SHARP DECLINE IN PRICES OF PRIMARY COMMODITIES EXPORTED BY THE LESS DEVELOPED COUNTRIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002400180001-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 9, 2016
• Document Release Date: February 27, 2001
• Sequence Number: 1
• Publication Date: November 1, 1965
• Content Type: BRIEF

Approved For.Release 2001/03/~W~~'l'~'9`T~'Fb03A002~400180001-5
SHARP DECLINE IN PRICES COF PRIMARY, CIJMMC7T.~IT'IES
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EXPORTED FAY THE, LESS DEVELUPEI7 CCUN
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 Approved For Release 2001/03/22 :CIA-RDP79T01003A002400180001-5
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
ZYtle 18, U6G, Secs. 793 and. 794, the trans-
mfssdon or revelation of which in any manner
to an unauthorized person is prohibited by law.
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 Approved For Release 200'~Q,~2~~~J~~[~P~T~011Q~~Q02400180001-5
SHA1~.P DECLINE IN PRICES OF PRIMARY COMMODITe[ES
~EX'PORTED BY YTHE LESS DE~TELOPED COUNTRIES~~?~
The decline since early 196~i in the prices of several primax?y com-
modities exported ley less developed countries foreshadows serious
economic. consequences for many o.f these nations. Prices of xncast food-
stuffs and agricultural raw materials are now well below their 1964
levels -- the prices of cocoa and sugar being at their lowest level in 20
years. Although the prices of most metals have continued to rise, the
majority of less developed countries are more heavily dependent on the
export of agricu.ltu.ral commodities for their earnings of foreign exchange,
and there is little immediate prospect for a recovery in. the prices of
these commodities, Outp~zt of cocoa, for example, is rising fasf;er than
consumption, largely because of the introduction of more quickly matur-
ing, heavy--yielding, and disease--resistant strains of trees. Overproduc-
tion this year has also been the bane of the countries producing sugar and
coffee, The recent attempts made in Geneva to draw up an international
sugar agreement as well as a world cocoa agreement will not offer any
immediate relief for these two commodities.
Tlae decline in pric,e~ of most primary products, coupled with a recent
trend toward higher prices f'or imports from developed countries, almost
certainly will lead to (a) a deterioration in the terms of trade of 'the develop-
ing countries as a group, (b) a deficit in th.e payments position, of this area
during the second half of 1965, and (c) an adverse effect on the economic
development plans of many less developed countries. Those less developed
countries which depend heavily on the export of sugar and cocoa for their
earnings of foreign exchange will be particularly hard hit. These include
~rhana, Togo, Cameroon, Ivory Coast, Nigeria, Dominican Republic, and
Jamaica.
1. 1965 Price Trends
In early 1965 the prices of several leading primary commodities ex-
ported by less developed countries began to fall. Overall trends in these
particular prices are best measured by the IBRD (International Bank for
Reconstruction and Development) index that includes 22 primary com-
modities Qexclu.ding petroleum). By the end of June 1965, this index was
6 percentage points below the 1964 level (see Table 1). Moreover, the
index would have been even less favorable for the less developed c?u.ntries
The est~:imates-and r_onc.lusions in this brief represent_ the best judgment
of this Office as of 1Z N6vember 1965?
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C-O-N-F'-I-D-E-N- -I-A-L
IBRD Price Index of Principal Commodities Exported
by Less Developed Cou.ntries~JJ
1y58-65
1y58 =
100
1958
100
1959
98
1460
98
1961
~3
1962
yl
1~ 3
107
1964
110
1.965 (January-June)
104
a. The IBRD index is based on 22 commodities excluding
petroleum) and 30 quotations and is weighted according to
1955-57 export values.
had it not been for the buoyancy contributed by the high prices earned by
most metals this year (see the chart}. The majority of less developed
countries, however, depend more heavily on exports of agricultural com-
modities, and the prices of many of these products plummeted during the
first half of the year. Since then, they have remained depressed and, in
some cases, have slipped. even lower, clearly marking an end to the wide-
spread price advances for most primary products during 1963-64 (see
Table 2}.
Among the three key food products (cocoa, coffee, and sugar} on
which less developed countries are mast dependent far their earnings of
foreign exchange, cocoa has been particularly hard hit. A year ago the
average price of cocoa was 23 ecnts'~ per pound. The present price (1
November 1965} of this commodity -- 16 cents per pound -- is above the
low of 12 cents per pound reported an July but is still at the lowest average
level since World War II. At a world price of 2 cents per pound, sugar too is
at a 20-year low, earning only one-third of what it commanded a year ago.
The price of coffee currently is more than 4 cents per pound lower than
the 1964 average price of this commodity and was considered Iow enough
recently to bring into aperatian the International Coffee Qrganization's
newly created machinery far speedy quota adjustments. The average
prices of the principal textile fibers (cotton and Waal) exported by less
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developed countries also are below their 1964 average. During the first
nine months of this year the average price of natural rubber was slightly
above its 1964 average; in recent months, however, the price of this
commodity also has slipped below its 1964 level. Metal prices have .f.o1-
lowed a different. trend; their sharp rise, which started :in 1964, has gained
momentum and continued through the first nine months a.f this year.
by Less Developed Countries
?
1962-65
US Cents x~er Pound
Commodity
--
1962
1963
1964
1865 b
1. November 19E~5
Closin Quotations
g ~
Cocoa
20.8
25.3
~
23.4
.
16.7
_....__~.,
_....._...~....___
.15.9
Coffee
34.0
34.1
47.4
45.3
1+3.0
Sugar
3.0
8.5
5.9
2.2
1.8
Cotton
25.0
25.5
25.3
24.9
N.A.
wool
51.1.
60.5
60.4
50.7
N.A.
Rubber
25.6
23.7
22.2
22.5
21..5 c/
Copper
30,6
30.7
33.2
35.4
36.6
Tin
114.6
116.6
157.7
180.0
189.7 c/
a. The prices used in this table are as follows: Cocoa, Accra type,
f.o.b. New York; Coffee, Santos No. 4, f.o.b. New York; Sugar, raves, con-
tract No. 9, spot, New York; Cotton, Mexican matamoras 1 132", f.o.b.
Brownsville, Texas; Wool, Australian, average price of greasy wool at
auctions in Sydney; Rubber, Malaysia, No. 1 ribbed smoked sheets, in
bales, f.o.b. Singapore; Copper, electrolytic, world price in New York;
Tin, Straits, New York. '
b. The 1965 average prices are for January-August for cotton. and wool
and for January-September for all other commodities.
c. 1 October closing quotations.
These price movements are the result of a multiplicity of conditions
influencing both supply and demand. In general, those commodities that
have suffered the largest price declines this year have been plagued by
soaring production rather than sagging consumption. Output of cocoa, for
example, is rising about two and one-half times as fast as consumption,
largely because of the introduction of more quickly maturing,, heavy-
yielding, and disease-resistant strains of trees. Overproduction this
year also has been. the bane of the countries producing sugar and coffee.
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C-O-N-F-I-D-E-N-T-1-A-L
World cotton. production was exceptionally large in the crop year 19b4/65
and exceeded demand by a substantial margin. The wool market has
been affected by a record production in 1964/65 and by large stacks in
Argentina and Uruguay. Moreover, the demand for these latter two com-
modities plus rubber has been dampened by the rapidly increasing use of
synthetics. Production of nonferrous metals, on the other hand, has
lagged behind consumption. This excess of demand over supply has been
influenced by the sustained industrial growth in some of the developed coun-
tries and, more recently, by the srtuation in Vietnam,
2. Outlook and Implications
There is little prospect for a recovery of the prices for agricultural
primary commodities during the remainder of I9b5,Current indications
suggest that the best that less developed producers can achieve is price
stabilization at recent low levels. The attempts made in Geneva in October
to draw up an international sugar agreement as well as a world cocoa
agreement will not offer any immediate relief far these two commodities.
Metal prices probably will continue strong, although producers of some
metals may lower prices in order to prevent users from switching to com-
peting materials.
The consequences for less developed producers of this decline in
prices will be serious even if it goes no further. Almost 90 percent of
the export earnings of the less developed countries as a group are derived
from exports of primary commodities. Moreover, one or two commodi-
ties usually account for the major portion of the experts of individual less
developed countries. Ghana, for example, depends on cocoa for about
Iwo-thirds of its export earnings; Colombia, on coffee for about two-
thirds; and Malaysia, on rubber for about one-half.
Because. price elasticities of demand for many primary products are
low in the developed countries, the recent decline in prices implies a
decrease in the foreign exchange receipts of less developed producers.
It has been estimated, for example, that a decrease of 1 cent per pound
in the price of coffee Ieads to a loss of $b5 million to coffee exporters as
a whole. A similar decrease in the price of cocoa results in a loss of
$Z5 million. Export earnings from these basic commodities finance the
imparts needed by the less developed countries and are four times as
important as foreign investrsient and aid in financing economic develop-
ment. The recent decline in prices, therefore, will slow dawn many
development programs of these countries. Producers of sugar and cocoa
will be particularly hard hit.
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Compqunding the difficulties which flow from a decline in prides is
the fact that export prices in the developed countries recently have edged
upward. 1n this context, the fall in prices of primary products means a
deterioration in the terms of trade of the less developed countries as a
group and a def~.cit in their payments position during the second ha:Lf of
1965,
Anal~rst?
Coord? ORR
ORR
25X1A
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G~NFIDENTIAL
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 Analyst: T /F'O
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CONTROL RECORD FOR SUPPLEMENTAL DISTRIBUTION 25X1A
SERIES NUMBER
CIA/RR CB 65-68
CLASSIFICATION OF REPORT
CONFIDENTIAL
DISTRIBUTION TO RC
50
DATE OF DOCUMENT
November 1965
NUMBER OF COPIES
290
NUMBER IN RC
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COPY
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DATE
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 ~~ ~
'~~proved For Release 2001 ~ ~
Project No.
~"~p
~~P79T01003A002400180001-5
Report Series CIA./RR CB 65-68
Title: Sharp Decline in Prices of Primary Commodities Exported by the i
Less Developed Countries (CONFIDENTIAL)
Responsible Analyst and Branch T/PO 25X1A
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'~?~~ ~~~~ L -r aecl~^sific~timn
 ase 2001 /03/22 : CI~4 RD 79T01003A 2400180Q01-5
PRICE INU~XtS c.~r ~t~tc. i cu ~.vmmvuw i its EXPORTED
BY LESS DEVELOPED COUNTRIES, 1958-65*
1958- 100
FOR RECONSTRUCTION AND DEVELOPMENT
1958 1959 1960. 19b1 1462 1963' 1964 19b5*
z5o r
160 ~:. a I ___ ~ ., ._ ._ _ ~. .a _.. ...; WOOL
ioo
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sa ___~ ~._~ ._ . . ~ ~ __ - __ __--~;. .. ~ _~~
5a _ -
1958 1959 1960 1961 ' 1962 1.963 1964 d965'~
1958 1959 1960 .1961 1962 19b3 :1964 1965 ~`
lno
so
so-
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so
COCOA
COFFEE
SUGAR
I I
1958- 159 16 6
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