Primary Products

Primary products are goods that are available from cultivating raw materials without a manufacturing process. Significant primary product industries include agriculture, fishing, mining, and forestry.

Examples of Primary products

• oil
• water
• fish
• fruit
• crops
• wood

Often developing countries have a comparative advantage in producing primary products. This is because many developing countries (e.g. in Africa are rich in resources, but poor in capital and education). Therefore, they can mine and export primary products to gain revenue.

How primary products can present constraints to growth

Low-income elasticity of demand. As income increases, demand for many food stuffs doesn’t really increase. As incomes increases, demand for tea, coffee and sugar don’t increase that much. Therefore, countries who rely on primary products may have lower income growth than countries producing manufactured goods, with a higher income elasticity of demand.

Finite Resources. Primary products like metals, oil and gas are finite resources. Therefore, there is always a danger that when these resources are exhausted, the economy will lose its main export revenue.

Price Volatility. The price of primary products tends to be much more volatile. e.g. they can be influenced by weather and speculation. These prices changes can be damaging to countries. If prices fall and demand is price inelastic, then producers can go out of business and the country loses its main form of export revenue.

Lack of investment in education. Production of primary products is generally unskilled labour (mining, agriculture). Therefore an economy that specialises in primary products may fail to have enough incentives to invest in labour productivity which helps the long-term performance of the economy.

Related

• Primary products – advantages and disadvantages
• Sectors of the economy – primary, manufacturing and service sector