There is a parenthetical point that deserves to be made here. These price movements have been so sharp that they have in turn affected the domestic prices of such commodities in countries where external trade has been increasingly liberalised. This is a point often missed in India for example, where discussion of the effects of trade liberalisation on Indian agriculture are often still based on world prices that prevailed in 1996. Unlike in that period, the current level of international prices of most agricultural goods is such that they are well below Indian prices, and so expectations of big increases in agricultural exports or resistance to import penetration which remain based on the earlier prices are likely to be misplaced.
 
Meanwhile, minerals and metals products prices have been declining quite sharply from 1995 onwards. As is clear from Chart 2, the cumulative decline from then to 1999 amounts to nearly 25 per cent. Once again, supply behaviour has played an important role : world production of metals and minerals did not increase at all over 1990–94, but subsequently increased by 3.5 percent per year in the period 1994–98.
 
The big falls in 1998 were of commodities that had already seen their prices decline substantially in the previous years, such as aluminium, copper, lead and zinc. The supply-demand imbalance is especially evident in the case of these commodities. Aluminium production increased by 5 percent per year during 1995–97, while consumption grew by only 3 percent per year. Copper production grew by 6 percent from 1995 to 1997, while consumption grew by 4 percent. Nickel production increased by more than 5 percent from 1995 to 1997, while consumption fell slightly.
 
The question, of course, is why there was such an increase in production. The standard explanation has been in terms of lagged responses to the relatively high prices of the mid-1990s. Another explanation has been in terms of improved technology, in terms of innovations ranging from improved seeds in agriculture to new solvent extraction techniques in mining, and improvements in production processes like horizontal drilling and increased computerisation.
 
These would certainly have played some role, but they are not likely to provide a complete explanation. For one thing, the increase in production of both minerals and metals as well as agricultural commodities in the later period was much sharper for developing countries. The Food and Agriculture Organisation's index of the volume of agricultural production rose by 3.8 percent per year for all developing countries from 1990 to 1997. The global supplies of metals and minerals also increased rapidly, more so for developing countries.
 
This difference is more likely to be related to other economic forces than technology or a generalised prices response. In fact, many of the largest increases in production came from countries whose economies desperately had to generate foreign exchange to service external debt and meet the bill for much-needed imports.
 
In other words, severe balance of payments pressures and structural adjustment cum liberalisation strategies based on increased openness had created a situation where many developing countries were increasingly forced to rely on increasing volumes of traditional primary commodity exports to generate foreign exchange for financial obligations as well as to meet basic consumption, much of which had earlier been met by domestic consumption. This pressure to generate higher export volumes on the part of most of the developing country producers in turn had a depressing effect on world prices.
 
Along with supply increases, demand conditions have also played a role in the most recent cyclical decline of commodity prices. The proximate cause that is always mentioned in this connection is the East Asian crisis, which dramatically reduced import demand in the crisis countries as well as created recessionary ripples which lowered consumption of primary commodities in other countries as well. The is because the East and Southeast Asian countries together with Japan account for very substantial shares - between one-fourth and one-third - of world consumption of most primary commodities.
 
This augurs ill for development prospects in these countries precisely because of the two processes that have been highlighted so far in terms of primary commodity prices : their volatility and their secular decline. Given the high - and indeed, growing - degree of dependence of many developing countries on primary commodity exports, the functioning of these international markets has not been such as to give either a reasonable possibility of sustained growth or freedom from the continuous need to stabilise economies and smooth the savings and consumption patterns over the relatively short and sharp price cycles.