Commodity-dependent countries in the COVID-19 crisis

Bernhard Tröster

No 25, Briefing Papers from Austrian Foundation for Development Research (ÖFSE)

Abstract: The global spread of the corona virus is a massive challenge for countries in the Global South. Beyond the health crisis, many countries face economic turmoil linked to their dependence on commodities. Commodity markets have reacted strongly to the COVID-19 crisis with drastic price movements and changes in production and demand due to the policy measures to contain the pandemic. As a result, commodity-dependent countries face the serious risk that the current multiple and simultaneous crises in health, financial and commodity sectors mutually reinforce each other and exceed the abilities of commodity-dependent countries for a proper response. The vast majority of low- and middle-income countries (102 of 134) are persistently dependent on commodities on their export and import side. This ÖFSE Briefing Paper portrays, therefore, the current commodity price developments and the underlying fundamental drivers in the current crisis, considering the unique changes to supply and demand conditions in the different types of commodities. Most importantly, we note that global commodity prices are largely determined on commodity futures markets. As these futures prices are used as the benchmarks for all other prices set along physical commodity chains, the changing behavior of financial investors in the current crisis plays a crucial role in the current challenges faced by commodity-dependent countries. These changes in commodity sectors have multiple implications for commodity-dependent countries in the Global South. Beyond the risks of short-term shocks including potential food crises, these countries might have to deal with depressed export earnings and changing global demand patterns as medium- to long-term effects of the COVID-19 crisis. Appropriate policy responses should address rapidly the short-term financial constraints of many commoditydependent countries in the Global South, but also support policies and capacities in the public and private sectors to advance structural transformation of these countries. However, the stable economic conditions required to implement these measures depend on the stability of commodity prices. It is therefore necessary to reopen the debate on the functioning of global commodity markets and pricing, which revolves around financial commodity markets.

Keywords: commodity dependence; commodity prices; COVID-19 crisis; financialization; commodity price stabilization (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:oefseb:25

DOI: 10.60637/2020-bp25

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