Production of certain commodities may be in excess of demand as evidenced by the periodic tendency of world stocks to increase faster than consumption. Over-production has been due in part to the over-optimism of production decisions which, in the case of tree crops, have to be taken several years before the resulting supply becomes available. (The excessive production of coffee in the early 1960s, for example, resulted from the heavy plantings made after the coffee boom in the mid-1950s). Over-optimistic production decisions may also be a consequence of price fluctuations, which have the effect of obscuring the underlying trends of supply and demand and therefore make them liable to be misjudged.
When, as has occurred, a number of countries expand exports of the same commodities at the same time, the 'fallacy of composition' becomes evident. Increased demand for primary commodities does not seem to have been induced significantly by the drop in prices. The price elasticities of demand for these commodities are generally low, and in the case of raw materials their demand is derived from that for industrial products, the prices of which do not tend to respond commensurably to changes in material input prices.
Over-production has been especially important in the case of sugar, coffee, cocoa and cotton.
The production of commodities has gone beyond actual need, resulting in increased sales promotion to create a market for the over-abundant supply of goods. Such a market tends to be self-perpetuating rather than extending into areas where markets are unrealized.