Underproduction of primary commodities

Under-production of primary commodities may exist not only where the share of world exports has fallen because of supply difficulties (as in the case of wheat, coarse grains, rice, and vegetable oils), but also where the price elasticity of demand for a commodity is greater than unity (namely where an increase in the supply would result in a less than proportionate fall in price), so that total sales proceeds would not be increased.
Examples of under-production are provided by the chronic food shortages in certain heavily-populated developing countries in recent years. In some countries the problem has manifested itself as a failure to maintain exports to traditional markets, which have instead been supplied by developed countries. In other countries, shortages have necessitated heavy imports of essential foodstuffs (chiefly cereals) from developed countries, with consequent strains on the foreign exchange position.
Some under-production of commodities is desirable as less developed countries divert resources into manufacturing for export. Manufacturers are not as susceptible to price fluctuations and must take a greater place in the foreign exchange earnings of developing countries.
(D) Detailed problems