What are Commodity Chains?

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Updated on March 30, 2023 Global commodity chains play a vital role in keeping us fed, clothed, and possessing everything we need to live, but you’re probably wondering, ‘what are ... Read More

Updated on March 30, 2023

Global commodity chains play a vital role in keeping us fed, clothed, and possessing everything we need to live, but you’re probably wondering, ‘what are commodity chains?’ A commodity chain is a network of labour and production processes combined to create finished commodities.

Commodity chain analysis re-imagines each commodity as a series of sequential pieces, which form a chain when seen as a whole. These pieces could be anything from a product’s design, raw materials, and other processes needed to complete production.

Decades of research have gone into understanding the methods and strategies applied to improving global commodity chains (GCC) and, by extension, global value chains (GVC). Scholars do this with the aim of increasing the efficiency and productivity of different companies and countries.

Various disciplines have influenced research into global commodity chains. Examples include; sociology, economics, geography, regional studies, management studies, and development research.

With its origins in the world-system school, GCC research was used to explain how commodities are organized, governed, and distributed. This was across both developing and developed nations.

Factors that affect global commodity chains, as seen by these scholars, include;

The organization of an international commodity value chain and who the most influential players are.

How to distribute the gains across both developing and developed nations evenly.

Factors that determine how capital shifts from low to high value-added activities.

Brief history

The commodity chain concept was first proposed in the 1970s and primarily focused on globalizing capitalism. There were three focus areas; the first was the global division of labour. This was possible by reconstructing the flows of capital, goods, and activities. It involved retracing a product back from the assembly line down to its original state as a raw material.

Secondly, they studied the dissection and expansion of production driven by primary international producers and buyers. Emphasis was placed on where economic value was input and how countries could gain competitive advantage.

Thirdly, they sought to determine what caused the movement of chain participants from low to high value-added activities.

Formulation

Although a handful of earlier studies had attempted to employ the value chain concept. Others take a similar approach under a different name. The global commodity chains approach dates back to Hopkins and Wallerstein’s earlier thoughts. As an attempt to refute the incrementalist approach that asserts that since the nineteenth century, capitalism was global. These scholars constructed an entire chain. By selecting two major commodities in the period from 1590- 1790, i.e., ships and wheat flour. The ostensible reason was to illustrate that the production activities of these goods were already spread across the globe.

The chains they constructed included different “nodes” or “boxes”. Each representing a distinct part of the production process and illustrating the “chains” linking them together. The chains were retraced from the finished product, i.e., ships, to the original raw material sources.

Through this approach, the scholars proposed commodity chains as a tool to examine the geographical distribution of production activities. They also suggest that the approach could identify countries and companies that retain the most profitable “nodes” within the chain. This way, they could clearly illustrate the uneven distribution of the gains across the chain.

Application

Scholars of the global commodity chains went on to assert that it is a tool to study the question of the modern development of developing countries. This is true as it pertains to the relationship between industrialization and the development of nations in the global economy.

This was meant to shed light on concern over why developing countries’ share of the total economic surplus did not increase in proportion to the growth of their industrial input. Also, why some semiperiphery nations score more success in climbing up the global economic hierarchy than their similarly industrialised peers.

They explained that the world’s economic inequalities were about “the generation and distribution of global wealth as represented in a multidimensional, multistage sequence of activities, not industrialization alone.” In the same way, industrial countries have higher access to markets and resources that determine who moves up in the global economic hierarchy.

Overall, the global commodity chain theory highlights the unequal distribution of surplus between core and sideline players. It suggested that mobility up the economic ladder depended on a country’s ability to upgrade its mix of core and periphery economic activities. i.e., a country’s level of involvement in core-like activities is a more solid indicator of success than its overall level of industrialization.

What are Commodity Chains all you need to know

Conclusion

Therefore commodity chains are not just steps along the production process. They are also valuable tools in dividing interlinked economic activities into multiple “boxes” and revealing the disproportionate share of surplus for each. Since each box varies in terms of the geographical location of operations, labour force, technology, and also share of economic surplus, a country’s economic viability falls in line with the extent to which it engages in profitable activities and not necessarily its level of industrialization.

The development angle is also possible on the level of competition and innovation through the GCC. The theory asserts that these two factors are the keys to determining which “boxes” or activities are more or less profitable. According to the theory, the more severe the competition in a particular activity, the smaller the share of surplus that is generally achievable. Similarly, the more a few units monopolize an activity, the bigger share of surplus that goes into them. Innovation also plays its role in the whole equation, making certain activities more profitable with increased technological innovation and vice versa.

Therefore, a country’s developmental success seems to hinge on its ability to “upgrade” its industrial activities into more profitable and less competitive activities within the global community chains, even while faced with the pressure brought on by innovations in the global marketplace.


What are Commodity Chains?

A commodity chain is a network of labour and production processes combined to create finished commodities.

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