The strength of prices of most agricultural raw materials in 1987 contrasts sharply with their weakness during 1985 and 1986 (Table 46 and Chart 6). As discussed in this section, prices of logs, natural rubber, cotton, wool, and hides all increased by large percentages in 1987. The tobacco market also appeared more active than for a number of years, but this change was not reflected in prices because of the persistence of large stocks. The markets for jute and sisal, however, remained weak, although some longer-term adjustments appear to be taking place.

The strength of prices of most agricultural raw materials in 1987 contrasts sharply with their weakness during 1985 and 1986 (Table 46 and Chart 6). As discussed in this section, prices of logs, natural rubber, cotton, wool, and hides all increased by large percentages in 1987. The tobacco market also appeared more active than for a number of years, but this change was not reflected in prices because of the persistence of large stocks. The markets for jute and sisal, however, remained weak, although some longer-term adjustments appear to be taking place.

Table 46.

Prices of Agricultural Raw Materials, 1979–87

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Source: Commodities Division, IMF Research Department.

The weights in the index are as follows: logs, 45 percent; cotton, 17 percent; wool, 10 percent; natural rubber, 11 percent; tobacco, 11 percent; hides, 5 percent; jute and sisal, less than 1 percent.

Malaysian meranti logs, average wholesale price, Japan.

United States, average, estimated prices received by producers.

Malaysian RSS1, f.o.b. Malaysia/Singapore ports.

Liverpool Index A, c.i.f. Liverpool.

U.K. Dominion, 64’s clean, dry combed basis.

Bangladesh BWD, f.o.b. Chittagong/Chalna.

East African origin, ungraded, c.i.f. European ports.

U.S. wholesale price, f.o.b. shipping point, Chicago.

January–February average.

Chart 6.
Chart 6.

Prices of Agricultural Raw Materials, 1980–87

(In SDRs; indices: 1980 = 100)

The prices of agricultural raw materials in 1986–87 appear to have provided leading indicators of movements in other commodity prices. The price index for agricultural raw materials, whether measured in terms of SDRs or dollars, fell to its most recent trough in the third quarter of 1986 and rose to a record high in the final quarter of 1987 (Table 46). The sharp upturn in this index became evident in the final quarter of 1986, whereas a comparable upturn in the price index for minerals and metals only became evident in the second quarter of 1987. Weaker and possibly unsustained upturns in the price indices for food commodities and beverages occurred only in the final quarter of 1987 (see Tables 3, 8, and 38). An examination of monthly movements in the index of prices of agricultural raw materials suggests that the fourth quarter of 1987 might represent a peak in the series. In the first quarter of 1988 the index fell by about 8 percent from the level of the fourth quarter of 1987.

The lead that prices of agricultural raw materials appears to have had in this period over the prices of other commodities, however, can to a considerable degree be traced to fortuitous rather than systemic factors. The group index is dominated by movements in the prices of logs and cotton, with weights of 45 percent and 17 percent, respectively. The price increase for logs was associated both with supply restrictions as a consequence in part of conservation measures in exporting countries and with strong demand in a major import market—Japan. The supply factors appear to be specific to the market for logs, while strong growth in demand in the Japanese market could affect on a wide range of primary commodites. The sharp rise in the price of cotton was largely the result of adverse weather leading to a very low U.S. production, extraordinary measures to reduce stocks in China, and larger-than-expected increases in consumption worldwide, triggered by lower prices. These reasons appear largely specific to cotton although the underestimation of demand response to a period of substantially lower prices may have wider application relevance.

It might be reasoned that the prices for agricultural raw materials react faster to changed conditions than those for other commodities because of competition with synthetic materials. Nevertheless, the sharp decline in 1986 in the price of petroleum (Table 47)—the base for most synthetic materials competing with agricultural raw materials—would suggest at least a potential weakening of the competitive edge of agricultural raw materials in 1987 and hence a tendency toward decreasing rather than increasing prices. The nature of these competitive relationships would need to be examined in greater depth before any conclusions are drawn.

Table 47.

Movements in Prices of Agricultural Raw Materials and Related Economic Indicators, 1980–87

(Annual percentage changes)

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Sources: Commodities Division and Current Studies Division, IMF Research Department.

Refers to IMF world index of prices of agricultural raw materials. These percentages differ from those reported in the World Economic Outlook which refer to the index of commodities exported by developing countries.

Index of dollar prices of agricultural raw materials deflated by the index of dollar unit values of manufactured exports.

Overall indices constructed using the same weights for the indices of individual commodities as in overall (world) price index. Crop year data for agricultural commodities are given under the earlier calendar year, e.g., crop year 1980/81 under 1980. The commodity coverage of the indices of consumption and stocks is less comprehensive than the coverage of the indices of production and supply.

Supply is defined as production plus beginning-of-year stocks.


U.S. dollar prices of hardwood logs, which had been declining intermittently since the second half of 1985, rose by 46 percent in 1987.68 The price increase was sharp particularly in the second half of the year, with the prices reaching a historic peak of $306 a cubic meter in November. Prices, however, began to weaken toward the end of the year as log stocks climbed rapidly. The major factors contributing to the price increase in 1987 were an upsurge in housing starts in Japan and the restrictive log export policies of major hardwood producing countries in Southeast Asia. Prices of sawnwood69 recovered by about 4 percent in 1987 to $279 a cubic meter owing in part also to restrictions on sawnwood exports imposed by producing countries in Southeast Asia.

Hardwood log production is estimated to have declined marginally, from 255 million cubic meters in 1986 to 254 million cubic meters in 1987. The share of tropical hardwood logs (which are produced entirely in developing countries) in total hardwood log production remained broadly unchanged in 1987 at 68 percent (Table 48). Logging activities in the Malaysian State of Sabah were hindered by unusually heavy rainfall during the first half of the year and shipping delays owing to typhoons caused a slower turnaround time for many vessels in Southeast Asia. In the Philippines, the policy banning log exports remained in force, while Indonesia continued its policy of progressively halting log exports in order to promote domestic production of plywood and other finished products. While production of tropical hardwood declined by a small percentage in 1987, hardwood log production in industrial countries in 1987 remained unchanged from 1986. The major factor accounting for this development was a sluggish demand for timber owing to a fall in housing starts caused by the continued high level of real interest rates in the United States and the generally fragile state of business expectations prevailing in most industrial countries. Forest fires and dry weather in Canada and the United States kept loggers out of the woods, and as a result, log supplies from these two major industrial country producers of hardwood remained tight throughout much of 1987. Sawn wood production rose in 1987 reflecting a shift away by timber producers in Southeast Asia from logs toward the higher-priced sawnwood.

Table 48.

Hardwood Logs and Sawnwood: World Production, 1981–87

(In millions of cubic meters)

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Source: UN Food and Agriculture Organization, 1985 Yearbook of Forest Products (Rome).

Estimated by Commodities Division, IMF Research Department.

Consumption of hardwood is estimated to have increased considerably in Japan in 1987 owing to an upturn in housing construction. In the first nine months of the year, housing starts in Japan reached 1.2 million units, which was about 20 percent higher than in the same period a year earlier. Housing construction activity in Japan was boosted in part by the emergency economic measures introduced by the Japanese Government in May to expand, inter alia, government loans for new housing at concessional interest rates. For 1987 as a whole, housing starts are estimated to have risen by about 20 percent to 1.6 million units. In contrast, housing starts in the United States fell by 10 percent in 1987 to 1.6 million units owing mainly to steady increases in mortgage rates. Consumption of hardwood in the United States in 1987, however, did not appear to have fallen by as much as indicated by the decline in housing starts. The decline in the number of single and two-family houses, which of all types of dwellings use the most volume of forest products per unit, was less than the decline in the number of multi-family housing complexes. The average size of the single family house continued to increase. Also, there was a strong rise in repair and modernization work on existing buildings, particularly in the dwelling sector.

In 1987, export volumes of hardwood logs increased marginally (Table 49), partly in response to the sharp increase in prices. As in recent years, tropical hardwood producers continued to be the world’s major exporter of hardwoods, while industrial countries, in particular Japan, remained the major importers. Throughout the year, exports of tropical hardwoods, most of which were priced in U.S. dollars, were favorably affected by the depreciation of the U.S. dollar against the currencies of main importing countries. Japan’s imports of hardwood logs are estimated to have increased by about 10 percent in 1987 to 15 million cubic meters. Malaysia and Indonesia continued to be the major suppliers of logs to Japan. In contrast to logs, exports of sawnwood fell slightly in 1987, reflecting a continuation of the depressed level of activity in important end-use sectors, notably joinery and furniture. In addition, in late 1986, Indonesia imposed restrictions on exports of sawn timber from certain species and similar steps were taken by the Malaysian State of Sarawak in July 1987. While the high price in the final quarter of 1987 occasioned by shortages in the Japanese market was not sustained in January 1988, average hardwood log prices in 1988 are expected to be higher than the average for 1987 because of the combined influences of a further increase in housing starts in Japan and the tightness in the supply of logs from the traditional producers in Southeast Asia. The projected increase in housing starts in Japan would be predicated largely on the continued availability of concessional funds from the Government. Housing starts in the United States are expected to stagnate at the current level in 1988 as mortgage rates are expected to remain at relatively high levels. On the supply side, the policies restricting the export of logs from the major producers are expected to remain in force and are expected to support a modest increase in log prices. The price of sawnwood is also projected to increase in 1988 broadly in line with the increase in the log prices.

Table 49.

Hardwood Logs and Sawnwood: Export Earnings, 1984–87

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Sources: UN Food and Agriculture Organization, 1985 Yearbook of Forest Products (Rome), for exports; Commodities Division, IMF Research Department for market prices.

Data on exports are estimates of Commodities Division, IMF Research Department.

Malaysian meranti logs, average wholesale price in Japan.

Malaysian meranti, select and better quality, c.i.f. French ports.

Because much of the increase in the price of hardwood logs occurred only late in 1987, earnings from the exports of hardwood logs are estimated to have increased by only 9 percent in terms of dollars in 1987 and to have remained unchanged in terms of SDRs (Table 49). Earnings measured in dollars from exports of sawnwood made from hardwood are estimated to have increased in 1987 by 4 percent but earnings in SDR terms remained unchanged. The higher market prices prevailing late in 1987, however, are likely to be reflected in substantially higher export earnings in 1988.


In 1987 world production of tobacco is estimated to have risen by about 6 percent to 6.5 million tons. While world consumption is estimated to have remained close to the previous year’s level of 6 million tons (Table 50). Estimates of the volume of world exports of unmanufactured tobacco vary but are close to the level of 1986 of 1.3 million tons (Table 51). World stocks are calculated to have been reduced from 5.9 million tons at the beginning of 1987 to 5.7 million tons by the end of the year. In the United States, the stock was estimated to decline from 2 million on July 1, 1987 to approximately 1.5 million toward the beginning of 1988. Notwithstanding these developments, stocks of unmanufactured tobacco at the beginning of 1988 were sufficient to cover 12 months’ usage by the world’s tobacco manufacturing industry.

Table 50.

Tobacco: World Leaf Production, 1981–87

(In thousands of tons)

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Source: UN Food and Agriculture Organization, F AO Production Yearbook, years 1984–86.

Estimated by Commodities Division, IMF Research Department.

Table 51.

Tobacco: Export Earnings, 1984–87

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Sources: UN Food and Agriculture Organization, 1986 FAO Trade Yearbook (Rome) for exports; Commodities Division, IMF Research Department for market prices.

Data on exports are estimates of Commodities Division, IMF Research Department.

United States, average estimated prices received by producers.

Auction prices for unmanufactured tobacco in 1987 were rather mixed reflecting mainly the type and quality of tobacco offered and marketing arrangements. In Malawi, auction prices increased by 37 percent in terms of kwacha (20 percent in U.S. dollars), whereas in Zimbabwe, auction prices declined by about 30 percent both in terms of Zimbabwe dollars and U.S. dollars. The average price in the flue-cured auction markets in the United States increased from $1.52 a pound in 1986 to $1.60 a pound in 1987.

Export earnings in dollar terms in 1987 are estimated to have remained nearly unchanged compared to 1986; in SDR terms, a further decrease is estimated—the decline, however, is relatively small in relation to the substantial drop between 1985 and 1986 (see Table 51). It is estimated that developing countries improved their export earnings in terms of dollars, whereas industrial countries may have lost some ground owing mainly to a lower volume of exports.

With respect to consumption of cigarettes, the prevailing trend continued; demand in developing countries increased owing to rising incomes, increasing urbanization, and other socio-economic factors, whereas consumption in industrial countries was reduced because of heavier taxes, higher retail prices, and enhanced anti-smoking restrictions. Taxes and excise duties on cigarettes are, however, being increasingly used as revenue sources in developing countries such as Argentina, India, and the Philippines. Cigarette consumption in China, the world’s largest producer and consumer, increased at an average yearly rate of 9 percent throughout the 1980s. In Brazil, cigarette sales grew by 15 percent in 1986, but may have fallen in 1987. Cigarette sales in Indonesia were expected to register a 6 percent increase in 1987. In the United States, major increases of cigarette production are expected to be channeled to export markets similar to the jump in shipments to Japan and other Asian countries in 1987, reflecting primarily the recent trade liberalizations of these markets, but also exchange rate changes. The volume of U.S. exports of cigarettes rose from 64 billion pieces in 1986 to 100 billion pieces in 1987, valued at $2 billion compared with $1.3 billion in 1986.

Reflecting this consumption demand, world production of cigarettes is estimated to have risen to more than 5,000 billion pieces in 1987. This fourth consecutive annual increase was principally the result of a yearly 10 percent output growth in China since 1984. Cigarette production also increased in most other Asian countries, while production in South America and Africa increased by 8 percent and 4 percent, respectively. Most European manufacturers, however, reduced their production. In 1988, world cigarette production is expected to increase by around 2 percent to 5,200 billion pieces.

World tobacco production is expected to follow a moderately expansionary path. After a sharp upturn in 1987, production in China may grow at a somewhat slower rate in 1988. Production in the United States may increase again in 1988 when the national crop quota of 352,000 tons will be 21,800 tons higher than last year. In addition the average yield goal has been increased and price supports are also above their 1987 level. In 1987 planted area in Zimbabwe increased by 16 percent, but hot, dry conditions toward the end of the growing period limited the size of the crop and reduced leaf quality. With a return to more normal weather conditions, Zimbabwe should realize a larger crop in 1988. Malawi’s leaf harvest may also increase in 1988. Brazil is also expected to have a larger tobacco crop in 1988, up 2 percent to 415,000 tons.

Prices of unmanufactured tobacco are estimated to move upwards in a narrow range in 1988, reflecting mainly the expected improved quality. Prices of the U.S. burley tobacco auction market in the 1988 (January–February) season averaged $3.45 a kilogram, the same level as in the previous year. Zimbabwe’s flue-cured tobacco auction opened in April 1988 with prices substantially higher than in the previous year, although the difference primarily reflected higher quality leaf.

Natural Rubber

The market for natural rubber has remained weak in recent years, with natural rubber production generally outpacing consumption. An excess of production over consumption and an increase in stocks was responsible for a 29 percent decline in dollar prices from 1983 to 1985. In 1985 the International Natural Rubber Organization (INRO) made substantial buffer stock purchases in order to defend the floor price under the 1979 International Natural Rubber Agreement (INRA). Natural rubber prices recovered during the next two years, aided in part by a sharp growth in demand in China and by weather-induced supply shortages in major rubber producing countries.

After recovering somewhat in the previous year, the price of first quality ribbed smoked sheets (RSS1), f.o.b. Malaysia, rose sharply in 1987. In terms of monthly movements, the price, which remained stable at around 41 U.S. cents a pound during the first three months, began to increase at the onset of the wintering period,70 and advanced rapidly thereafter to reach a level of 48 cents a pound in September. This increase of 23 percent over the same period in 1986 was caused by drought-induced supply disruptions in Indonesia and Thailand, which coincided with a surge in demand from China. A shortage of RSS1 arising from a continued shift from sheet rubber to the production of latex concentrates in Malaysia was also an important factor contributing to the price rise of RSS1. The price increase was more pronounced for lower grade tire rubbers, such as Thai RSS3 and Technically Specified Rubber (TSR) 20, as well as for latex concentrates which are used for the manufacture of surgical gloves and condoms. In October the price of RSS1 retreated steadily partly as a result of sales from the INRO buffer stock. The price remained in the range of 47–50 cents a pound in the period October 1987 through January 1988. For 1987 as a whole, the dollar price of RSS1 increased by 22 percent to average 44.7 cents a pound.

Movements of natural rubber prices in 1987 in terms of the market indicator price (MIP) of INRA71 were broadly similar to those of RSS1. A shortage of supplies resulting from droughts in Indonesia and Thailand during the first half of the year caused the MIP to rise steadily during the first eight months of the year. By the end of August, the MIP, upon which INRO’s buffer stock operations are based, reached 232.7 M/S cents a kilogram, marginally surpassing the “may sell” level of 232 M/S cents a kilogram, and remained above the “may sell” level throughout September. After a further rise to over 239 M/S cents a kilogram in the first half of October, the MIP retreated slowly; the average for the month as a whole was 237 M/S cents a kilogram. In early November the MIP fell below the “may sell” level for the first time in nearly three months partly because of uncertainties associated with the sharp drop in stock market prices. Prices recovered during the latter part of the month, however, and for the month as a whole the MIP averaged 232 M/S cents a pound. Sales from the buffer stock which commenced in early September were reported to have amounted to about 70,000 tons (20 percent of the buffer stock) through October. Buffer stock sales ended in early November when the MIP fell below the “may sell” level.

World production and consumption for natural rubber were closely balanced in 1987, and commercial stocks rose only moderately (Table 52). As a result of drought-induced slowdowns in the growth of production in Indonesia and Thailand in the first half of the year, world production is estimated to have risen by only 1 percent to 4.5 million tons. World consumption of natural rubber rose by 2 percent in 1987 with the main impetus for growth coming from China, where both tire production and vehicle output are estimated to have risen by 22 percent; imports of natural rubber by China increased 50 percent to about 315,000 tons. In the United States (which accounts for 17 percent of world consumption), natural rubber consumption rose by 4 percent aided by strong demand in the replacement tire market; during the period January–September 1987 total tire production rose by 15 percent, while total vehicle output fell by 4 percent. In Japan (which accounts for 12 percent of world consumption), the growth of tire exports slowed down because of an appreciation in the yen but the expansion of domestic demand supported a 2 percent rise in rubber consumption. Consumption in Europe as a whole remained broadly unchanged.

Table 52.

Natural Rubber: World Commodity Balance, 1981–87

(In thousands of tons)

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Source: International Rubber Study Group, Rubber Statistical Bulletin (London), various issues.

Estimates by Commodities Division, IMF Research Department.

Stocks in store are lower than cumulative net buffer stock purchases due to defaults, cancellations, rejections, losses, and damage.

Commercial stocks as a proportion of world consumption declined steadily from 44 percent in the early 1980s to 32 percent in 1985. The stock-consumption ratio, which rose slightly in 1986 partly as a result of a stock buildup in China, remained unchanged in 1987 at around 33 percent. Sustained conditions of high real interest rates, falling prices, ready availability of supplies for immediate needs because of improvement in the frequency, speed, and turnaround time of ocean transportation, and better inventory management are responsible for the steady fall in stocks in relation to consumption in recent years.

Although the volume of exports remained unchanged in 1987, earnings from natural rubber exports increased by 24 percent in terms of U.S. dollars because of higher export unit values (Table 53). The increase in export earnings in terms of SDRs in 1987 was 12 percent. The share of TSRs in total natural rubber trade is estimated to have increased to 50 percent, while that of RSS is estimated to have fallen to about 35 percent. TSR 20, RSS1, and RSS3 now account for about two thirds of natural rubber exports. The United States, which accounts for over 20 percent of total world natural rubber imports, obtained 60 percent of its imports from Indonesia. Japan, which accounts for 15 percent of total world natural rubber imports, obtained 70 percent of its imports from Thailand. Imports by China, mostly from Indonesia and Thailand, grew sharply to reach an estimated level of 315 thousand tons or 9 percent of total world exports of natural rubber.

Table 53.

Natural Rubber: Export Earnings, 1984–87

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Sources: Data on exports from UN Food and Agricultural Organization, 1986 FAO Trade Yearbook (Rome), and include only exports of rubber-producing countries; Commodities Division, IMF Research Department for market prices.

Data on exports are estimates of Commodities Division, IMF Research Department.

Malaysian RSS1, f.o.b. Malaysian/Singapore ports.

Natural rubber prices are expected to increase modestly in 1988. Barring unfavorable weather conditions, high prices that prevailed in 1987 are expected to stimulate production, particularly in Indonesia and Thailand, where the effects of the planting programs undertaken in the 1970s are expected to raise output considerably throughout the remainder of the 1980s. Demand for natural rubber is also expected to grow as tire production, which accounts for about 70 percent of natural rubber use, is expected to rise in the United States and Japan.

The 1979 International Natural Rubber Agreement expired on October 22, 1987, and the 1987 Agreement is expected to come into force provisionally in the latter part of 1988. During the interim period of about 14 months, all the relevant provisions of the 1979 INRA relating to the administration and operation of the buffer stock will continue to be applicable. However, no buffer stock purchases will take place. The Buffer Stock Manager (BSM) is authorized to implement at his discretion a modest sales program in order to cover contingencies, such as the cost of servicing and maintaining the buffer stock without disrupting the market. The monthly cost of servicing and maintaining the outstanding buffer stock is estimated at M$ 3 million, equivalent to about 2,000 tons of rubber. The Natural Rubber Council is to review and decide whether to continue or to revise this sales program before the end of April 1988. Apart from this sales program, under the rules of the old agreement that require market sales of buffer stock when prices move above the “must sell” level of M/S 242 cents a kilogram, the BSM sold a large quantity of buffer stock in January 1988, when the market indicator price averaged M/S 245 cents a kilogram. The price fell below the “must sell” level in early February.


The average price of cotton in 1987 was 56 percent higher than in 1986 in terms of U.S. dollars and 42 percent higher72 in terms of SDRs. The sharp increase in price began in September 1986 with reports that weather conditions in Texas might lead to a very low harvest in the 1986/87 crop year (August/July), which would contribute to greatly reduced U.S. production. The price of cotton rose progressively over the following 12 months as these expectations were confirmed and higher-than-anticipated increases in cotton consumption were reported. As a consequence, by the third quarter of 1987, the price of cotton, at an average of 84 U.S. cents a pound, was more than double its level one year earlier. Because of expectations of a considerably larger 1987/88 crop, however, in the final quarter of 1987 there was a reduction in the cotton price to about 75 cents a pound.

In mid-1986, before the sharp price increase, the dollar price of cotton was at its lowest level since 1972 and was only one half the level prevailing in the period 1980–84. This low price was associated with huge stocks, resulting from exceptionally large harvests in two successive years (Table 54). In 1984/85 there was a record world crop with production over 30 percent higher than in the previous year on account of increased acreage and exceptionally high yields. The 1985/86 world crop, although considerably below the 1984/85 crop, was well above the level of world consumption. World stocks at the end of the 1985/86 season were nearly 10 million tons, equivalent to about 60 percent of world consumption.

Table 54.

Cotton: World Commodity Balance, 1981/82-87/88

(In millions of tons)

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Source: International Cotton Advisory Committee, Cotton: World Statistics (Washington), various issues.

International Cotton Advisory Committee estimate.

International Cotton Advisory Committee forecast.

All staples.

May not agree with production and consumption data because of difference in coverage.

World cotton production declined by nearly 11 percent in 1986/87. The area planted to cotton declined significantly in many countries owing to the effect of lower prices on the profitability of cotton production. The largest decrease was in the United States where the output fell by 28 percent from 2.9 million tons in 1985/86 to 2.1 million tons in 1986/87. This decline was a result of heavy participation in the U.S. Government’s Acreage Reduction Program (ARP), under which planted area declined by nearly 17 percent to 3.4 million hectares. At the same time, owing largely to weather conditions, estimated yield a hectare in the United States also declined from a record 706 kilograms in 1985/86 to 618 kilograms a hectare in 1986/87. Planted acreage in China fell by nearly 16 percent; this was attributable partly to competition from other cash crops, such as groundnuts, vegetables, and maize, and partly to changes in government policy that placed increased emphasis on grain production. Special incentives for cotton, which had been offered in earlier years, were withdrawn and limits were placed on procurement. In contrast to the sharp drop in output in the United States and China, output in the U.S.S.R. fell only marginally. Acreage planted to cotton increased from 3.3 million hectares to 3.5 million hectares, but this was offset by a decline in yield owing to inadequate moisture in some major producing areas. A number of other countries showed marked decreases in output; in Brazil output declined by nearly 25 percent because of lower yields; in Mexico, output declined following a marked decline in acreage; and in India, output fell following inadequate monsoons. The main exception to declining output in 1986/87 was Pakistan, where output set a new record of 1.3 million tons, owing largely to record yields owing to excellent weather conditions in most areas and increasing application of better plant protection measures. In Greece, too, there was a record harvest, largely as a result of a sharp increase in yields.

The growth in cotton consumption over the last two seasons is notable for its size and duration. According to latest estimates consumption is estimated to have increased by 6 percent in 1986/87 following an increase in the previous year of 8 percent. These are unprecedented increases and basically reflect three factors: first, a basic shift in consumer preferences toward natural fibers seems to have gathered momentum in the last two to three years, particularly in the United States and other industrial countries; second, consumption was stimulated by a period of exceptionally low cotton prices, especially 1985–86; and third, incomes have been rising in most consuming markets, and this increase has been reflected in an expansion in the total textile market. Aggregate world consumption of all fibers rose 7.6 percent to 35.6 million metric tons in 1986. Cotton’s market share of the world fiber market rose from 48 percent during 1985 to 50 percent in 1986.

The main gain in consumption was concentrated in the United States, where consumption increased by nearly 16 percent, reflecting a sharp increase in the cotton use by U.S. mills. Cotton’s share of apparel products made in the United States was estimated at 41 percent in 1986, up from the record 40 percent of the previous year and from about 39 percent in the immediately preceding years. China continued to be the largest cotton consuming nation in the world, with total use estimated at about 4.3 million tons—practically unchanged from the previous year. During 1986/87, yarn production in China totaled over 4.1 million tons; cotton accounted for about 86 percent of the fibers used compared with 82 percent in 1985/86. Non-mill use of cotton in China is estimated to have been only 0.8 million tons compared with the unusually high 1.2 million tons used for padding in 1985/86. Consumption also rose noticeably in Brazil, India, Japan, and Pakistan, and by a small amount in the U.S.S.R.

Reflecting the excess of consumption over production, world stocks by the end of 1986/87 were down to 7.3 million tons, equivalent to just over 40 percent of annual consumption from an all-time high of 9.9 million tons at the beginning of the crop year. The decline in stocks occurred mainly in China and in the United States. In China, mill use picked up sharply, and, as in the previous season, the government encouraged the use of low-quality cotton in order to ensure that storage space would be available for the higher grades. Over the last two seasons, stocks in China have declined from an estimated 3.1 million tons to 1.7 million tons. In the United States, stocks declined by nearly 50 percent as a result of the low 1986/87 crop and increases in both domestic demand and exports. Stocks fell in most other exporting countries, except for Pakistan and a number of importing countries, including the Republic of Korea and Japan.

World cotton production in 1987/88 is projected to be about 16.6 million tons, an increase of nearly 8 percent over the previous year. Harvested area is expected to surpass the 1985/86 level of 32.5 million hectares because of higher cotton prices and increased government emphasis on cotton cultivation in many countries. Yields worldwide are expected to rise to an average of 523 kilograms a hectare, or 3 percent higher than in 1986/87. The increase in output is likely to be concentrated in China and the United States, but larger crops are also indicated for Brazil, India, and Mexico. Early forecasts were for even higher production but the generally unfavorable weather, especially in China, have reduced expectations. Harvested area in the Soviet Union is expected to rise slightly from last year’s 3.48 million hectares, while yields could fall to about 700 kilograms a hectare on account of heavy rain, hail, and cool weather in some parts of the normally dry cotton areas of Uzbekistan. In India, the monsoon has been erratic; much of Central India (especially Gujarat) did not receive enough rain to plant. Given the large increases in cotton prices, especially when compared with the prices of other crops such as wheat, corn, and soybeans, the area planted to cotton in the Southern Hemisphere has increased by a substantial margin.

World cotton consumption for 1987/88, forecast at 17.8 million tons, is expected to be almost identical to the level in the previous season. One reason for this is that consumption in China is expected to drop by about 0.2 million tons because special allocations for non-mill use have been discontinued. Cotton consumption in the U.S.S.R. is expected to reach a record 2.2 million tons during the 1987/88 season. Estimates of world production and consumption point to lower cotton stocks at the end of this marketing season. Stocks seem likely to fall by nearly 1.0 million tons from an estimated 7.3 million at the end of the 1986/87 crop year to 6.4 million tons at the end of the 1987/88 crop year. World cotton stocks had increased from around 5.4 million tons at the beginning of the 1982/83 season to 9.8 million tons at the beginning of the 1986/87 season. If stocks decline to the levels now anticipated, they will amount to only 36 percent of anticipated consumption during 1987/88. This will be the lowest ratio of world stocks to use in six years. The tightening of the world supply-stock situation suggests that prices are likely to maintain their current levels. There may be some slackening in the first half of the season, but the average for the season is expected to be high.

The volume of world cotton exports is estimated to have increased in 1987 by over a million tons to a record 5.2 million tons (Table 55). Most of this increase was the result of a shar pincrease in exports from the United States, which increased from 660,000 tons in 1986 to 1.5 million tons in 1987. This increase in exports is largely attributable to an improvement in price competitiveness following the adoption of a new cotton program in 1986. U.S. exports, which are still below the peak reached in 1984, could increase substantially. Exports from China are estimated to have declined from 0.6 in 1986 to 0.5 million tons in 1987 reflecting partly the decline in production in 1986/87. Exports from Sudan also increased sharply, while there was a modest increase in exports from Brazil and India. In contrast, there were considerable declines in exports from Mexico, Paraguay, and some African countries; there was also a small decline in exports in dollars from the U.S.S.R. Preliminary estimates indicate that world export earnings increased by nearly 65 percent in 1987, reflecting both the sharp increase in export volumes and in unit values. Earnings of industrial countries are estimated to have increased dramatically by over $1.9 billion largely on account of an increase in U.S. exports. Export earnings of developing countries are estimated to have increased by 50 percent. World trade in cotton is forecast to remain quite buoyant during 1988. There may be some slackening in volume terms but prices are expected to remain firm with export earnings likely to match those achieved in 1987.

Table 55.

Cotton: Export Earnings, 1984–87

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Sources: UN Food and Agriculture Organization, 1986 FAO Trade Yearbook (Rome) for exports; Commodities Division, IMF Research Department for market prices.

Data on exports are estimates of Commodities Division, IMF Research Department.

Liverpool Index A, c.i.f. Liverpool.

Egyptian, c.i.f. Liverpool.


The price of wool has fluctuated considerably in recent years. The dollar price of fine wool fell by 17 percent from 1984 to 1986 and then increased by 53 percent in 1987.73 The price increase from the trough in the third quarter of 1986 to the final quarter of 1987 was 87 percent.

The decline in prices in 1985 and 1986 reflected in part a decline of the currency of the dominant exporter—Australia—vis-à-vis the U.S. dollar. The Australian dollar depreciated by 20 percent against the U.S. dollar in 1985 and by over 4 percent in 1986. In terms of Australian dollars, the market price actually increased by 14 percent in 1985 and declined only marginally in 1986. Part of the upturn is also explained by expected currency movements as many buyers who had delayed purchases in anticipation of further depreciations in the Australian dollar were forced eventually to make purchases to replenish their depleted stocks. These purchases contributed to the sharp rise in prices during the first half of 1987.

World production of wool in the 1986/87 season (July/June in many countries) is estimated to have increased by 2 percent with respect to the previous season after remaining unchanged in the 1985/86 season. For 1987/88 a further increase of about 2 percent is expected. With a considerable improvement in weather conditions in a number of countries, world sheep numbers, which had remained virtually unchanged for three seasons, increased by 11.5 million or 1 percent during 1985/86 to reach a record 1,120 million head by the commencement of the 1986/87 season. Since returns from wool production are expected to remain high relative to those from other agricultural activities, a further overall buildup in flock levels is envisaged in the coming seasons.

In Australia, the leading sheep rearing country, favorable weather for a succession of seasons across most wool producing areas, together with a shift into sheep rearing from less profitable agricultural enterprises and a shift from production of sheepmeat to wool, has led to a recovery in the population of sheep reared for their wool from the low levels recorded in the early 1980s. Following a 12 percent increase between March 1983 and March 1985, sheep numbers rose further during the next two seasons by 7 percent to reach 160 million by March 1987, their highest level in 15 years. In response to improved profitability and the reduced risk of sheep enterprises vis-à-vis agricultural field crops, further flock growth is projected during 1987/88, taking numbers possibly to the 164 million mark by the end of the season. Australia, however, is believed to be approaching the stage where the capacity to feed additional sheep is limited so that some slowdown in the rate of increase in the flock size seems inevitable. In New Zealand, the largest exporter of the coarser-type wools used mainly in carpets, further reductions in numbers are expected with the result that wool production during 1987/88 is expected to decline by 3 percent to 350,000 tons—its lowest level in almost a decade. Sheep numbers are expected to increase somewhat in the U.S.S.R. and China.

Wool consumption data are rather fragmentary, with only 11 countries reporting regularly. These data indicate that wool consumption increased by about 2 percent in 1985 and by 1 percent in 1986. During 1986 the challenge from competing fibers—both man-made and non-wool natural fibers—became increasingly severe, but wool, helped by exchange rate movements that ensured that it was attractively priced in major wool consuming countries, improved its market share for the third successive season. Wool’s share in overall fiber consumption at the carding stage in the 11 major wool-textile manufacturing countries providing consumption data, edged up to 30.5 percent from the preceding year’s 30 percent. In both years wool usage in the U.S.S.R. and China increased sharply. In 1986, usage increased by 4.5 percent to reach a record 1.72 million tons of clean wool with nearly 70 percent of this increase being accounted for by China. Import demand from Japan, the third largest wool consumer in the world, also increased very sharply following the rapid appreciation of the yen. Over the 12 months to June 1987, Japan accounted for 18 percent of Australia’s wool export earnings followed by the U.S.S.R. and China (each 12 percent).

Raw wool exports from the five major surplus producing countries of the Southern Hemisphere (Argentina, Australia, New Zealand, South Africa, and Uruguay), which had reached a 13-year high in 1985/86, accelerated in the first three quarters of 1986/87. The combined total export volume for these five countries, which together account for over 85 percent of the world’s raw wool exports, increased by 9 percent to over 630,000 tons of raw fiber in the nine months to March, compared with the corresponding period of 1985/86. Export earnings increased even more sharply owing to higher prices; Australia’s earnings from wool exports in the year to June 1987 rose by over 25 percent.

The excess of consumption demand relative to production that developed as the 1986/87 season progressed enabled wool marketing authorities in the main wool growing and exporting countries of the Southern Hemisphere to dispose of a large part of stocks previously accumulated in the course of their market support operations. Stocks carried forward into 1987/88 are estimated at 88,000 tons of clean wool, about one half the level one year earlier and the lowest recorded since the early 1970s. At current levels of consumption, this represents only one month’s requirements by the main importing countries. Stocks in the main producing countries are now negligible for many of the main categories of wool so that further demand will have to be met almost exclusively from new clip supplies. The largest reduction in carryover stocks was in Australia, where the depreciation of the Australian dollar against the currencies of most major wool using countries and increased purchases by the three major consumers, helped to keep Australian wools in demand. Thus, by the end of July 1987, the size of the Australian stockpile, the major component of world stocks, had been reduced from the 1986/87 opening level of nearly 80,000 tons to a five-year low of 38,000 tons. At the same time, there were only 4,000 tons left in the New Zealand stockpile as against 15,000 tons a year earlier.


The price of jute in recent years has fluctuated over an even wider range than is customary for this commodity. In late 1984 and early 1985 the price in U.S. dollars rose to a record level—in excess of $800 a ton.74 By the fourth quarter of 1986 the price had fallen to only $234 a ton, the lowest level since 1964. From the fourth quarter of 1986 to the fourth quarter of 1987 the dollar price increased by almost 50 percent—to $359 a ton, although the increase in SDR terms was much less (38 percent).

The cause of these wide fluctuations has been large year-to-year changes in production coupled with a very low short-term price elasticity of demand. The major factor triggering these fluctuations was the exceptionally low 1983/84 crops in Bangladesh and India, which were caused by drought in the planting season and severe flooding in the harvest season. The 1984/85 world crop, although 8 percent higher than that of the previous year, was still 10 percent below the average for the period 1978/79-80/81. Thus, following an increase of over 70 percent in 1984, prices rose by a further 10 percent in 1985 to an all-time high. High prices encouraged larger plantings and the 1985/86 world crop was a record 6.4 million tons. This in turn led to a sharp fall in prices in the second quarter of 1986.

Although the record crop in 1985/86 led to the replenishment of depleted stocks and to an increase in exports, supplies remained well in excess of requirements. Stocks at the beginning of the 1986/87 season in the five major producing countries, Bangladesh, Burma, India, Nepal, and Thailand, amounted to a record 1.6 million tons, more than three times the level at the beginning of the previous season. In 1986/87 there was a sharp drop in world production of jute, but owing to the large stock carryover from the previous season, the supply was ample throughout the season. World production of jute dropped by about 40 percent in 1986/87 to some 3.8 million tons owing mainly to reduced plantings in response to depressed prices of jute relative to those of alternative crops. Production in India, the largest supplier, fell to about 1.3 million tons and the crop in China was estimated to have declined to 1.0 million tons in 1986/87 compared with the peak level of 1.7 million tons in the previous year. Output in Bangladesh also dropped by nearly 38 percent from a peak level of 1.5 million tons in the previous season.

World exports of jute have reflected to some extent the movements in production and prices. Following the price rise in 1984, world exports fell to a record low of 390,000 metric tons. There was an increase in 1985 of 5 percent, and in 1986 world exports rose further to 484,000 tons, an increase of 18 percent over the previous year. This was, however, still below the average over 1980–82 of 550,000 tons and reflects an underlying trend of substitution away from jute and toward synthetics (primarily polypropylene). The competition with synthetics is particularly acute in industrial countries, whose share of world jute imports fell from 50 percent in the early 1980s to under 37 percent in 1985. This share recovered to 39 percent during 1986 following an improvement in the competitive position of jute relative to polypropylene. Although the sharp drop in the price of crude oil in 1986 was accompanied by an equally sharp fall in the price of several petroleum products, given the buoyant demand for polypropylene, its prices fell by less than 3 percent. During the same period jute prices fell by nearly 50 percent. Although jute prices rose in 1987, those of polypropylene advanced even more rapidly so that jute’s competitive position has been maintained.

The increase in jute prices followed adverse weather conditions in a number of areas in the second quarter of 1987 and flooding in Bangladesh in August, with prices rising sharply from May to August. Given the low average prices prevailing in the 1986/87 season, however, farmers are expected to have shifted away from jute to alternative crops. As a result, the 1987/88 crop is likely to be even smaller than the 1986/87 crop. Despite the adverse weather, given the high level of stocks, a further substantial rise in prices in the short run is unlikely. As existing stocks are gradually reduced, however, expectations of lower output will start to exercise an upward influence on prices. The decision by the Government of Bangladesh to maintain buffer stocks in 1987/88 to balance supply and demand for jute in the local and world markets is also likely to contribute to stabilization.


The price of sisal declined by about 2 percent in 1986 following a decline of over 10 percent in 1985.75 The earlier decline was the result of a fall in demand and a considerable accumulation of stocks in early 1985. Preliminary estimates for 1986 indicate a reduction in output of some 4 percent after it had recovered from its 1983 low to 430,000 tons by 1985. The recovery was entirely attributable to a sharp increase in the production of Brazilian sisal, which more than offset lower fiber production in all other major producing countries.

In 1987 further reductions in production are estimated for almost all producing countries. The lower production is largely the result of unremunerative prices that led to lower replantings, but, in some cases, shortages of production inputs and shipping facilities were also contributing factors. Brazilian output for domestic spinning or export declined with continuing efforts to limit supplies in line with the downward trend in foreign demand and requirements of the local mills. Only in Tanzania is output, after declining over several seasons, estimated to have recovered somewhat, as a result of a rehabilitation program implemented during recent years. In order to reduce dependence on the international market, governments of producing countries continued to promote domestic consumption of sisal products, mainly bags, cordage, twines for nonagricultural uses, and paper pulp. Despite the large carryover stocks, these efforts, combined with an expected fall in output, suggest that prices are likely to remain steady in 1988.


After falling by 13 percent in 1985 to an average of 51 U.S. cents a pound, the price of hides rebounded by 25 percent in 1986 to a record 64 cents a pound.76 Although there was a substantial increase in supply of hides from the United States, partly as a result of the dairy termination program,77 world supply increased only slightly. Increased slaughterings in Australia, the EC, the United States, and the U.S.S.R. exceeded by a small margin reduced slaughtering in Brazil and Eastern Europe. The U.S.S.R. became self sufficient in the production of hides and exported a small amount to Italy and Eastern Europe. This added to the supply available from higher EC slaughter, and along with the stagnation of the European leather industry in the face of Far Eastern competition, led to a decline in the price of hides in most European countries in 1986.

Weak demand in Europe was outweighed by higher demand from Japan, the Republic of Korea, and Taiwan Province of China. The demand for hides is derived from the demand for footwear and leather goods. Assisted by favorable exchange rates and low labor cost, Korea and Taiwan Province of China were able to increase substantially their global market share of these products at the expense of European producers in 1986. Japanese leather output is mostly consumed domestically, and Japanese demand for both leather and hides rose in response to higher disposable income.

The price of United States’ hides remained fairly stable in the final quarter of 1986 and the first quarter of 1987 at about 65 cents a pound, but then increased sharply in April (by 18 percent) and remained high, averaging 85 cents a pound in the third quarter of 1987.

Although the global supply of hides is estimated to have been virtually unchanged in 1987, the supply in the United States contracted sharply, and the surge in prices in April reflected continued strong export demand (assisted by the depreciation of the U.S. dollar) and the anticipated completion of the dairy termination program by the end of the second quarter of the year. A lower global supply of hides owing to herd rebuilding in countries other than the U.S.S.R. suggests that prices should remain firm in 1988 if, as expected, demand remains reasonably strong.