A commodity chain describes the various stages involved in the production, distribution, and consumption of a particular commodity.
In other words, it charts the process by which firms acquire resources, transform them into goods, and distribute them to consumers. Each step of the commodity chain has different forms of labor and different levels of power.
Examples of commodity chains include fast fashion, the coffee commodity chain from the developing to the developed world, and the oil chain from extraction to product development.
Commodity Chain Definition
A commodity chain refers to:
“…a network of labor and production processes whose end result is a finished commodity” (Hopkins and Wallerstein, 1986)
The concept was first introduced by Hopkins & Wallerstein, and it originally focused on the global economy, describing how different nations connect in the production and distribution of goods. However, it is also used to study local economies.
The commodity chain does not merely focus on the physical flow of goods and services. It also allows us to see the social, economic, and political relationships among the different actors in production & distribution.
So, it helps us see how people or nations with more power can dictate the terms of various processes in their favor. In a way, it complements the dependency theory, by giving us an empirical way of seeing how the global economy often exploits poorer nations.
Since the mid-1990s, the concept of commodity chains has gained a lot of attention, and researchers from various disciplines (sociology, economics, etc.) have made it multidisciplinary.
There are also several related concepts, such as a “value chain”, which we will discuss briefly.
Commodity Chain Examples
- Fast Fashion: Fast fashion is the perfect example of how global commodity chains often promote exploitation and degradation. Many MNCs set up garment factories in developing countries where labour is cheap and unregulated. Plus, the large production of low-cost clothing and their quick disposal also harms the environment. At the same, the global nature of the clothing industry has significantly shaped our cultural identities.
- Coffee Chains: Beans are grown in countries like Brazil, Colombia, and Ethiopia, and these are then exported to North American and European roasters for processing. The roasted beans are then packaged and sold in cafes & supermarkets. So the commodity chain includes growers, exporters, roasters, and retailers.
- Automobile Production: Automobiles are an example of producer-driven commodity chains, where large industrial enterprises control production through direct ownership or close alliances (Gereffi, 1994). These industries are capital- and technology-intensive. For automobiles, raw materials (steel, rubber, etc.) from around the world are shipped to manufacturing plants and are then sold by companies like Ford & Toyota.
- Footwear Industry: Footwear is a type of buyer-driven commodity chain, where lead firms are buyers (retailers, marketers, etc.). These industries are labor-intensive and use a large number of independent suppliers to produce consumer goods. Buyer-driven chains, unlike producer-driven chains, are not dominated by economies of scale or innovation. Instead, firms that are best at design, sales, and marketing become leaders.
- Seafood Industry: Fishermen and harvesters catch fish and other seafood using longlining, trawling, and aquaculture. It is then sent to processing factories to be cleaned, packaged, and frozen. Distributors and retailers then buy the seafood from the processors and sell them to supermarkets, restaurants, and consumers.
- Cell Phone Production: Cell phone components such as microchips are manufactured in countries like China, where infrastructure is developed and labor is cheap. These are then assembled in Southeast Asian factories, which again have poor working conditions. The companies that sell the final products, like Apple & Samsung, control the commodity chain and reap the largest profits.
- Pharmaceuticals Industry: Manufacturers around the globe produce chemical compounds in large chemical plants, which are then sent to pharmaceutical companies to be formulated into finished drugs. Pharmaceutical companies play a major role in the research & development of drugs, and they also have significant power in the industry.
- Organic Food: Farmers grow organic fruits and vegetables using methods that do not involve synthetic pesticides or fertilizers. Processors clean, package, and distribute the organic food to retailers. They also work with certifying organizations, such as the USDA, to ensure that farmers are strictly maintaining the standards. Organic food can help mitigate environmental issues and provide fairer working conditions to farmers.
- Furniture Industry: Raw materials such as wood, metal, and upholstery are sourced from various locations, and then sold to factories for manufacturing. A furniture manufacturer in China may source its wood from Canada and raw materials from India and then assemble them into furniture. These are then shipped to distributors and retailers around the world like IKEA, Amazon, etc.
- The Oil Commodity Chain: Oil companies such as Chevron and BP extract crude oil, which is then processed in refineries, and finally distributed through gas stations. There have been many economic/military conflicts to gain access to oil-rich regions, and the ongoing state of the Middle East is linked to this competition for control. The monopoly of large MNCs and environmental degradation are also concerning issues for the oil industry.
Are Commodity Chains Unjust in the Global Economy?
Commodity chains allow us to examine the global economy by helping us see the power dynamics between different actors and the uneven distribution of profits between them.
Hopkins & Wallerstein created this concept by tracing the chains of two significant products—ships and wheat—between the 16th and 18th centuries. They showed how, even before 1800, the production activities of these goods spanned the entire globe.
They identified “nodes” within these chains, which represented a particular production activity. Some firms or nations controlled the most profitable nodes, and in this way, they argued that their concept could help understand uneven wealth distribution.
Gereffi took this concept further and argued that industrialized countries have differential access to markets and resources of the global economy (1994). So, a country’s economic state is determined by its association with profitable nodes—not by industrialization alone.
Two key factors here are competition and innovation. The more severe the competition in a particular node, the less surplus would accrue to that node. Plus, technological and organizational innovations play a key role in increasing profits. So, in summation:
“A country’s developmental success generally hinges on the ability to “upgrade” its industrial activities into more profitable and less competitive nodes within global commodity chains against the constant pressure of peripheralization brought by new innovations.” (Lee, 2017)
Value Chain vs Commodity Chain
A value chain describes the various activities a firm undertakes to create and deliver a product/service; it is a micro-level perspective of the commodity chain.
The value chain consists of primary and support activities. The former include inbound logistics (acquiring raw materials), operations (converting them into finished products), outbound logistics (storing and distributing products), marketing (promoting and selling), and service.
The support activities include technology development, human resources, etc. The concept of the value chain was created by Michael Porter (1985). It allows a company to analyze their activities, identify areas where it can create more value, and ultimately make more profit.
As one can guess from their definitions, both the commodity chain and value chain look at activities that go into the production and distribution of a product/service. What differentiates them is the context of these activities. A commodity chain describes the global network of actors involved in production & distribution. A value chain, on the other hand, is internal to the firm.
The purpose of the commodity chain is to understand the organisational and socio-political structure of the global economy. In contrast, a value chain aims to help a firm increase profitability by identifying areas where it can generate more value.
By tracing the path of a commodity from its raw material to the final product, the commodity chain helps us understand all the steps and actors involved in the production and distribution of goods/services.
Through micro-level applications like value chain analysis, it can help a firm identify the right areas and generate more profit. Plus, it makes us see the power dynamics between different actors (whether firms or nations), which lead to an uneven distribution of wealth.
Remnants of imperialism still remain in globalism, where some “core” countries benefit by exploiting the “periphery” ones (see: world systems theory). By shedding light on this, the commodity chain makes us acknowledge global inequalities and obliges us to take steps towards creating a more just world.
Gereffi, G., Korzeniewicz, M., and Korzeniewicz, R.P. (1994) Introduction: Global Commodity Chains. In G. Gereffi, and M. Korzeniewicz (eds.) Commodity Chains and Global Capitalism. Greenwood Press.
Hopkins, T.K., and Wallerstein, I. (1986) “Commodity Chains in the World-Economy Prior to 1800”. Review 10 (1).
Lee, Joonkoo (2017). “Global Commodity Chains and Global Value Chains”. International Studies. Oxford University Press. https://doi.org/10.1093/acrefore/9780190846626.013.201
Porter, M. E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. Free Press.