In the 1990s there has been some improvement in the terms of trade for
agricultural commodities produced by developing countries (FAO
1995a, p.32). Not all countries, however, have benefitted from this
improvement in the same way, with differences between exporting and
net food importing countries. The same FAO report (1995a, p.39)
states that the economic and agricultural outlook of developing countries will be determined by two factors: an expected continuing improvement in the global macroeconomic environment, to which the developing countries will both contribute, and from which they may also expect
to benefit, and a strengthening of international prices of key agricultural export commodities. These two factors are interrelated to the extent
that a better macroeconomic environment can be expected to sustain the
demand for and prices of agricultural commodities, while improved
commodity markets have a direct effect on stressed economies, and generate opportunities for consolidating the stabilization and economic
reform (ibid).
The policies and market conditions that led to poor terms of trade
include world market imperfections and a domestic policy bias against
agriculture. Repressive domestic policies were prominent in many developing countries in the 1950s through the 1970s, and formed part of the
import substitution model. They were accompanied by directed and
often subsidized agricultural credit programmes, that were constituted
in part to compensate for the urban and industrial bias in macro economic policies.
With the reduction of these repressive policies against agriculture, coupled with an increasingly favourable market-oriented macro economic
environment and improved financial sector policies resulting from structural adjustment programmes, the terms of trade for agriculture have
improved in a number of developing countries with a concomitant
improvement in the profitability of investments in agriculture.