Commodities in the global economy

Agricultural commodities (food, feed, raw materials and biofuel) are the engine of economic growth in rural areas of emerging markets (where 70% of the world’s poor live). Agricultural commodities account for 10% of developing countries’ gross domestic products.

In the coming decades, the increasing world population, economic growth and changing diets are expected to cause a sharp increase in the demand for agricultural commodities. Food production will need to double by 2050, yet agriculture production is threatened by numerous factors such as climate change, water scarcity, soil degradation and competition for arable land.

Agriculture is also a major contributor of global carbon emissions (15 percent), and agricultural commodity production expansion constitutes one of the greatest threats to biodiversity—it is estimated that agriculture expansion causes an annual loss of 13 million hectares of forest cover.

The lack of environmental, social care and food safety protections pose significant environmental, development and business risks. Business risks include fewer and less predictable raw materials supplies, diminished quality, interruptions in processing, reduced speed to market, and loss of confidence by a large and growing group of concerned consumers.

It is broadly recognized that innovative strategies are needed in order to implement improved agricultural practices, increase supply chain efficiencies, combat poverty, maintain ecosystem services and biodiversity, strengthen rural economic development and ensure the long-term supply of commodities to global markets.

Market-driven change

In order to define and implement better management practices and voluntary environmental and social standards in commodity sectors, major market players—brands, traders, retailers—have become increasingly engaged in supply chain initiatives, niche food and safety certification programmes (e.g., Fair Trade, Rainforest Alliance, Utz Certified, GLOBAL G.A.P.), and various round table initiatives.

This increasing market demand for responsible agricultural products has already brought significant change on the ground and benefits for agricultural communities. At the same time, it has brought significant market opportunities for global brands and retailers.

The limitations of market demand and the need for national institutionalization

Working with standards is instrumental for getting trade and industry involved in creating market dynamics. Market pull and premium drive have shown only limited results; moreover, civil society can only support a small number of fragmented and competing development or capacity-building projects.

Market-driven demand and development work are not structural alternatives for good local governance, well-functioning legal systems, effective local extension service systems, accessible formal credit structures, national tax and incentive schemes or other public services.

UNDP's extensive experience in rural development and natural resource management indicates that efforts must go beyond certification in order to systemize and scale up green commodity programmes and initiatives to mainstream levels, and to help shift markets towards the production and sale of sustainably produced commodities. It is necessary to institutionalize the conditions for sustainable production on a national level.

This requires national-level programmes that build capacities, increase market access and provide support for financial mechanisms and policies. Together with national governments, UNDP can link brands and retailers with national programmes to benefit businesses, rural farmers and supply chain actors.

The role of producer country governments

Efforts to date by companies and NGOs to change agricultural production have tended to operate independently of national governments. However, agriculture ministries are the main source of national funds to support farmers and promote productivity, and are the main force behind national farm standards setting. For example, the Ministry of Agriculture in Thailand has an annual budget of $2.1 billion, in Indonesia, $950 million and in Mexico, $5.7 billion. Additionally, national export boards invest heavily in commodity trade and export promotion. These resources are not always effectively used for promoting environmentally sustainable production. However, with increased collaboration and planning, these could be leveraged to promote sustainable commodity production and trade.

The development and implementation of this vision and approach requires new thinking, new structures and new leadership. UNDP, with its unique global structure, mandate and track record can fulfill this role.