Agriculture and Rural Development
We just published our Commodity Market Outlook for the third quarter of 2015, and report that most prices declined in the second quarter of 2015 due to ample supplies and weak demand, especially in industrial commodities (see figure below).
Energy prices rose 12 percent in the quarter, with the surge in oil offset by declines in natural gas (down 13 percent) and coal prices (down 4 percent). However, energy prices fell on average to 39 percent below 2014 levels. Natural gas prices are projected to decline across all three main markets—U.S., Europe, and Asia—and coal prices to fall 17 percent. Excluding energy, our report notes a 2 percent decline in prices for the quarter, and forecasts that non-energy prices will average 12 percent below 2014 levels this year. Iran’s new nuclear agreement with the US and other leading governments, if ratified, will ease sanctions, including restrictions on oil exports from the Islamic Republic of Iran. Downside risks to the forecast include higher-than-expected non-OPEC production (supported by falling production costs) and continuing gains in OPEC output. Possible (less likely) upside pressures may come from closure of high-cost operations—the number of operational oil rigs in the US is down 60 percent since its November high, for example—and geopolitical tensions.
The impact of natural resource wealth on macroeconomic outcomes is well researched, with the debate centered on whether resources are bad for development (i.e., the phenomenon of the resource curse). However, relatively little attention has been given to examining the effect on communities where those resources are located.
But interest in the local impact of resource abundance is growing, underpinning a nascent literature. The focus of this research is on exploring whether extractive activities improve or harm welfare in adjoining regions, and how the benefits or costs are transmitted to the local population. The answers to these questions can inform policy, leading to better outcomes, and may also help us understand the sources of regional and social tensions associated with extractive industries.
India is the World’s second largest producer of sugarcane (after Brazil). Approximately 45 million Indian farmers are involved in cane production, and cane processing is the second largest agro-processing sector in the Country. In her dissertation research on this industry (supervised by Goodhue and Sexton) Sandhya Patlolla encountered an unusual marketing practice that is unique to the Andhra Pradesh (AP) State. Private sugar processors issue ‘permits’ to selected cane growers a few weeks before harvest. These permits allow growers to deliver a specified amount of cane during a specified period of time. Farmers without a permit must sell their cane at a reduced price for manufacture into gur, a traditional Indian sweetener. The price difference averaged 43% over the six years of data acquired for our study. We wondered why sugar processors in AP would create uncertainty among farmers by using ex post permits instead of offering ex ante production contracts?