Chapter 4

Commodity Chains
Where does your breakfast come from?

Instructor: Dr. Nguyen Thi Phuong Chau

Email: weghcmiu@gmail.com
 The geography of the
world economy
Conceptual
foundations
Dynamics of 02/ The changing world
economic space economy (page 3-20)
04/ Patterns of Development
and Change(page 22-67)
05/ Services going global(page
317-356)
Actors in
economic space
10/ International and
supranational institutionalized
integration (page 357-408)
The economic geography
01/ Conceptual foundations
(page 1-25)
03/ Commodity chains (page
87-115)
04’/ Technology and
agglomeration
06/ The state (page 187-219)
07/ The transnational
corporation (page 223-251)
08/ Labor power (page 254-
281)
09/ Consumption
Commodity Chains
Aims of Study:

1. To demonstrate how capitalism serves to conceal the

conditions of commodity production
2. To introduce commodity chains and their basic
components
3. To appreciate the differentiation of commodity chains
in terms of their structure and geography
4. To recognize the possibilities for, and limitations of,
more ethical ways of organizing commodity chains
Commodity Chains
Study Streams:
- Where did the products come from?
Commodity Chains
Study Streams:
- Where did the products come from?
Commodity Chains
Study Streams:
- Where did the products come from?
Commodity Chains
Study Streams:
- Where did the products come from?
 Commodity Chains
Study Streams:
1. The commodity chain allows us to chart the complex geographical journeys
taken by commodities,
2. They are transformed from initial raw materials and ideas into finished
products and services,
3. They serve from product to product, add value activities in every commodity
chain (design, marketing, etc.)
4. The connections between distant producers and consumers,
5. Different combinations of nodes of governance,
6. Social relations that enable capitalism to extend its global reach,
7. Strategic alliance relationships, inter-place competition
8. The commodity chain is an extremely important integrative idea that allows
us to reveal the interconnections between the many actors – states, firms,
workers and consumers.
 complex geographical journeys
 producers and consumers
 Commodity Chains
 Commodity chain is not simple about manufacturing processes; many of the
inputs to the chain, and many of the final commodities produced, will take
the form of intangible services.
Capitalism, commodities and consumers
1. Capitalism can be thought of as a commodity
exchange system.
2. A commodity is simply something useful that enters
the market and is available for purchase.
3. In the contemporary world, more and more areas of
our everyday life have become caught up in processes
of commodification.
4. The exchange value of a commodity – i.e. the price –
is often indicative of how the commodity was created:
a. the cost of the human labor that went into its
production,
b. the costs of machinery, buildings, electricity, trucks and
so on that were required, and
c. the profits extracted at various points in the process.
Capitalism, commodities and consumers
5. The consumers can benefit from the use value of
whatever they have purchased.
6. The commodities in our everyday life may actively
serve to further conceal the origins of commodities.
7. Advertising – a significant economic sector in its own
right – is extremely important.
8. Through the creation of various images, advertisers
seek to establish time – and place specific meanings
for particular goods and services that may be a far cry
from the realities of their production.
Capitalism, commodities and consumers
Linking producers and consumers: The commodity
chain approach
 Basic commodity
chain: input-output
structure
 The transformation
includes primary
activities (e.g.
production,
marketing, delivery,
and services) and
support activities (e.g.
merchandising,
technology, finance,
human resources and
overall
infrastructure).
Capitalism, commodities and consumers

 Read on pages 87 – 88: Wal-Mart commodity chains and supply

chains
Questions:
1. How many partners of Wal-Mart in China?
2. What are Wal-Mart benefits?
3. How China firms cooperate to outsource the products?
4. What are China’s benefits? Who are China’s beneficiaries?
5. What is your most interesting in this story?
 Linking producers and consumers: The commodity
chain approach – Market value/value chain
Price Cost Profit

1 Farmer 0.14 0.12 0.02

2 Producer 1 0.26 0.19 0.07

3 Exporter 1 0.45 0.07 0.38

4 Producer 2 0.52 0.11 0.41

5 Exporter 2 1.64 - 1.64

6 Importer 26.40 - 26.40

Linking producers and consumers: The commodity
chain approach – Market value/value chain
Linking producers and consumers: The commodity
chain approach – Market value/value chain
 Linking producers and consumers: The commodity
chain approach

 There are three further important dimensions to all commodity chains that
will now consider in turn (Gereffi, 1994):
◦ Their geography or territoriality (geographical complexity, more dynamic, external sub-
contracting, inter-place competition, service sectors, clustering).
◦ The way in which they are coordinated and controlled i.e. their
governance;
◦ The way in which local, national and international conditions and policies
shape that various elements in the chain, i.e. their institutional
frameworks.
Geographical complexity: various tasks shown are distributed
across a wide range of countries
Inter-place competition: market share at different
points along the chain
 Typical Cluster Flow Chart – The Seattle Music
Industry

From Beyers, Fowler & Andreoli Seattle Music Industry Study, 2008
 Linking producers and consumers: The
commodity chain approach
Upgrading strategies in global commodity chains
 Process upgrading: improving the efficiency of the production system →
reorganizing the production process
 Product upgrading: moving into making more sophisticated products or
services.
 Functional upgrading: acquiring new roles in the chain (and/or abandoning
existing functions) to increase the overall skill content and level of ‘value-
added’ of the activities undertaken.
 Inter-sectoral upgrading: using the knowledge derived from a particular chain
to move into different sectors.
 Linking producers and consumers: The
commodity chain approach
Management processes
 Who controls the organizational structure and nature of its global
commodity chain?
 Who decides where inputs are purchased from, and
 Where final goods and services are sold?
 Who shapes the restless geographies of commodity chains?
→ The important issue of governance
 Think of Wal-Mart
 Linking producers and consumers: The commodity
chain approach - Management processes
 How commodity chains are constituted by a mix of intra-firm and inter-firm
linkages, and a combination of near and distant connections.
 Two factors: Producer-driven and Buyer-driven
◦ Producer-driven chains are commonly found in industries where large industrial
transnational corporations (TNCs) play the central role in controlling the
production system.
◦ Buyer-driven: chains tend to be found in industries where large retailers (Wal-
Mart, Carrefour, Ikea, etc.) and brand-name merchandisers (Adidas, Nike, The
Gap, etc.) play the central role in establishing and controlling production
systems.
 Linking producers and consumers: The commodity
chain approach - Management processes
Form of economic governance
Producer-driven Buyer-driven
Controlling type of capital Industrial Commercial
Capital/technology intensity High Low
Labour characteristics Skilled/high wage Unskilled/low wage
Controlling firm Manufacturer Retailer
Production integration Vertical/bureaucratic Horizontal/networked
Control Internalized/hierarchical Externalized/market
Contracting/outsourcing Moderate and increasing High
Suppliers provide Components Finished goods
Examples Automobiles, computers, Clothing, footwear, toys,
aircraft, electrical machinery consumer electronics

Table 4.1: Characteristics of producer-driven and buyer-driven chains (p.102)

Source: Adapted from Kessler and Applebaum (1998)
Producer-driven – Buyer-driven?
 Linking producers and consumers: The commodity
chain approach - Institutional processes
 Global commodity chains are complex and divided into intersections.
 Rules and regulations that determine how economic activity is undertaken in
particular places (e.g. trade policy, tax policy, incentive schemes, health and
safety/environmental regulations, etc.)
• Institutional context is different at spatial scales.
 At national scale, a huge range of policy measures to try and promote, and steer,
economic growth within their boundaries.
 At macro-regional scale, a variety of regional blocs have considerable influence on trade
and investment flows within their jurisdiction.
 At global scale, institutions as WTO and IMF shape the rules-of-the-game for global
financial and trade relationships.
 Linking producers and consumers: The commodity
chain approach - Institutional processes
 However, joining into the global trade/commodity, the percentage of income from
developed markets has gone up much higher than from the growers (e.g. farmers)
(see p.106-107).
 The changing institutional frameworks can significantly affects all three of basic
dimensions of a commodity chain: the input-output structure, territoriality, and
governance)
 Re-regulating commodity chains: the world of
standards
Table 4.2: The world of standards (page 109)
Attribute of standard Variability
Field of application • Quality assurance • Labor
• Environmental • Social/economic
• Health and safety • Ethical
Form • Codes of conduct • Standard
• Label
Coverage • Firm/commodity chain • Sector specific
specific • Generic
Key drivers • International business • International trade unions
• International NGOs • International organizations
Certification process • First, second or third party • NGOs
• Private sector auditors • Government
Regulatory implications • Legally mandatory • Market competition
• Voluntary requirement
Geographical scale • Regional (e.g. a US-state) • Macro-regional (e.g. the EU)
• National • Global
Source: Adapted from Nadvi and Waltring (2004).
International certification of industrial products?

TQCS International (TQCSI)

International certification of management systems
International certification of agricultural products?

Société Générale de
Surveillance,
Switzerland Certification body
for sustainable development in
the USA
 Aquaculture product + standards → Value added
NHA TRANG SEAPRODUCT COMPANY
Enterprise name
NHA TRANG SEAPRODUCT COMPANY
Tradi
Address
58B, 2/4 Street, Vinh Hai Ward, Nha Trang City, Khanh Hoa Province
Province (City)
KHANH HOA
Area
Processing and Exporting, Trading, Service, Aquaculture...
Telephone
+84 58 3831033/2240026
Fax
+84 58 3831034
Email
nhatrangseafoods@nhatrangseafoods.vn
Website
www.nhatrangseafoods.com.vn
EU Code
DL 17, DL 90, DL 394, DL 89, DL 440, DL 209, DL 461
Quality control system
HACCP, BRC, IFS, SSOP, ISO 9001: 2000
Product
Frozen Shrimp, Marine Fish, Tuna, Cephalopods, Bivalves, Freshwater Fish, Other
Source: http://www.seafood.vasep.com.vn/VASEP-Membership/588_2049/NHA-TRANG-SEAPRODUCT-
COMPANY.htm
CÔNG TY TNHH KHAI THÁC HẢI SẢN CHẾ BIẾN NƯỚC MẮM THANH HÀ
Tên doanh nghiệp
CÔNG TY TNHH KHAI THÁC HẢI SẢN CHẾ BIẾN NƯỚC MẮM THANH HÀ
Tên thương mại
THANH HA FISH SAUCE CO.,LTD
Địa chỉ: Tổ 1, đường Nguyễn Thái Bình, Khu phố 5, TT. Đông Dương, Huyện Phú Quốc, Kiên
Giang
Tỉnh (TP)
KIÊN GIANG
Lĩnh vực hoạt động
Chế biến và xuất khẩu
Điện thoại công ty
(+84) 77 3846139
Fax
(+84) 77 3846485
Email
thanhhaco@hcm.vnn.vn/ thanhhasales@thanhha.vn
Website
www.thanhhaco.vn
EU Code: NM 139
HT QLCL: HACCP, GMP
Sản phẩm:
Nước mắm, mắm các loại, sản phẩm khác
 Organic shrimp cultivation in Tam Giang, Cà Mau
- Certified Naturland Standard -

State-owned enterprise
The LNT184 State-owned forestry enterprise play a role as
administrative office as well
European organizations
Naturland German-based certification body
IMO- Switzerland Swiss-based inspection body
IMO- Vietnam Local staff who conduct actual inspection on farms
COOP Swiss The main importer of organic shrimp
The processing company
CAMIMEX A state-private joint stock seafood processing
company. The sole company that process certified
organic shrimp
Agriculture product + standards → Value added
Naturland
certifiate –
shrimp in
Ca Mau

ASC
certifiate –
shrimp in
Ca Mau
The Global Commodity Chain

 In summation, the commodity chains are organizational

platforms that link producers and consumers together,
within certain institutional contexts, across the global
economy.