Global Commodity Chains Example

Essays on Global Commodity Chains Essay Globalization is a phenomenon that most people are unaware of. And yet, it extensively encompasses various aspects of our lives whether we are awareof it or not. It is in the cars we drive, the clothes we wear, and yes, even the food we eat. Our political, socio-cultural, and economic relations with other countries are very much international and global in nature. Many events in the past two decades or so helped to open our borders to our neighbours. The end of the cold war and the birth of the internet are just some of the events that now shape our international relations. We are living in an era of globalization. Growing population and with it, difficulties in filling in growing economic needs, have made it necessary for many countries to import, to ‘outsource,’ and to contract out. As a result, commodity chains have infiltrated our economic system. Commodity chains are â€Å"[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. It consists of a series of events in the production line that ends up with the end-consumer getting the finished product† (Rodrigue, 2008). With growing demands from a growing population, many countries find it difficult to fulfil the needs of their consumer public. Their domestic resources are overly strained and greater production costs are needed to fill the demands of the consumers. Consequently, the necessity of outsourcing and importing goods and services became an option that many nations and multinational corporations explored in order to keep up with the laws of supply and demand. According to Rodrigue (2008), major commodity chains involve three major components—raw materials, semi-processed materials, and manufactured goods. He goes on to elaborate that, raw materials are grown in many developing countries because of more favourable environmental conditions. Some raw materials can only be grown in certain parts of the world. Incidentally, these raw materials are found and can be grown in many developing countries. However, these developing nations do not have the necessary capital to process their raw materials for distribution to a wider and larger market of consumers. Semi-processed products have been processed to a certain degree, and some value is added to them. â€Å"They involve metals, textiles, construction materials and parts used to make other goods† (Rodrigue, 2008). They are not quite ready to be distributed as end-products, but they are now ready for the next stage of the production process. Finally, manufactured goods have underg one processing and are ready for consumption. They are usually distributed in developed countries and some developing countries by multinational corporations. Autonomy has now been replaced by interdependencies among nations and economies. This integration has necessitated the need to produce an efficient transport system. This transport system is sustained by functional and geographical integration. Functional integration is the maintenance of the link between the consumer and the supplier. The consumer maintains the demand and the supplier keeps up with the demand. This process and system helps sustain the existence of commodity chains. Any and all means are explored to meet the demands of the consumer through the utilization of various transport processes like door-to door deliveries and other transport systems. Functional integration is carried out alongside geographical integration, where various networks in the international, regional, and local levels are utilized by global commodity chains in order to get the raw and finished products to the consumers, retailers, importers, and exporters. (Rodrigue, 2008) With the above process needed for global commodity chains to effectively function, the freight system has now become an integral cog in the processing chain. These freight transport systems exemplify qualities that are essential in the maintenance of the global economy. Different shippers and freight systems are needed for different products. There are now various choices available to many importers and exporters to choose from. These shippers and transport systems are required to deliver under time constraints. They are also expected to transport raw and finished products while considering the size, mode of transport, the type, and the preservation of the shipment. These freight and transport system standards are necessary to support and maintain global commodity chains. (Rodrigue, 2008) There are various global commodity chains that now exist in the global economy. Agricultural, chemical, metal, energy, wood and paper, are just some of the more popular commodity chains in our economy. Various aspects of their production and processing are taken and undertaken in different parts of the world at different points in time. One such popular commodity chain under the agricultural commodity chain is the coffee industry. â€Å"Coffee is an extremely powerful commodity, reigning as the worlds most heavily traded product, behind petroleum, and the largest food import of the United States†(Coffee Services, 2005). The finished coffee product goes through producers, middlemen, importers, exporters, roaster, and retailers before finally reaching the end consumer. According to Coffee Services (2005), about 20 million families in 50 countries work in the cultivation of coffee. They work in over 11 million hectares of land in their countries in order to fulfill the demands of the millions of coffee drinkers around the world. Arabica and Robusta are two of the popular blends of coffee in the market. Arabica is produced in Latin America, and Robusta is produced in Africa and Asia. Many importers buy the harvests of small farmers. These small farmers, who are eager to dispose of their harvests in favor of much needed income, usually do so under lower trading prices. These importers have the capital to purchase large inventories of coffee and have the necessary storage facilities to store and process the coffee for distribution to various roasters. These importers sell the semi-processed coffee to coffee roasters in different countries. In the United States alone, there are about 1200 roasters. These roasters then sell their blends to the large reta ilers like Maxwell House, Sanka, and Kraft. (Coffee Services, 2005) Importers profit greatly from this enterprise because they are able to avail of raw products at lesser trading prices. In areas where they have established coffee plantations, cheap labour is practiced by many importers and multinational corporations. They later sell their coffee products on standard market prices. Consequently, their profit is increased by their decreased production cost. Various anti-globalization groups have argued that many developing countries are being taken advantage of by multinational corporations via cheap labour and lower trading prices. They argue that globalization has greatly benefited developed nations and multinational corporations but have driven developing nations deeper and deeper into poverty. However, it is interesting to note that many poor countries favour globalization because, â€Å"[t]he total number of extreme poor (living on less than $1 per day measured at purchasing power parity) increased throughout history up to about 1980. Since 1980 that number declined by 200 million, while world population increased by 1.8 billion† (Dollar, 2003). Global commodity chains are widely popular in the global economy. It has managed to provide us with what we essentially need without it being sold at astronomical prices. It has also managed to provide many developing nations opportunities that 20 or so years ago were not available to them. Globalization has opened our borders to other nations who are eager to share with us their wealthy resources. Globalization has deeply penetrated many aspects of our economic, political, and social life. Commodity chains are just one among the many features of our global economy that are making our world, which seemed to be so big, now seem so small and accessible. Through globalization, we experience the fruits of labour and the products of the lands of people and nations halfway across the globe. Works Cited. Coffee Industry Commodity Chain (2005). Coffee Services. Retrieved 15 August 2008 from http://www.coffeeserviceplus.com/commod-chain.html Dollar, D. (2003) The Poor Like Globalization. Yale Global. Retrieved 16 August 2008 from http://yaleglobal.yale.edu/display.article?id=1934 Friedland, W. (2004) Agrifood Globalization and Commodity Systems. Ohio Online. Retrieved 16 August 2008 from http://www.ohioline.osu.edu/~hcrd/people/staff/friedland.2004.pdf Global Commodity Chains (n.d) Wiego.Org. Retrieved 15 August 2008 from http://www.wiego.org/program_areas/global_markets/WORKSHOP INTRODUCTION.doc Globalization, Identity Social Conflict (2005). Manchester Metropolitan University. Retrieved 16 August 2008 from http://www.sociology.mmu.ac.uk/globalization/globalchains.php Global Value Chains Concepts and Tools (2006) Global Value Chains.Org. Retrieved 15 August 2008 from http://www.globalvaluechains.org/concepts.html Rodrigue, J. (2008) Commodity Chains and Freight Transportation. Hofstra University. Retrieved 15 August 2008 from http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/ch5c3en.html