Commodity chains?????

Question

What can commodity chains tell us about development?

Answer 1

Commodity Chains

Commodities are resources that can be consumed. They can be accumulated for a period of time (some are perishable while others can be virtually stored for centuries), exchanged as part of transactions or purchased on specific markets (such as futures market). Some commodities are fixed, implying that they cannot be transferred, except for the title. This includes land, mining, logging and fishing rights. In this context, the value of a fixed commodity is derived from the utility and the potential rate of extraction. Bulk commodities are commodities that can be transferred, which includes for instance grains, metals, livestock, oil, cotton, coffee, sugar and cocoa. Their value is derived from utility, supply and demand (market price).

The global economy and its production systems are highly integrated, interdependent and linked through commodity chains.

Commodity Chain. A functionally integrated network of production, trade and service activities that covers all the stages in a supply chain, from the transformation of raw materials, through intermediate manufacturing stages, to the delivery of a finished good to a market. The chain is conceptualized as a series of nodes, linked by various types of transactions, such as sales and intrafirm transfers. Each successive node within a commodity chain involves the acquisition or organization of inputs for the purpose of added value.

Commodity chains are thus a sequential process used by corporations within a production system to gather resources, transform them in parts and products and, finally, distribute manufactured goods to markets. Each sequence is unique and dependent on product types, the nature of production systems, where added value activities are performed, markets requirements as well as the current stage of the product life cycle. Commodity chains enable a sequencing of inputs and outputs between a range of suppliers and customers, mainly from a producer and buyer-driven standpoint. They also offer adaptability to changing conditions, namely an adjustment of production to adapt to changes in price, quantity and even product specification. The flexibility of production and distribution becomes particularly important, with a reduction of production, transaction and distribution costs as the logical outcome. The major types of commodity chains involve:

Raw materials. The origin of these goods is linked with environmental (agricultural products) or geological (ores and fossil fuels) conditions. The flows of raw materials (particularly ores and crude oil) are dominated by a pattern where developing countries export towards developed countries. Transport terminals in developing countries are specialized in loading while those of developed countries unload raw materials and often include transformation activities next to port sites. Industrialization in several developing countries has modified this standard pattern with new flows of energy and raw materials.

Semi-finished products. These goods already had some transformation performed conferring them an added value. They involve metals, textiles, construction materials and parts used to make other goods. The pattern of exchanges is varied in this domain, but dominated by regional transport systems integrated to regional production systems.

Manufactured goods. These include goods that are shipped towards large consumption markets and require a high level of organization of flows to fulfill the demand. The majority of these flows concerns developed countries, but a significant share is related to developing countries, especially those specializing in export-based manufacturing. Containerization has been the dominant transport paradigm for manufactured goods with production systems organized around terminals and their distribution centers.

A significant trend has thus been a growing level of embeddedness between production, distribution and market demand. Since interdependencies have replaced relative autonomy and self sufficiency as the foundation of the economic life of regions and firms, high levels of freight mobility have become a necessity. The presence of an efficient distribution system supporting global commodity chains (also known as global production networks) is sustained by:

Functional integration. Its purpose is to link the elements of the supply chain in a cohesive system of suppliers and customers. A functional complementarity is then achieved through a set of supply/demand relationships, implying flows of freight, capital and information. Functional integration relies on distribution over vast territories where "just-in-time" and "door-to-door" strategies are relevant examples of interdependencies created by new freight management strategies. Intermodal activities tend to create heavily used transshipment points and corridors between them, where logistical management is more efficient.

Geographical integration. Large resource consumption by the global