02/04/2019

Chapter Three
Commodity Chains
Where does your breakfast come from?

Instructor: Dr. Nguyen Thi Phuong Chau

Email: weg_worldeconomicgeography@yahoo.com

The geography of the The economic geography

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

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Commodity Chains
Aims of Study:

 To demonstrate how capitalism serves to conceal the

conditions of commodity production
 To introduce commodity chains and their basic
components
 To appreciate the differentiation of commodity chains in
terms of their structure and geography
 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?

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Commodity Chains
Study Streams:
- Where did the products come from?

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Commodity Chains
Study Streams:
- Where did the products come from?

Commodity Chains
Study Streams:
 The commodity chain allows us to chart the complex
geographical journeys taken by commodities,
 They are transformed from initial raw materials and ideas into
finished products and services,
 They serve from product to product, add value activities in every
commodity chain (design, marketing, etc.)
 The connections between distant producers and consumers,
 Different combinations of modes of governance,
 Social relations that enable capitalism to extend its global reach,
 Strategic alliance relationships, inter-place competition
 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.

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 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.

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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

 Capitalism can be thought of as a commodity exchange
system.
 A commodity is simply something useful that enters the
market and is available for purchase.
 In the contemporary world, more and more areas of
our everyday life have become caught up in processes of
commodification.
 The exchange value of a commodity – i.e. the price – is
often indicative of how the commodity was created:
◦ the cost of the human labor that went into its production,
◦ the costs of machinery, buildings, electricity, trucks and so
on that were required, and
◦ the profits extracted at various points in the process.

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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. How China firms cooperate to outsource the products?
3. What are China’s benefits? Who are China’s
beneficiaries?
4. What is your most interesting in this story?

Capitalism, commodities and consumers

 The consumers can benefit from the use value of
whatever they have purchased.
 The commodities in our everyday life may actively serve
to further conceal the origins of commodities.
 Advertising – a significant economic sector in its own
right – is extremely important.
 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.

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Capitalism, commodities and consumers

An Example of Global Commodity – Global product

United’s Business First Amenity Kit

China, USA, Thailand

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Linking producers and consumers: The commodity

chain approach – Market value/value chain

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

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Linking producers and consumers: The commodity

chain approach – Market value/value chain

Question:
In commodity chain, which part(s) have
high/low value(s)?

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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.

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Geographical complexity: various tasks shown are distributed

across a wide range of countries

Inter-place competition: market share at different

points along the chain

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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.

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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.

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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)

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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.

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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)

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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

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International certification of agricultural products?

Société Générale
de Surveillance,
Switzerland Certification body
for sustainable
development in the USA

UTZ project to address climate change

in the Vietnamese coffee sector

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

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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

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Agriculture product + standards  Value added

Naturland
certifiate –
shrimp in
Ca Mau

ASC
certifiate –
shrimp in
Ca Mau

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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.

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