Question

What are the problems faced by primary product exporters? Are there primary products that countries might export which would, perhaps, not be subject to the same difficulties? Can you give some examples of so-called non-traditional primary products which it might be desirable to export? In general, what makes one export a “good” export and another less desirable?

Answer 1

Primary goods are raw materials & resources used in production processes such as metals, agricultural products & minerals. Though primary goods are a major source of income for many developing countries who export them to other countries, but there are many problems associated with it. We will discuss them in detail below.

1) Low income elasticity of demand: Generally demand for agriculture products doesn’t really increase as income increases. With an increase in income demand for demand for these doesn’t increase significantly. Therefore primary product exporting countries have lower income growth than countries producing manufactured goods who have higher income elasticity of demand.

2) Price volatility: The price of primary products is much more volatile due to influence by weather and speculation. These price changes are harmful to countries exporting them. In case of inelastic demand & prices fall then producers incur huge losses leading to significant decline in export revenue. Unstable export earnings due to unstable commodity prices or quantities as a barrier to growth, for instance because it prevents governments from having stable tax revenues to carry out development programs.

3) Discourages investment in other sectors of economy: The constant focus on primary products doesn’t help the long-term development of an economy because it can contribute towards a lack of investment in other aspects such as education and industrial production.

Yes there are primary products that countries might export with less difficulty called as non-traditional primary products. In agriculture category we can include cotton lint, soya beans, green beans, minor tropical fruits & green peas. In fishing processed fish products can be considered. Toys & shoes made from primary products are also non-traditional primary products.