Rising Commodity Prices, Threats of Global Recession and the African Economies
Side Goodo
July 06, 2008
1. Historical Trends of Commodity Prices
For many decades, at least until recently, overall commodity prices have tended to decline relative to the prices of other outputs, although with considerable volatility. Much of this volatility has been due to large cycles in the real prices of food and non-food agricultural commodities while for much of the last century, metal prices moved with in a fairly narrow range. In contrast, real metal prices have recently increased at a rapid pace, although this was preceded by a period of price weakness (O´Connor and Orsmond, 2007).
Prebisch and Singer argued in 1950 that the price of commodities relative to that of manufactured goods will tend to decline over time. The theories of declining commodity terms-of-trade maintain that commodities have a relatively low income elasticity of demand compared with the outputs of other sectors and hence that the relative price of commodities declines as world income increases; that technical progress in manufacturing tended to be raw material saving, lowering the demand for commodities over time and the pace of the productivity growth in agriculture and mining sectors has been higher than in other sectors. Based on Grilli and Young Index, which aggregates the prices of 24 primary commodities exported by developing countries, the updated index for 2006 indicated that real commodity prices have overall appeared to have declined over the past century (O´Connor and Orsmond, 2007).
This trend has unfortunately been reversed since 2001. Since then, the prices of metals, agricultural commodities and oil have risen to all-time highs. However, some argue that the year-on-year rise in a broad index of commodity prices is not unprecedented. Indeed the 29% increase in the CRB index over the past year is much lower in comparison to the 60 percent spikes that occurred in 1950-51 (associated with increased demand for war materials for the Korean war) and 1973-74 (OPEC oil embargo) (Bryson, May 2008). However, the rise in the food prices indices is much more dramatic. Following a steady increase by 25% between 2003 and 2006, the FAO food price index rose by 57% between March 2007 and March 2008. Developments in the markets for the three staple commodities maize, wheat and rice have been particularly dramatic with world market prices in April 2008 reaching respectively 164%, 187% and 437% ( measured in USD) above their low in 2001 (Baltzer at al. May 2008). This came at the same time US wheat stockpiles are at a 33-year low.
Bryson argues however that the length of the current uptrend in commodity prices which has been in place since October 2001 is unprecedented and this upswing has coincided with a very strong global GDP growth that has been driven at least in part by the forces of globalisation. The upswing has continued even after global GDP growth has started to slow down since August 2007. It seems that the time of declining commodity terms-of-trade is over. However, whether this will put the Prebisch-Singer theory in question is another matter only time will tell.
O´Connor and Orsmond (2007) argue further that the current commodity price boom is unusual in several ways. It has been large and rapid and in this respect is paralleled by only two other periods during the last century. One was the price boom in the mid 1930´s , which largely reflected the recovery from the sharp declines during the Great Depression – and the other the commodity price rise in the 1970s that was driven by world demand and the temporary supply shortages of certain food and non-food items at the time.
They maintain that the role played by the industrialisation of China in the current price spike is also unusual. During the earlier periods of country-specific industrialisation such as that of USA, Germany and Japan, real commodity prices remained flat or fell gradually. The recent large commodity price increase may reflect the uniqueness of the China´s economy and population. China´s population is almost double of the current G7 countries combined while the country has lower per capita endowment of natural resources. Hence its rapid pace of development has led to a sharp increase in world commodity demand. This is a historic reality the world has to live with at least in the short and medium terms. Industrialisation in China is not the only cause of the rapid and sustained increase in commodity prices. The next section reviews the various causes behind the current commodity price spikes.
2. The Causes of the Rising Commodity Prices
The recent sharp rise in commodity prices is believed to be the result of a combination of factors. These include, among others, the global GDP growth since 2001, the emerging market and the China effects, the decrease in real interest rates, increase in US money supply and the deprecation of the US dollar.
The World real GDP growth picked from the low of 2.5% in 2001 to 5.4% in 2006 (IMF, 2007). This period coincided with the rapid increase in commodity prices. However, due mainly to financial market strains the global economic growth started to slow down since August 2007 and expected to be around 4.5% in 2008. However, the rise in commodity prices continue unabated. Some economists tried to offer an alternative explanation to this phenomenon. Frankel (2008) argues that the main determinant of real commodity prices is the real interest rate. According to Frankel´s theory, high interest rates reduce the demand for storable commodities, or increase the supply, through a variety of channels: (a) by increasing the incentive for resources extraction today rather than tomorrow, (b) by decreasing firms´ desire to carry inventories and (c) by encouraging speculators to shift out of spot commodity contracts and into treasury bills. He further argues that monetary expansion temporarily lowers the real interest rate either via the fall in nominal interest rate, a rise in expected inflation or both. The decrease in real interest rates then leads to lower cost of carrying inventories, and rising commodity prices, as happened in the 1970s, and again during 2001-2004.
As stated earlier, another reason for sustained rise in commodity prices is strong economic growth in Asia, particularly in China. China is one of the few countries in the world today with a steady, long-term high-growth rate. China accounts for about a fifth of the world´s population, yet it consumes more than half of the world´s pork, half of its cement, a third of its steel and over a quarter of its aluminum. It is spending 35 times as much on imports of soybeans and crude oil as it did in 1999, and 23 times as much importing copper — indeed, China has consumed over four-fifths of the increase in the world´s copper supply since 2000 (The Economist, March 2008). Therefore, the demand for commodities from China is obviously one of the main drivers of the commodity prices.
And so is the depreciation of US Dollar. US dollar is currently depreciating against all major currencies and the trend is continuing. For instance, Scot Fox (May 2008) argues that there is a direct relationship between US Dollar value and oil prices. All crude oil purchases worldwide have been conducted exclusively in US Dollars for over thirty-five years. When Dollar value falls via inflation, oil prices rise. This phenomenon could be called petrodollar inflation. It occurred during the 1970´s oil ´price shock´, and it is occurring right now.
He further states that oil is a critical economic and strategic resource - because every country needs oil to develop and prosper, they also need U.S. Dollars. This has raised the demand, and value, of the Dollar worldwide for several decades. However, the US Dollar is continuously devalued (inflated) by Federal Reserve and US government monetary policies. Fox argues further that due to recent ´super-inflation´ of the Dollar, oil producing nations are losing money - or rather, wealth - by selling oil in Dollars. To prevent losses, oil producing nations will sell some or all of their oil in other currencies such as Euros. This further devalues the Dollar, since oil buying countries no longer need them to purchase oil.
Furthermore, Bonner (April 2008) argues that the real cause of increasing commodity prices is increasing money supply or dollar inflation in USA. He states that the feds no longer tell the public how much money they are printing, but experts say M3, the broadest measure of new money creation, is higher than 15% per year. On the other hand, the IMF states that the U.S. is headed for recession. Some economists think the country is already in recession. What that means is that the supply of goods and services is barely increasing at all. This is the usual scenario of too much money chasing too few goods.
Although the rising commodity prices present some opportunity to developing countries that rely on export of primary products, they are broadly viewed as a major challenge to the global economy. Parker (June, 2008) argues that high commodity prices might cause stagflation. He states that the rise in commodity prices pushes up prices over large range of goods and services and could force the Federal Reserve to raise interest rates as unemployment increases.
3. Is the Global Economy Heading for Recession?
As stated earlier, the IMF states that the world´s largest economy, United States is heading for recession. It further states that the there is a 25% chance world growth will drop to 3% - a level that would be considered recessionary (IMF, April 2008). The IMF states that the global expansion of the last several years was fast losing ground in the face of a major financial crisis brought on by a downturn in the US housing sector.
The IMF states further that the US and Western Europe are the hardest hit by the financial crisis. In contrast, emerging and developing economies have so far been less affected by the financial market turbulence and their growth is set to remain above average, led by China and India.
It however stated that, there were signs economic activity was starting to moderate in some emerging and developing countries. Especially if the US-led downturn intensifies there is a possibility that growth in these countries will also slow down. The impact could be pronounced particularly in those export dependent nations.
In Asia, the economic expansion in regional economic powerhouse China is projected to moderate to 9.3% in 2008 from 11.4% in 2007, while growth in India is expected to slow to 7.9% this year from 9.2% last year.
The IMF states that in Sub-Sahara Africa, economic growth is set to ease by a fraction to 6.6% this year from 6.8% in 2007, as it largely looks set to avoid spill over from the global credit crisis. Growth in the region would be led by oil exporters, such as Nigeria and Angola.
4. The African Economies
4.1 The Rise in Food Prices
The immediate effects of the rising food prices on the African economies have been negative. African governments are under pressure from consumers due to rising food prices. Some, like Nigeria, are working to satisfy demand and lower prices by releasing emergency grain reserves. Others, like Cameroon are giving pay raises to public servants, dropping tariffs on food imports, or enacting food subsidies. Ethiopia has banned the export of its cereals (Nigerian Tribune, May 2008).
Burkina Faso, Ethiopia and Nigeria have released emergency grain reserves onto the market to try to keep food prices low. Burkina, Cameroon, Senegal and Ethiopia have suspended or lowered taxes on grains and other basic goods. Nigeria recently announced it will buy 500,000 metric tons of rice from Thailand. Ethiopia has added a 10 per cent surtax on luxury imports to help fund wheat subsidies for the poor. It has also restricted the money supply to help prevent inflation (Nigerian Tribune, May 2008).
Cameroon has increased wages for the civil service and military. Sudan has increased food subsidies for the poor. Egypt has suspended rice exports, while Ethiopia and Tanzania have banned the sale of their main cereals overseas. Zambia refuses to approve any new deals to export grains. Many countries are working to improve domestic food production. Sierra Leone, Liberia, Ghana and others say they plan to grow more rice. Liberia, which imports 90 per cent of its rice, will begin growing it in Lofa and Nimba counties. The opposition is asking the government to drop taxes on all rice purchases. Ghana hopes to join Uganda, Tanzania and other countries in increasing the use of high-yielding NERICA (New Rice for Africa), developed by the Africa Rice Center in Benin Republic (Nigerian Tribune, May 2008).
The total effects on poverty of the recent food prices increase (2005-2008) are estimated to be an average increase in poverty rate of 4.5 percentage points. This is substantial considering the average reduction in poverty has been 0.7 percentage points per year since 1984 (Baltzer et al. May 2008).
4.2 The Rise in Other Commodity Prices
The rise in other commodity prices has both positive and negative effects on the African economies. On the positive side, Edward Miguel (May/June 2008) argues that rising commodity prices can spur Africa´s economic growth. He states that global commodity prices for petroleum, minerals, and agricultural products have soared over the past five years as surging Asian demand meets limited world supplies. Oil price has more than tripled since 2000, depositing many more dollars in the coffers of the big African producers like Nigeria, Angola, Sudan, and Gabon. The petroleum for Asian factories and urban commuters has to come from somewhere, and Africa is filling the gaps.
The per-unit price of copper, used in factories and construction everywhere, soared from about $70 to $350 between June 2001 and June 2007, a boon to Zambia, Africa´s largest producer. Kenya and its East African neighbors have benefited from coffee´s rise. Prices have been frothy, jumping from $41 per unit in 2001 to $113 in 2007. This increase puts more money in the pockets of coffee farmers, many of whom are smallholders. The consensus is that hungry Chinese consumers are behind a big chunk of all these rising prices (Miguel, May/June 2008).
Miguel further argues that while rising demand for commodities is one way that Asia´s economic boom helps to raise African living standards, China´s economic involvement in Africa now goes far beyond arms-length imports and exports. Chinese firms have begun investing directly in African oil and mineral producers and in roads, dams, and telecommunications infrastructure. It is estimated that annual Chinese foreign direct investment in Africa surpassed the one billion dollar mark in 2005 and has continued to rise since. Shuttered factories and mines have been brought back to life and severed roads restored. The spread of cell phone technology has allowed rural African grain markets to function more efficiently, probably improving the lives of consumers, farmers, and traders alike.
Although China´s string-free involvement in Africa is criticized by the west, the Sino-African relations are booming and China´s economic rise has clearly benefited many millions of Africans, especially through growing trade and higher global commodity prices. And the billions in Chinese investment currently pouring into Africa hold out the possibility of better infrastructure and industrial development in the long run: in 2007, China committed another $20 billion to finance trade and infrastructure development throughout Africa (Miguel, May/June 2008).
On the negative side, the oil shock and the inter-related surge in food prices is believed to adversely affect millions living on the tiny margin between subsistence and starvation in many African countries. Apart from this, the benefits of increasing commodity prices may not directly reach the poor on the ground. The benefits of increased oil revenue depend on the degree of developmental commitment, transparency and accountability of the respective African governments. In the case of certain agricultural products such as coffee, much of the benefits of increased prices are reaped by the middle men to the detriment of the poor producers. Therefore, only time will tell if a recent rise in coffee prices could lead to an improvement in the lives of poor coffee producers in Sidama, Gedeo or Oromia in Ethiopia or villages in Uganda and Kenya.
For many decades, at least until recently, overall commodity prices have tended to decline relative to the prices of other outputs, although with considerable volatility. Much of this volatility has been due to large cycles in the real prices of food and non-food agricultural commodities while for much of the last century, metal prices moved with in a fairly narrow range. In contrast, real metal prices have recently increased at a rapid pace, although this was preceded by a period of price weakness (O´Connor and Orsmond, 2007).
Prebisch and Singer argued in 1950 that the price of commodities relative to that of manufactured goods will tend to decline over time. The theories of declining commodity terms-of-trade maintain that commodities have a relatively low income elasticity of demand compared with the outputs of other sectors and hence that the relative price of commodities declines as world income increases; that technical progress in manufacturing tended to be raw material saving, lowering the demand for commodities over time and the pace of the productivity growth in agriculture and mining sectors has been higher than in other sectors. Based on Grilli and Young Index, which aggregates the prices of 24 primary commodities exported by developing countries, the updated index for 2006 indicated that real commodity prices have overall appeared to have declined over the past century (O´Connor and Orsmond, 2007).
This trend has unfortunately been reversed since 2001. Since then, the prices of metals, agricultural commodities and oil have risen to all-time highs. However, some argue that the year-on-year rise in a broad index of commodity prices is not unprecedented. Indeed the 29% increase in the CRB index over the past year is much lower in comparison to the 60 percent spikes that occurred in 1950-51 (associated with increased demand for war materials for the Korean war) and 1973-74 (OPEC oil embargo) (Bryson, May 2008). However, the rise in the food prices indices is much more dramatic. Following a steady increase by 25% between 2003 and 2006, the FAO food price index rose by 57% between March 2007 and March 2008. Developments in the markets for the three staple commodities maize, wheat and rice have been particularly dramatic with world market prices in April 2008 reaching respectively 164%, 187% and 437% ( measured in USD) above their low in 2001 (Baltzer at al. May 2008). This came at the same time US wheat stockpiles are at a 33-year low.
Bryson argues however that the length of the current uptrend in commodity prices which has been in place since October 2001 is unprecedented and this upswing has coincided with a very strong global GDP growth that has been driven at least in part by the forces of globalisation. The upswing has continued even after global GDP growth has started to slow down since August 2007. It seems that the time of declining commodity terms-of-trade is over. However, whether this will put the Prebisch-Singer theory in question is another matter only time will tell.
O´Connor and Orsmond (2007) argue further that the current commodity price boom is unusual in several ways. It has been large and rapid and in this respect is paralleled by only two other periods during the last century. One was the price boom in the mid 1930´s , which largely reflected the recovery from the sharp declines during the Great Depression – and the other the commodity price rise in the 1970s that was driven by world demand and the temporary supply shortages of certain food and non-food items at the time.
They maintain that the role played by the industrialisation of China in the current price spike is also unusual. During the earlier periods of country-specific industrialisation such as that of USA, Germany and Japan, real commodity prices remained flat or fell gradually. The recent large commodity price increase may reflect the uniqueness of the China´s economy and population. China´s population is almost double of the current G7 countries combined while the country has lower per capita endowment of natural resources. Hence its rapid pace of development has led to a sharp increase in world commodity demand. This is a historic reality the world has to live with at least in the short and medium terms. Industrialisation in China is not the only cause of the rapid and sustained increase in commodity prices. The next section reviews the various causes behind the current commodity price spikes.
2. The Causes of the Rising Commodity Prices
The recent sharp rise in commodity prices is believed to be the result of a combination of factors. These include, among others, the global GDP growth since 2001, the emerging market and the China effects, the decrease in real interest rates, increase in US money supply and the deprecation of the US dollar.
The World real GDP growth picked from the low of 2.5% in 2001 to 5.4% in 2006 (IMF, 2007). This period coincided with the rapid increase in commodity prices. However, due mainly to financial market strains the global economic growth started to slow down since August 2007 and expected to be around 4.5% in 2008. However, the rise in commodity prices continue unabated. Some economists tried to offer an alternative explanation to this phenomenon. Frankel (2008) argues that the main determinant of real commodity prices is the real interest rate. According to Frankel´s theory, high interest rates reduce the demand for storable commodities, or increase the supply, through a variety of channels: (a) by increasing the incentive for resources extraction today rather than tomorrow, (b) by decreasing firms´ desire to carry inventories and (c) by encouraging speculators to shift out of spot commodity contracts and into treasury bills. He further argues that monetary expansion temporarily lowers the real interest rate either via the fall in nominal interest rate, a rise in expected inflation or both. The decrease in real interest rates then leads to lower cost of carrying inventories, and rising commodity prices, as happened in the 1970s, and again during 2001-2004.
As stated earlier, another reason for sustained rise in commodity prices is strong economic growth in Asia, particularly in China. China is one of the few countries in the world today with a steady, long-term high-growth rate. China accounts for about a fifth of the world´s population, yet it consumes more than half of the world´s pork, half of its cement, a third of its steel and over a quarter of its aluminum. It is spending 35 times as much on imports of soybeans and crude oil as it did in 1999, and 23 times as much importing copper — indeed, China has consumed over four-fifths of the increase in the world´s copper supply since 2000 (The Economist, March 2008). Therefore, the demand for commodities from China is obviously one of the main drivers of the commodity prices.
And so is the depreciation of US Dollar. US dollar is currently depreciating against all major currencies and the trend is continuing. For instance, Scot Fox (May 2008) argues that there is a direct relationship between US Dollar value and oil prices. All crude oil purchases worldwide have been conducted exclusively in US Dollars for over thirty-five years. When Dollar value falls via inflation, oil prices rise. This phenomenon could be called petrodollar inflation. It occurred during the 1970´s oil ´price shock´, and it is occurring right now.
He further states that oil is a critical economic and strategic resource - because every country needs oil to develop and prosper, they also need U.S. Dollars. This has raised the demand, and value, of the Dollar worldwide for several decades. However, the US Dollar is continuously devalued (inflated) by Federal Reserve and US government monetary policies. Fox argues further that due to recent ´super-inflation´ of the Dollar, oil producing nations are losing money - or rather, wealth - by selling oil in Dollars. To prevent losses, oil producing nations will sell some or all of their oil in other currencies such as Euros. This further devalues the Dollar, since oil buying countries no longer need them to purchase oil.
Furthermore, Bonner (April 2008) argues that the real cause of increasing commodity prices is increasing money supply or dollar inflation in USA. He states that the feds no longer tell the public how much money they are printing, but experts say M3, the broadest measure of new money creation, is higher than 15% per year. On the other hand, the IMF states that the U.S. is headed for recession. Some economists think the country is already in recession. What that means is that the supply of goods and services is barely increasing at all. This is the usual scenario of too much money chasing too few goods.
Although the rising commodity prices present some opportunity to developing countries that rely on export of primary products, they are broadly viewed as a major challenge to the global economy. Parker (June, 2008) argues that high commodity prices might cause stagflation. He states that the rise in commodity prices pushes up prices over large range of goods and services and could force the Federal Reserve to raise interest rates as unemployment increases.
3. Is the Global Economy Heading for Recession?
As stated earlier, the IMF states that the world´s largest economy, United States is heading for recession. It further states that the there is a 25% chance world growth will drop to 3% - a level that would be considered recessionary (IMF, April 2008). The IMF states that the global expansion of the last several years was fast losing ground in the face of a major financial crisis brought on by a downturn in the US housing sector.
The IMF states further that the US and Western Europe are the hardest hit by the financial crisis. In contrast, emerging and developing economies have so far been less affected by the financial market turbulence and their growth is set to remain above average, led by China and India.
It however stated that, there were signs economic activity was starting to moderate in some emerging and developing countries. Especially if the US-led downturn intensifies there is a possibility that growth in these countries will also slow down. The impact could be pronounced particularly in those export dependent nations.
In Asia, the economic expansion in regional economic powerhouse China is projected to moderate to 9.3% in 2008 from 11.4% in 2007, while growth in India is expected to slow to 7.9% this year from 9.2% last year.
The IMF states that in Sub-Sahara Africa, economic growth is set to ease by a fraction to 6.6% this year from 6.8% in 2007, as it largely looks set to avoid spill over from the global credit crisis. Growth in the region would be led by oil exporters, such as Nigeria and Angola.
4. The African Economies
4.1 The Rise in Food Prices
The immediate effects of the rising food prices on the African economies have been negative. African governments are under pressure from consumers due to rising food prices. Some, like Nigeria, are working to satisfy demand and lower prices by releasing emergency grain reserves. Others, like Cameroon are giving pay raises to public servants, dropping tariffs on food imports, or enacting food subsidies. Ethiopia has banned the export of its cereals (Nigerian Tribune, May 2008).
Burkina Faso, Ethiopia and Nigeria have released emergency grain reserves onto the market to try to keep food prices low. Burkina, Cameroon, Senegal and Ethiopia have suspended or lowered taxes on grains and other basic goods. Nigeria recently announced it will buy 500,000 metric tons of rice from Thailand. Ethiopia has added a 10 per cent surtax on luxury imports to help fund wheat subsidies for the poor. It has also restricted the money supply to help prevent inflation (Nigerian Tribune, May 2008).
Cameroon has increased wages for the civil service and military. Sudan has increased food subsidies for the poor. Egypt has suspended rice exports, while Ethiopia and Tanzania have banned the sale of their main cereals overseas. Zambia refuses to approve any new deals to export grains. Many countries are working to improve domestic food production. Sierra Leone, Liberia, Ghana and others say they plan to grow more rice. Liberia, which imports 90 per cent of its rice, will begin growing it in Lofa and Nimba counties. The opposition is asking the government to drop taxes on all rice purchases. Ghana hopes to join Uganda, Tanzania and other countries in increasing the use of high-yielding NERICA (New Rice for Africa), developed by the Africa Rice Center in Benin Republic (Nigerian Tribune, May 2008).
The total effects on poverty of the recent food prices increase (2005-2008) are estimated to be an average increase in poverty rate of 4.5 percentage points. This is substantial considering the average reduction in poverty has been 0.7 percentage points per year since 1984 (Baltzer et al. May 2008).
4.2 The Rise in Other Commodity Prices
The rise in other commodity prices has both positive and negative effects on the African economies. On the positive side, Edward Miguel (May/June 2008) argues that rising commodity prices can spur Africa´s economic growth. He states that global commodity prices for petroleum, minerals, and agricultural products have soared over the past five years as surging Asian demand meets limited world supplies. Oil price has more than tripled since 2000, depositing many more dollars in the coffers of the big African producers like Nigeria, Angola, Sudan, and Gabon. The petroleum for Asian factories and urban commuters has to come from somewhere, and Africa is filling the gaps.
The per-unit price of copper, used in factories and construction everywhere, soared from about $70 to $350 between June 2001 and June 2007, a boon to Zambia, Africa´s largest producer. Kenya and its East African neighbors have benefited from coffee´s rise. Prices have been frothy, jumping from $41 per unit in 2001 to $113 in 2007. This increase puts more money in the pockets of coffee farmers, many of whom are smallholders. The consensus is that hungry Chinese consumers are behind a big chunk of all these rising prices (Miguel, May/June 2008).
Miguel further argues that while rising demand for commodities is one way that Asia´s economic boom helps to raise African living standards, China´s economic involvement in Africa now goes far beyond arms-length imports and exports. Chinese firms have begun investing directly in African oil and mineral producers and in roads, dams, and telecommunications infrastructure. It is estimated that annual Chinese foreign direct investment in Africa surpassed the one billion dollar mark in 2005 and has continued to rise since. Shuttered factories and mines have been brought back to life and severed roads restored. The spread of cell phone technology has allowed rural African grain markets to function more efficiently, probably improving the lives of consumers, farmers, and traders alike.
Although China´s string-free involvement in Africa is criticized by the west, the Sino-African relations are booming and China´s economic rise has clearly benefited many millions of Africans, especially through growing trade and higher global commodity prices. And the billions in Chinese investment currently pouring into Africa hold out the possibility of better infrastructure and industrial development in the long run: in 2007, China committed another $20 billion to finance trade and infrastructure development throughout Africa (Miguel, May/June 2008).
On the negative side, the oil shock and the inter-related surge in food prices is believed to adversely affect millions living on the tiny margin between subsistence and starvation in many African countries. Apart from this, the benefits of increasing commodity prices may not directly reach the poor on the ground. The benefits of increased oil revenue depend on the degree of developmental commitment, transparency and accountability of the respective African governments. In the case of certain agricultural products such as coffee, much of the benefits of increased prices are reaped by the middle men to the detriment of the poor producers. Therefore, only time will tell if a recent rise in coffee prices could lead to an improvement in the lives of poor coffee producers in Sidama, Gedeo or Oromia in Ethiopia or villages in Uganda and Kenya.
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