence of renewed housing demand pressures from major consuming countries, the prices of logs are likely to decline moderately during 1989. In the first quarter of 1989, log prices were on average 7 percent below the level in the same period of 1988, reflecting in particular the easing of demand for plywood in Japan, which reduced the demand for logs. Downward pressures on prices are expected to be limited by supply side factors such as weather-related difficulties in producing countries and the maintenance of restrictions on log exports by Southeast Asian countries.


World consumption of unmanufactured tobacco is estimated to have grown marginally to 6.1 million tons dry weight in 1988. Lower demand in Europe, Japan, and North America owing to rising prices, enhanced smoking restrictions, and anti-smoking campaigns was offset by rising consumption in developing countries, notably in China, the world’s largest cigarette manufacturer and consumer. World leaf production in 1988 is estimated at about 6.5 million tons farm sales weight or 5.7 million tons dry weight, up 5 percent from 1987, with most of the expansion attributed to China, the United States, and Brazil (Table 53). The estimated increase of production in China, by 18 percent to 2.3 million tons, may, however, be overstated because heavy rains in major growing areas may have led to a lower-than-expected harvest. In any event, a 12 percent increase in hectarage led to a sizable increase in Chinese production. In the United States both improved yields and extended areas of production contributed to an 11 percent increase in production. Despite a reduction in the cultivated area, record yields occasioned by favorable weather and improved farm management practices are estimated to have resulted in a record production level of 420 thousand tons in Brazil. The 30 percent lower production estimated for India compared with 1987 is attributable mainly to a 23 percent reduction in planted area.

Table 53.Tobacco: World Leaf Production, 1982–88(In thousands of tons; farm sales weight)
Industrial countries1,3501,1601,3701,2801,1101,1301,200
United States900650780690530540600
Developing countries4,9004,1604,4305,0504,2304,4404,680
U.S.S.R. and Eastern European countries640680660690660630610
Source: United States, Department of Agriculture, World Tobacco Situation (Washington), years 1984–88.

World exports of unmanufactured tobacco are estimated to have risen to around 1.36 million tons in 1988, following levels of 1.32 million tons and 1.34 million tons in 1986 and 1987, respectively. Seven countries (United States, Brazil, Italy, Turkey, Greece, Zimbabwe, and Malawi—in that order) account for about two thirds of world exports. U.S. exports increased to 220 thousand tons from 200 thousand tons in 1987, partly owing, however, to some delayed shipments from the previous year. Brazilian exports were projected to rise to 180 thousand tons, up 6 percent from the previous year. Both Malawi and Zimbabwe, where tobacco currently represents the most important export crop, as well as Greece, increased their export volumes, whereas shipments from Turkey declined sharply.

World stocks, down 3–5 percent at the beginning of the year from 1987 levels, were estimated to have been reduced further to about 5.4 million tons by the end of December 1988, representing slightly less than 11 months of world tobacco industry production. In the United States, the overall level of raw tobacco stocks as of July 1988 amounted to 1.7 million tons, or 15 percent lower than at the beginning of the year and 10 percent less than in April 1988.

Prices for leaf tobacco on the major auction markets increased in 1988 but the increases varied greatly from place to place. In Zimbabwe and Malawi, prices in terms of U.S. dollars were significantly above 1987 levels—68 percent and 19 percent, respectively—owing to improved qualities and shortages in some grades. In the United States, auction prices for flue-cured tobacco were averaging only 2 percent higher than in 1987. The higher prices together with larger export volumes contributed to increasing earnings for almost all tobacco exporting countries (Table 54).

Table 54.Tobacco: Export Earnings, 1985–88
(In SDRs)(In U.S. dollars)
Earnings (in billions)
Industrial countries1.
Developing countries1.
U.S.S.R. and Eastern0.
European countries
Unit values (a ton)2,8602,5102,2802,2102,9102,9402,9402,970
Industrial countries4,3803,5002,9102,7804,4404,1103,7603,740
Developing countries2,1802,0001,9101,8802,2102,3402,4602,520
U.S.S.R. and Eastern2,5802,7902,8402,7502,6203,2803,6703,700
European countries
Market prices (a ton)23,9903,0802,6802,6604,0603,6103,4703,580
(In thousands of tons, dry weight)
Industrial countries420400430430420400430430
United States250220200220250220200220
Developing countries890830840860890830840860
U.S.S.R. and Eastern8090707080907070
European countries
Sources: United Nations, Food and Agriculture Organization, 1987 FAO Trade Yearbook (Rome), for exports; and Commodities Division, IMF Research Department, for market prices.

Cigarette manufacture accounts for some 90 percent of world tobacco usage. Global output of cigarettes increased by around 3 percent in 1987, to 5,120 billion pieces and has been estimated to have reached about 5,200 billion pieces in 1988. The expansion in both years was largely the result of significant increases in Chinese and U.S. production. In China, which accounts for about 28 percent of world cigarette production, growth of output reflects expanding domestic consumption. By contrast, in the United States, which accounts for about 14 percent of world cigarette production, domestic consumption decreased in 1988, while exports increased by 18 percent to about 118 billion pieces, particularly to Japan, Korea, and Taiwan Province of China. U.S. domestic consumption is estimated to have fallen to some 568 billion pieces. In Japan, domestic cigarette production decreased by 10 percent in 1987 and is estimated to have fallen by another 4 percent in 1988, reflecting in part the effects of import liberalization. In 1988, the share of imported cigarettes in the Japanese market was about 12 percent, of which 95 percent originated in the United States. After a reduction in cigarette consumption in Brazil in 1987, a further decrease of 2 percent is estimated for 1988.

With regard to 1989, further expansions of tobacco production and exports seem likely. In the United States, the flue-cured tobacco program for 1989 includes an 18 percent rise in the basic national marketing quota, a 12 percent increase in the national acreage allotment and a price support level 2 percent above the 1988 level. Exports of unmanufactured tobacco are expected to rise by 3 percent. In Zimbabwe, production is expected to rise by about 10 thousand tons from the 120 thousand tons in 1988, thereby enforcing the importance of tobacco as the country’s leading export. By contrast some reduction in land planted with tobacco is envisaged in Japan. Global consumption is not expected to change appreciably, as falling demand in industrial countries will once again be offset by expanding consumption in developing countries on account of rising incomes and improving living standards. Small price increases seem likely in 1989. When the 1988/89 burley marketing season in the United States opened on November 21, 1988, prices were 3 cents a pound above the opening values for the previous year. Strong demand and good leaf quality pushed these auction prices further upward during the marketing season, to an average of 160 cents a pound, 5 cents higher than the previous year. At the beginning of the season in mid-April 1989, auction prices in Zimbabwe were high, in part because of the high quality of the crop.

Natural Rubber

The major international markets for rubber are located in Kuala Lumpur, Singapore, London, and New York. These physical markets deal in actual rubber for current delivery (spot) or at some future date (forward). In addition, futures markets for rubber, located in Kuala Lumpur, Singapore, Kobe, and Osaka, provide market participants with facilities to hedge their physical transactions. Price quotations in this report are for first quality ribbed smoked sheets (RSS1), in bales, spot, f.o.b. Malaysia.

Natural rubber prices weakened in the mid-1980s because of rapid growth in the output of natural rubber, low synthetic rubber prices, and in 1985 and 1986, a slowdown in the rate of economic growth in industrial countries. In 1985, the fall in prices was checked by substantial purchases by the buffer stock of the 1979 International Natural Rubber Agreement (INRA). These purchases were made to defend the floor price in the agreement. Prices rose sharply during 1987 and the first half of 1988 because of rising consumption, weather-related supply shortages, sharply higher demand for latex concentrates, and a rise in synthetic rubber prices stemming from advancing crude oil prices. In terms of U.S. dollars, natural rubber prices increased by 22 percent in 1987 and by a further 22 percent during the first half of 1988. Prices remained firm during the third quarter of the year before declining by 16 percent during the fourth quarter.

The demand for rubber, which is derived from the demand for tires and other rubber manufactures, is closely related to the level of industrial production in the main rubber consuming countries. The demand for natural rubber is also influenced by prices for synthetic rubber, which is a substitute for natural rubber in many end uses. Movements in the price of crude oil have a major impact on synthetic rubber prices because synthetic rubber is made from petrochemical feedstocks.

In 1987, demand for natural rubber increased because of a rising level of economic activity in the industrial countries and a recovery in crude oil prices, which contributed to an increase in the price of synthetic rubber relative to natural rubber. As the supply of natural rubber is highly inelastic with respect to short-term prices, strong demand for natural rubber led to sharp price increases in 1987. Demand for natural rubber latex remained strong throughout the year because of increased awareness about AIDS and a related sharp rise in demand for medical examination gloves and condoms. Diversion of latex into the production of latex concentrates reduced supplies of sheet rubber and contributed to the rise in prices for first quality ribbed smoked sheets (RSS1). The INRA market indicator price,58 which rose, in line with the overall rise in prices, breached the agreement’s upper intervention price of 233 Malaysia/Singapore (M/S) cents a kilogram in late August 1987.59 In September 1987, this triggered the first sales from the 360 thousand ton INRA buffer stock, which had been accumulated since the agreement entered into force in October 1980. Despite buffer stock sales of 100 thousand tons during the last four months of 1987, prices remained buoyant.

Prices increased much more rapidly during the first six months of 1988 because of continued strong import demand and a tightening in the supply situation. Rubber production tends to be seasonally low in the period between February and May because of wintering.60 In 1988, the period of low production was prolonged by late wintering in Thailand. Demand for natural rubber, on the other hand, rose because of strong growth in industrial production in the major industrial countries and unusually large purchases by China of both latex and dry rubber. The annualized rate of growth of industrial production in the major industrial countries increased from 1.7 percent in the first quarter of 1987 to 4.9 percent in the second quarter, 7.9 percent in the third quarter, and 8.0 percent in the fourth quarter. The rate of increase, which decelerated to 5.7 percent during the first quarter of 1988, slowed down further to 2.7 percent in the second quarter before recovering to 7.7 percent in the third quarter of the year.

The price of latex concentrates rose much more sharply than for dry rubber during the first half of 1988. Strong demand for natural rubber liquid latex concentrates used in the production of medical examination gloves and condoms, tight latex concentrate supplies, and large latex concentrate purchases by China accounted for the increases. Initially, however, the diversion of latex was constrained by the installed capacity of the centrifuges used to produce latex concentrates. With a sharp rise in latex prices, the price premium for 60 percent Malaysian centrifuged latex over RSS1 in London rose from 9 percent in December 1987 to 154 percent in July 1988. Sales from the INRA buffer stock, which increased the supply of dry rubber grades available to the market, contributed to the widening of the price differential between latex concentrates and dry rubber grades. The underlying strength of the market was so great, that despite sales of more than 200 thousand tons from the INRA buffer stock during the first half of 1988, the market indicator price breached the upper trigger action price of 242 M/S cents a kilogram in January 1988 and broke through the upper indicative or ceiling price of 270 M/S cents a kilogram in late May. In June 1988, the market indicator price peaked at 291 M/S cents a kilogram.

With the seasonal decline in demand associated with lower factory output during the summer holiday period in the United States and Europe, which coincides with a recovery in production following the end of the wintering season in Southeast Asia, prices began to decline in July. Prices continued to fall during the remainder of the year because of a leveling off in the growth of import demand and a limited increase in production in response to the high prices during the first half of the year. From a peak of 66.3 U.S. cents a pound in June 1988, the price of RSS1 fell to 48.6 cents a pound in December 1988. By December 1988 the market indicator price had declined to 234 M/S cents a kilogram. Buffer stock sales, which continued at a much slower rate during the second half of 1988, are estimated to have reduced the INRA buffer stock to about 20 thousand tons by the end of 1988. Latex production capacity and latex supplies rose in response to the very high premiums for latex concentrates. The use in latex output which coincided with a deceleration in the rate of increase in latex consumption caused latex prices to fall sharply. By the end of the year, the price differentials between the various grades were moving toward the levels of previous years.

World production of natural rubber grew by 7.2 percent in 1987, largely as a result of production increases in Thailand and Indonesia (Table 55). Production in Thailand rose by 18 percent, while Indonesian production expanded by 14 percent mainly on account of increasing production from new plantings and from trees reaching their most productive age. A devaluation in the Indonesian rupiah in late 1986 may also have contributed to the rise in Indonesian output. World production is estimated to have increased by a further 2.9 percent in 1988 primarily because of continued production increases in Thailand and Indonesia. The high level of prices in late 1987 and early 1988 induced a limited production response through more intensive tapping and exploitation of previously abandoned older areas. Production in Malaysia, the largest producer, has slowed because of rising labor costs and the substitution of palm oil and cocoa for rubber. These substantial increases in world production fell short of the growth in world natural rubber consumption, which increased by 8.8 percent in 1987 and by an estimated further 5.8 percent in 1988. The deficit between production and consumption, of 50 thousand tons in 1987 and an estimated 190 thousand tons in 1988, was met by sales from the INRA buffer stock. Commercial stocks are estimated to have risen by 50 thousand tons in each year.

Table 55.Natural Rubber: World Commodity Balance, 1982–88(In thousands of tons)
Other countries8308809801,0001,0801,0701,070
European Community730740760790810840890
United States540660750760740790820
Other countries1,9102,0902,2102,2602,3402,6102,790
Closing stocks1,7201,7601,7801,7601,7701,7201,530
Commercial stocks21,4901,4901,5101,4001,4101,4601,510
INRA buffer stock323027027036036026020
Stocks/consumption ratio (in percent)47444240403630
Source: International Rubber Study Group, Rubber Statistical Bulletin (London), various issues.

A rise in export volume and unit value resulting from the growth in production and prices in 1987 caused earnings from natural rubber exports to increase from $2.9 billion in 1986 to $3.6 billion (Table 56). Earnings are estimated to have risen further, to $4.1 billion in 1988, because of the substantial rise in natural rubber prices during the first half of the year and an increase in export volume. Despite the sharp fall in prices during the second half of the year, the average level of prices and export unit values in 1988 was substantially higher than in 1987.

Table 56.Natural Rubber: Export Earnings, 1985–88
(In SDRs)(In U.S. dollars)
Earnings (in billions)
Developing countries2.
Unit values (a ton)7406607107707507809201,030
Market prices (a ton)27506907608807608109801,180
(In millions of tons)
Developing countries3.
Sources: Data on exports from United Nations, Food and Agriculture Organization, 1986 FAO Trade Yearbook (Rome), and include only exports of rubber producing countries; and Commodities Division, IMF Research Department, for market prices.

As production and consumption move into better balance in 1989, natural rubber prices are expected to remain firm, at around the end-of-1988 levels. Natural rubber demand and consumption are likely to grow more slowly owing to a moderation in the rate of output growth in the major industrial countries. The fall in prices in the second half of 1988, however, is likely to make natural rubber more competitive with synthetic rubber. The strength of import demand from China, which was a major factor in the price rise during the first half of 1988, remains a key unknown factor. Production is expected to continue to grow mainly because of increased output from Indonesia and Thailand. The 1987 International Natural Rubber Agreement entered into force provisionally in late December 1988. In April 1989, at its first session under the 1987 INRA, the International Natural Rubber Council decided to transfer the assets from the buffer stock account of the 1979 INRA to the buffer stock account of the 1987 INRA and agreed that these funds would be refunded to the members of the agreement. Based on the six-month average of the daily market indicator price and net buffer stock sales of 300 thousand tons since the last price revision, the Council decided to revise the reference price upward by 8.15 percent to 218.10 M/S cents a kilogram. Rubber prices are now quite close to the “may sell” price of the 1987 INRA but since the buffer stocks acquired under the 1979 INRA have been sold, the agreement will not be able to exert a moderating influence on upward movements in natural rubber prices.

Natural Fibers

The recent history of fibers production and trade has been marked by economic challenges. The natural fibers sector, as other commodity sectors, is vulnerable to the effects of nature and to economic and political developments in individual countries that can disrupt patterns and trends in world production and trade of fibers. From a global perspective, producers of natural fibers have had to meet competition from producers of synthetic fabrics and the new technologies used in materials handling. They have also had to operate within the context of the Multifiber Arrangement (MFA), which since 1975 has established limits, sanctioned by the GATT, on the annual growth in the volume of exports of a broad range of textiles and apparel from Japan and the developing countries to the EC, the United States, and other major industrial countries.

These developments have adversely affected the growth of demand for natural fibers, but they are not irreversible. The Uruguay Round of multilateral trade negotiations offers an important opportunity for the developing and industrial countries to reach an agreement on a phased elimination of the MFA. Also, in recent years the widespread use of synthetic fabrics in clothing has been accompanied by a renewed interest in cotton and wool because of the greater insulating qualities and comfort of natural fibers. Finally, lower relative prices of natural fibers, including jute and allied fibers, may be expected to induce innovative, new uses for these fibers, improving their longer-term prospects to accommodate stronger world demand.


Raw cotton is traded on a number of commodity exchanges located principally in the major market-oriented, cotton producing and consuming countries. The largest of these are the New York Cotton Exchange and the Liverpool Cotton Association. These exchanges trade in a variety of cotton staples and predominantly offer facilities for trading in cotton futures, with delivery terms as long as one year ahead.

Short-term price movements in the exchanges are influenced by production and consumption prospects throughout the world over the course of a crop year (August–July). Thus, the exchange prices of cotton are heavily influenced by day-to-day forecasts of global cotton production, reports of storms threatening cotton growing regions, and periodic announcements of the administrative details surrounding national policies affecting cotton production and trade.

Among the most prominent national policies impinging on world cotton market conditions is the U.S. cotton program, which involves strict import quotas and a complex system of crop loans and export marketing incentives. Despite the export incentives and acreage limitations under the program, in recent years the program has resulted in growing U.S. Government stockpiles of the commodity, which when budget limits for the program are reached must be reduced by “placing” excess stocks on the world market. The combination of import controls and periodic disposal of excess stocks tends to depress cotton prices on exchange markets worldwide.

In other cotton producing countries, particularly countries that have a strong comparative advantage in the production and export of raw cotton, such as Egypt and Pakistan, policies are sometimes enforced to restrict the volume of cotton exports and minimum export prices are prescribed by the government. These policies, whether undertaken to safeguard supplies of cotton for domestic textile mills or to deliberately affect world supplies, contribute, ceteris paribus, to higher world prices for cotton.

World production of cotton in the 1980s reached a peak of nearly 19 million tons in the 1984/85 crop year, when China, the United States, and a number of smaller producers increased their volume of production in response to the high price for cotton in the 1983/84 crop year—the highest recorded in the 1980s (Table 57). Since 1984/85, world output has declined to a level of about 17 million tons a year, while world prices have declined somewhat more sharply, finally attaining at the end of 1987/88 a level about 20 percent below the high price reached in 1983/84.

Table 57.Raw Cotton: World Commodity Balance, 1982/83–88/89(In millions of tons)
August–July Crop Year
United States2.
Other countries6.
United States1.
Other countries8.
Closing stocks35.
United States1.
Other countries2.
Stocks/consumption ratio (in percent)39355963423942
Source: International Cotton Advisory Committee, Cotton: World Statistics (Washington), various issues.Note: The commodity balance statistics refer to all staples.

In 1987/88, world production of cotton increased over 13 percent, achieving a level of 17.5 million tons. Producers in most cotton growing regions increased production over the year. Despite the drought in the United States and damage to crops from major storms in the Gulf of Mexico and regions of North and Central America, production in the United States, Mexico, and the Central American countries increased appreciably. In Asia, production was threatened also by floods in the Punjab region of Pakistan and other adverse natural conditions, for example, pest infestation in the cotton growing regions of China. Nevertheless, recorded production in these countries and other parts of Asia also increased appreciably. Only in the U.S.S.R. did production decline, albeit modestly, from 2.7 million tons in 1986/87 to 2.5 million tons in 1987/88. Among smaller producers, Sudan experienced somewhat lower production owing to severe floods in some areas of the country. Reflecting the recent increase of demand in industrial countries for apparel of natural fibers, consumption of cotton remained at record levels in 1987/88. No appreciable growth of demand occurred, however. Moreover, growth of intermediate demand for cotton yarns and fabrics among textile producers worldwide was reported especially weak throughout the year, prompting one increasingly important textile producer—China—to reduce its planned investment in additional production facilities. In part, demand for cotton may have been constrained by tighter administration of MFA quotas and by uncertainties engendered by the highly protectionist U.S. textile bill that was debated during 1988 in the U.S. Congress but vetoed by the President in September 1988. It is also possible, however, that the recent growth of popularity of cotton goods in retail markets could not be sustained, especially against the background of the nearly 40 percent price rise for raw cotton over the 1986/87 and 1987/88 crops.

World stocks of cotton declined slightly in 1987/88. In comparison with world consumption, however, they remained very high, about 40 percent. The largest stock declines occurred in China, owing in part to minor crop damage in some regions of the country. In the United States, stocks increased slightly, mainly because the U.S. cotton program, on balance, continued to encourage producers to withhold a substantial part of their output from the market. One consequence of this was the announcement in October 1988 that U.S. farmers must set aside from cotton production 25 percent of their acreage, up from the previous requirement of 12.5 percent, in order to qualify for the 1988/89 program of crop loans and export marketing incentives.

During 1988, the Liverpool price of medium-staple cotton—the most widely produced grade of cotton—fell steadily, from about 72 U.S. cents a pound in January 1988 to about 61 cents a pound in December 1988. Prices of one-year cotton futures generally led this trend. In early 1988, weak futures prices reflected market sentiment that production would outpace the growth of demand during the 1987/88 crop year. In mid-1988, futures prices rose substantially on the strength of market concerns about the U.S. drought. As the fears subsided, however, the downward trend of prices was re-established with continued news of weak textile mill demand for cotton yarn and estimates of only small reductions in worldwide cotton stocks. In September 1988, new concerns about the level of world production arose in connection with reports of unfavorable weather in Asia. At the end of the year, futures contracts for distant positions continued to sell at a discount to near positions, but spot prices demonstrated some strengthening on the basis of increasing mill demand and an emerging shortfall in the production of long-staple cotton in 1988/89 owing to low crop yields in Egypt.

Following their substantial rise in 1987, both the value and volume of world exports of cotton are estimated to have declined in 1988 (Table 58). Export earnings are estimated to have declined about 15 percent, from SDR 5.2 billion in 1987 to SDR 4.5 billion in 1988, while the volume of world exports is estimated to have declined about 7 percent, from 5.4 million tons in 1987 to 5.1 million tons in 1988. Reduced export earnings and volumes were experienced widely among both industrial and developing countries, including the United States and China. The U.S.S.R., however, did not reduce its cotton export volumes appreciably. Across exporting countries, the reduced volume of exports predominantly mirrors the weakness in 1988 of growth in intermediate demands for yarns and other primary textile products and possibly the indirect effects of increasingly binding MFA quota limits on textile and apparel exports to the major industrial countries.

Table 58.Cotton: Export Earnings, 1985–88
(In SDRs)(In U.S. dollars)
Earnings (in billions)
Industrial countries1.
Developing countries3.
U.S.S.R. and Eastern European countries1.
Unit values (a ton)1,4009609408901,4201,1301,2201,200
Industrial countries1,4601,0001,0009501,4801,1701,2901,270
Developing countries1,3208508207701,3401,0001,0601,040
U.S.S.R. and Eastern European countries1,5001,3601,3401,2501,5201,5901,7301,680
Market prices (a ton)
Long staple33,5602,9602,7803,5903,6103,4703,5904,820
(In millions of tons)
Industrial countries1.
United States1.
Developing countries2.
U.S.S.R. and Eastern European countries0.
Sources: United Nations, Food and Agriculture Organization, 1987 FAO Trade Yearbook (Rome), for exports; and Commodities Division, IMF Research Department, for market prices.

The outlook for 1988/89 cotton prices hinges on several perennial factors, including the strength of final demand for cotton apparel and related goods, national policies influencing the decisions of farmers to cultivate cotton, and uncertainties surrounding climatic conditions in the major cotton producing regions of the world.

Assuming continued uncertainty about the fundamental strength of final demand for cotton products, the prospects for increased cotton consumption in the next crop year are limited. One possibility is that the decline of prices for cotton in 1987/88 may, however, induce some modest increase in demand.

In 1988/89, there is likely to be considerable focus on the prospects for reduced growth of cotton production, which would enable cotton stocks to return to more traditional levels in relation to consumption and would enable prices in the commodity exchanges to firm if not reverse their recent declines. In this regard, the reduction of acreage allotments and the lowering of forecast market prices for cotton in conjunction with crop loans under the U.S. cotton program might promote lower production in the United States. Moreover, the lower cotton prices faced by producers worldwide at the end of the 1987/88 crop year may result in some voluntary reduction of world cotton production in the 1988/89 crop year. These considerations may be the basis for the moderate premium of prices for year-ahead cotton futures traded in New York, which emerged in late February 1989 after several months of trading at a discount.


The most active of the wool markets is the Sydney Futures Exchange, which provides spot trading and futures contracts for delivery up to 18 months ahead. Exchanges in the United Kingdom, United States, and other countries also provide markets for wool traders and brokers, but wool futures trading is generally limited in volume.

Although the exchanges for raw wool are highly integrated owing to ready communications between countries, national markets are segmented to a degree by controls imposed by some countries on wool imports. For instance, the United States imposes duties on some grades of wool to protect local producers. World trade in wool is also influenced by production control schemes in both exporting and importing countries. The marketing boards of Australia, New Zealand, and South Africa seek to regulate export prices to some degree, while in some importing countries, such as the United States, wool production is subsidized through direct cash payments following price-parity and other income maintenance schemes. Finally, like those of cotton, wool textile and apparel items are generally covered by import quotas enforced by the major industrial countries under the MFA. This inhibits the growth of world demand for raw wool and tends to constrain its price.

The production of raw wool grew at an average annual rate of 2 percent between 1982/83 and 1986/87 (July–June crop years), with world stocks maintained by producers and marketing boards in the principal wool producing countries—Australia, New Zealand, and South Africa—remaining relatively steady in the range of 150–200 thousand tons (Table 59). World prices for fine and coarse grades of wool changed little over this period, as world consumption of wool grew at almost exactly the same average annual rate as wool production.

Table 59.Raw Wool: World Commodity Balance and World Exports, 1982/83–88/89(In thousand tons, clean basis)
July–June Crop Year
New Zealand273271277266261260252
South Africa65616056525455
Other countries856863862861880888917
Closing stocks31672072071751779672
New Zealand503414617614
South Africa102592212
Other countries40494752443638
Stocks/consumption ratio (in percent)111312101054
New Zealand269259268240259236
South Africa273736272319
Other countries767961757567
Sources: Commonwealth Secretariat, Wool Quarterly, No. III, 1988; and Fund staff estimates.

Since the 1986/87 season, the economic circumstances of wool producers have improved remarkably, with prices rising sharply for most grades of the fiber. Strong demand, particularly for finer wool apparel and blended wool fabrics, has been the principal factor. Favorable weather in most producing regions, however, has also been important to the higher levels of production and producer earnings, especially in Australia. The sharp increase of world demand for raw wool in 1987/88 is reflected in the decline by nearly 50 percent of stocks held predominantly by the marketing boards of the major producing countries. Indeed, 1987/88 stocks fell to their lowest level in over a decade, making concerted efforts to resist the upward movement of prices impractical. At the end of 1987/88, stocks maintained by the Australian Wool Corporation and other Australian interests had fallen to about 50 thousand tons, or less than half of the level recorded in 1985/86.

In 1987/88, mill demand for raw wool in the principal countries producing wool manufactures—China, Italy, Japan, the United Kingdom, the U.S.S.R., and the United States—was especially strong for the finer grades of wool, which are produced mainly in Australia. Consumption of coarser grades of wool, produced in New Zealand, South Africa, and other countries, increased at a slower rate. Thus, for example, in 1987 U.S. producers of worsted apparel increased their demand for fine wool by more than 25 percent while reducing their demand for coarse wool by about 20 percent.

Over the 1987/88 season, prices of fine wool rose about 80 percent, from $5.40 a kilogram to $9.90 a kilogram. Reflecting slower growth of demand over the same period, prices of coarser grades of wool rose about 30 percent. Throughout the period, wool futures were sold at a premium on the Sydney exchange, apparently reflecting the expected continuation of strong textile mill demand for all grades of raw wool.

The outlook for raw wool in 1989 must be tempered by uncertainty about the prospects for continued strong growth of world demand for wool and wool products. In particular high prices for raw wool in 1987 and 1988 may be expected to moderate the growth of demand in some measure and to stimulate new competition from synthetic fabrics. As of April 1989, the Liverpool price of fine wool was $9.30 a kilogram, substantially below the May 1988 high of $13.00. The price of coarse wool was also somewhat lower than its 1987/88 average price ($4.50 a kilogram), at about $4.40 a kilogram.


Jute is not traded extensively on commodity exchanges. Reported prices are principally contract prices for exports negotiated by international brokers with jute producers in Asia and other producing regions. Few controls are imposed on imports of raw jute by industrial countries. In these countries, jute continues to have important uses, but durable and more competitively priced synthetic packaging materials and fabrics, predominantly of polypropylene, have gradually grown to have the largest market share. Also, innovations in bulk handling of many agricultural and other commodities have reduced the general demand for imports of packaging materials.

Similar considerations factor into the declining growth of demand for jute products in developing countries. In some developing countries, however, various controls have been placed on imports of raw jute and jute products in order to promote local production of synthetic fabrics for commodity and materials handling. Considerable economic costs often arise in such cases, both in terms of the capital required to establish local production facilities for synthetic fabrics and the direct costs to consumers of substituting domestic goods for imports of lower-priced jute or synthetic materials.

Finally, international prices of raw jute are influenced to some extent by the efforts of exporting countries to enforce minimum prices for jute exports. Enforcement of these controls varies, but the controls tend to reduce the level of world exports for raw jute and thereby to raise world prices of the commodity. The International Jute Organization, founded in 1982 by both jute consuming and producing countries, is expected to renegotiate its charter in 1989. The agreement, however, is expected to place continued emphasis on the development of information and marketing services to benefit jute growers and manufacturers and not to incorporate proposals by the producing countries to establish a price stabilization scheme.

The price of raw jute exports in the 1980s reached a peak during the 1984/85 crop year (July–June) when, owing to severe floods, sizable crop losses occurred in Bangladesh and India—the two major jute producing countries—and exports, particularly from Bangladesh, which traditionally supply about three fourths of world jute exports, were appreciably reduced (Table 60). In the crop years 1985/86 and 1986/87, world production expanded sharply above the levels recorded in 1983/84 and 1984/85, and world exports regained their previous levels. In 1986/87, jute stocks rose nearly threefold, from 490 thousand tons to just over 1.5 million tons, in response to declining demand for jute products. As a consequence, jute export prices fell to their lowest level of the decade—about $272 a ton (see Table 49).

Table 60.Jute: World Commodity Balance and World Exports, 1983/84–88/89(In thousands of tons)
July–June Crop Year
Opening stocks5304804901,6201,6801,380
Other countries60305010012090
Other countries7608901,0801,300890870
Other countries1,1801,1501,4501,7201,1801,120
Other countries6367891169176
Sources: United Nations, Food and Agriculture Organization (FAO), Jute, Kenaf, and Allied Fibers (Rome); and Fund staff estimates.

In 1987/88, the price of raw jute exports rose more than 30 percent, to about $370 a ton. Reflecting continued weak world demand for jute and jute products, total consumption fell nearly 10 percent to about 3.3 million tons. The price increase, however, reflected the onset of new declines in the level of production in Bangladesh, again owing to floods. As in 1984/85, total exports fell sharply, from over 500 thousand tons in 1986/87 to about 350 thousand tons.

The outlook is for continued higher prices for raw jute in 1988/89, owing in part to the continuing effects of the severe floods in Bangladesh in mid-1988. Additionally, expected increases in the prices of alternative crops in Asia, such as rice, may contribute to further reductions in jute production and thereby strengthen jute prices. Over the longer term, however, production is expected to be restored to higher, more normal levels. At the same time, in the absence of innovative or new uses for jute, world demand for the commodity is expected to continue to decline. Thus, the medium-term outlook for jute prices remains less than favorable for jute producers.


The price of sisal, a hard fiber used primarily for rope and cordage, increased by about 3 percent in 1988, following a decline of 2 percent in 1986 and little change in 1987.61 Beginning especially in the later part of 1988, purchases of the commodity began to demonstrate considerable strength, reportedly in anticipation of substantially higher demands for sisal in 1989 in the major industrial countries. Increased demand was strongest for sisal produced by estates in the East African countries of Tanzania and Kenya. In Madagascar, the third major sisal producing country in Africa, drought continued throughout the year, limiting the country’s ability to meet the increase of overseas interest in purchasing the commodity. Demand for Brazilian sisal also increased in late 1988; however, increases in foreign orders were not as large as those reported for East African sisal. As a consequence, official export prices for Brazilian sisal remained largely unchanged in the second half of 1988. Notably, however, the Brazilian authorities had already established somewhat higher prices for the country’s exports of the commodity early in the year.

In 1989, export prices for sisal are likely to increase by a small amount. Higher export earnings are likely to be earned by the East African countries, especially Tanzania, where recently adopted economic reforms should promote improvements in the supply of sisal for export. In Brazil, the outlook for substantial gains in export earnings is more uncertain given the interests of local manufacturers of sisal products in limiting growth of raw sisal exports in order to safeguard adequate supplies of the commodity for domestic uses at relatively low prices.


Over the past two decades there has been a major change in the structure of the world tanning industry. The developing countries have changed from net exporters of hides and skins in the 1960s to net importers in the 1980s, while the share of the industrial countries in the value of global exports of hides and skins has increased from two thirds to nearly 90 percent over the same period. The most rapid growth of tanning capacity and leather goods output among the developing countries has occurred in East Asia, particularly in Korea and Taiwan Province of China, and to a lesser extent, in Latin America. Italy still remains the world’s largest importer, followed by Korea and Japan.

The price for hides of heavy steers, over 53 lbs., f.o.b. Chicago, is used here as the measure of the price of hides. While the supply conditions on the Chicago market relate primarily to the United States, the world’s largest beef producer, demand reflects developments both in the United States, and abroad, particularly in East Asia. The price of hides in Europe followed fairly closely the pattern of development of the U.S. price in the period under discussion.

Assisted by buoyant world economic growth and growing demand for footwear and leather goods, the dollar price of hides increased steadily each year to more than double over the period 1982–87. In 1987, a higher slaughter rate in the U.S.S.R., owing to a shortage of feed grains, and in the EC and Australia contributed to a modest increase in the global supply of hides (see discussion on beef in Section II). In the United States, cattle slaughter declined by 3 percent, and with strong demand from both domestic and East Asian buyers the price of hides continued to rise. The depreciation of the U.S. dollar stimulated the tanning industry in the United States by improving its export competitiveness. In Europe, by contrast, the tanning industry was quite stagnant reflecting the competitiveness of East Asian footwear and leather goods; demand for European upholstery leather, however, remained buoyant.

Continued strong East Asian demand for U.S. hides resulted in a sharp price rise in the first four months of 1988 to a peak of 100 cents a pound in April; however, buyer resistance to high prices, particularly for sports footwear and garments, set in and, combined with an increase in supply resulting from the drought-induced slaughter of the U.S. dairy herd, the market eased considerably in subsequent months with prices falling to 84 cents a pound in July. A recovery to 93 cents a pound occurred in August, as it became apparent that the drought had not raised the slaughter of beef cattle appreciably and that lower supplies were likely for the remainder of the year. Nonetheless, weaker retail demand for leather goods and the stabilization of the U.S. dollar moderated East Asian demand for hides during the following months, and prices declined to 77 cents a pound by the end of the year. There was a modest increase to an average of 87 cents in the first four months of 1989.

Prices should move upward during the remainder of 1989 on account of a significant reduction in the global supply of hides. Herd rebuilding is expected in Argentina, Australia, Canada, and the United States, and a lower rate of slaughter is projected for the EC in response to the imposition of limits on intervention purchases.

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