chapter  8
14 Pages

Commodity Prices

Prices of primary commodities, or commodities like coffee, tea, sugar, cotton, etc. in international trade are subject to two kinds of problems. The fi rst is that there are often substantial, even violent short-term price fl uctuations. Just a 10 to 15 per cent swing in production can lead to major price changes. The second problem is that there is a tendency for a long-term or secular decline in terms of trade for commodities. In the recent past (2006-2007) however, there have been substantial rises in the prices of cereals. This has come about due to a number of factors: adverse weather in a number of producing countries, conversion of cereal land for bio-fuels, increasing demand, especially from Asia and fl ow of speculative capital. But it is still too early to note whether this signals a change in the trend of secular decline in the terms of trade.