Sunday, November 02, 2008

Asian governments working to stabilize agricultural markets

Asian exporters cut crops to aid farmers, Financial Times
Asian Nations Join to Prop Up Prices, Washington Post Foreign Service

Asian governments are working to protect farmers as the prices of agricultural commodities fall sharply in response the credit crisis. For example, Thailand, Indonesia and Malaysia—countries who together are responsible for 80 percent of the world’s rubber—agreed last week to cut production by 210,000 tons next year. Rubber prices have fallen by almost half since June, causing a large number of buyers to default on their contracts with Asian exporters. Indonesian exporters cancelled at least 60,000 tons of rubber shipments to China after Chinese buyers refused to pay the contracted prices. Malaysia, the world’s second largest palm oil producer, also plans to cut palm oil production by 700,000 tons and that country, along with Vietnam and Indonesia, is looking to initiate a similar plan for coffee production.

Asia is doing its best to deal with the crisis, but economists seem to be of the opinion that the proposed measures will not have much of an impact on the overall market. The production cuts, although they seem large, actually total up to at most a reduction of just a few percent in each of the markets they are intended to help. Furthermore, Asia’s problems aren’t rooted in supply and demand but in the lack of available credit to finance trade. Farmers are feeling the effects of the financial crisis because traders and funds are not able to get lines of credit—which have virtually dried up around the world—and so are unable to get funding to buy new inventory.


(1) What effects will the reductions in crop production have on Asian economies? On the rest of the world?
(2) What else could Asian governments do to stabilize their agricultural markets?

No comments: