The Great Transformation of Commodities


One of the most fascinating things about the world of agricultural commodities is just how global the markets are. Palm oil produced in Indonesia ends up in chocolate consumed in Europe. Soybeans grown in Brazil are transported to China, where they're used as animal feed for poultry and pork. The interconnectedness of the global economy is a truly magnificent thing to behold.

Some signs suggest that producers, consumers and governments may be rethinking elements of this globalization. There's the headline-grabbing nervousness about various governments (you know who you are!) threatening a retreat from the relatively free trade to which we've become accustomed. But there's also another movement to reshape the commodity supply chains of recent years. While decentralization and anonymity were often seen as features, not bugs, leading to greater efficiency, it's increasingly recognized that these come at the expense of traceability. Traceability, in turn, is viewed as important because it ensures that all across lengthy supply chains, commodities are produced in a sustainable fashion.

I'm often reminded of what economic historian Karl Polanyi called the "double movement" in his classic work, The Great Transformation. Polanyi wrote, "For a century the dynamics of modern society was governed by a double movement: the market expanded continuously but this movement was met by a countermovement checking the expansion in definite directions." Moves toward ever greater economic liberalism and free trade were met with constraints "aiming at the conservation of man and nature" to protect "those most immediately affected by the deleterious action of the market." Sociologist Fred Block uses the analogy of a giant elastic band to clarify the double movement. Efforts to increase the market's autonomy create more tension on the elastic band. Either this tension is relieved by counter-measures to assuage those affected, or the band snaps - resulting in social and economic upheaval.

Players along soft commodity supply chains are realizing now that they're missing valuable information. Like Block's elastic band, these supply chains may have been stretched beyond their point of usefulness. Shifting norms have created consumers who are concerned about the production methods used. This isn't so unique in the history of commodities. For instance, enlightened consumers railed against slavery's inextricable links with the sugar and cotton trades. What is new is the global nature of the counter-movement. Those very same consumers are guided not by pure altruism, but because they recognize they too will suffer the "deleterious action" of unsustainable commodity production, in the form of climate change. Furthermore, the tools to manage and identify these issues are now increasingly global. Impressive leaps in technology now allow analysts across the world to identify hotspots of deforestation.

There's one global counter-movement that could really turn the tide in favour of climate-smart commodity production: finance. Polanyi would probably disagree vigorously, but I think of it as fighting fire with fire - an apt meptahor, given that this is about deforestation. Jonah Busch and Frances Seymour have written an excellent new book, Why Forests? Why Now?, which is a clarion call for more finance for forests. So far that's been a tough nut to crack, if you'll forgive another agricultural pun. But it's clear that, with the right incentives, capital will realize that forests provide many goods and services beyond agricultural commodities. Figuring out how to monetize these - and thus how to attract capital - will be an exciting challenge for the climate finance world in the years to come.