World Trade: Trouble on the Plantations

War or the threat of it normally booms the prices of commodities—the raw materials of tomorrow’s meals and manufactures. Last week, however, the world prices of such “soft” commodities as coffee, wool and sugar fell, and prices of such “hard” military sinews as copper, tin and lead barely responded to Lyndon Johnson’s decision to increase the U.S. commitment in Viet Nam.

Commodity traders thereby signaled their belief that no shortages threaten. While U.S. food prices have been rising (see U.S. BUSINESS), the international markets for food and fibers are so glutted that many prices have been falling sharply for 41 months. The plunge has seriously damaged the economies of half a dozen underdeveloped nations and caused trouble in many more.

Bitter Sugar. Hit hardest are the producers of cocoa, which dropped 45% this year to a postwar low of 120 a Ib. in mid-July, and has rebounded only 10 since then. Brazil, Cameroon, Togo and the Ivory Coast have been hurt, and Nigeria is paying its cocoa growers partly with promissory notes instead of money. Worst battered is Ghana, where cocoa produces 60% of the national income. Because of the price drop and Dictator Kwame Nkrumah’s overly ambitious development schemes, the country is struggling with the severest economic crisis in its eight-year history. Factories in Accra are closing for lack of materials, and queues of shoppers form in the streets every morning for scarce butter, milk, rice, sugar, salt and drugs. Aggravating the plight of the cocoa producers is the fact that world output will rise 25% this year, even though some angry workers have burned tons of it in the fields.

The situation is almost as bitter for sugar, whose market has been swamped by an unexpected increase in the Cuban crop. The price is off even more than cocoa’s—to a 100-year low of 20 a Ib., 60% less than a year ago. Fourteen Latin American nations feel the pinch. Efforts to revive the paralyzed economy of the Dominican Republic are hampered by the fact that sugar is its No. 1 crop—responsible for more than 50% of its earnings in world trade.

Coffee prices have risen a bit in the past few months, but with a record crop forecast for next season, traders predict that the recovery will be short-lived. Though it can ill afford the expense, the Brazilian government expects to buy up half of this year’s crop in an effort to prop prices. Colombia, dependent on coffee for 70% of its exports, has resorted to bartering for goods that it lacks the dollars to buy.

The long-range outlook is bleak for jute, sisal, hides, and other commodities that struggle against increasing competition from synthetic substitutes. Wool prices have been clipped 18% in the last 18 months, complicating Uruguay’s battle to end its trade deficit, and the price of rubber has skidded 7% .

Feeding the Demagogues. Why do commodity prices boom and bust, gutting whole economies, while industrial prices glide up? The main reason is that commodity supplies are largely unpredictable, depend chiefly on the weather. International marketing agreements that could bring stability have been hard to negotiate and harder still to enforce. Castro upset the world sugar pact; the world coffee agreement is riddled with holes, and cocoa producers have repeatedly failed to agree on quotas and prices.

When prices plunge, most countries try to maintain their foreign earnings by boosting total output—which only drives prices lower. Africa, for example, has vainly increased its commodity production by 50% in ten years. Though the trouble stems mainly from their own policies, the governments of most underdeveloped countries blame the industrial nations for holding down commodity prices, have been pressing those wealthy nations to subsidize the prices as a form of foreign aid. On such problems demagogues feed. Some United Nations trade experts predict that a further drop in commodity prices could bring down shaky governments in Africa and Latin America, lifting to power regimes unfriendly to the West.