1.1 Agriculture and the Beginning of Human Sedentarization
Commodities have been produced and exchanged throughout history and trade is an integral part of human civilization. In fact, one can argue that the rise of the latter has its origin in organized commodity production and distribution. As nomadic men settled on land to cultivate crops and graze their cattle, an agriculture-based economy came to existence, while some became carpenters, ironsmiths, goldsmiths, and shipbuilders. Goods were provided by the producers of diverse crops and livestock products in exchange for services. Farmers would bring their excess crops to a central location where they were carefully weighed – interestingly, the existence of weights can be traced back to several millennia before our era. The crops were then stored in a public building, which was the first form of a warehouse.
It was the emergence of barter and soon-emerged bazaars and markets that today still defines the centers of towns and villages. Trading merchants and artisans were organized into ‘guilds’ as early as the fourth century CE. From the first century CE, gold coins, wine, wheat, and linen were traveling east from the Roman Empire; ivory, silk, and precious stones were sent from India. As civilizations spread over the world, vessels started carrying goods, spices, and silks across the oceans. Indian literature from the beginning of our era mentions the existence in Southern India of separate markets for different commodities, such as grains, spices, cloth, and jewelry, located in particular in towns along the coast. Guilds and merchant groups were formed to represent the population.
The name of these merchant guilds in the northern part of Europe was the ‘Hanseatic League,’ which was part of Bruges in Belgium. Bruges was the main commercial city in the world during the 13th century, at the intersection of many trade roads, with wool coming from Scotland to feed the weaving industry in the city. In 1277, the first merchant fleet came to Bruges from the Italian port of Genoa, linking the city trade to the Mediterranean sea. This opened Bruges to the trade of spices and also to large capital flows brought by foreign merchants. The ‘Bourse’ opened in 1309 and is considered to be the first stock exchange in the world, showing that financial trading followed the trading of raw materials, and not the other way around. Even though Bruges fell behind Antwerp after 1500 as the economic capital of the region, Zeebrugge – the port of Bruges today – is an important location since the underwater natural gas interconnector from Bacton in the UK ends in Europe, and Zeebrugge is, at the time of writing, the main natural gas index in continental Western Europe.
Similarly, global trading and financial centers such as London, New York, Rotterdam, and Hong Kong owe their position in the present world economic map to their age-old trading culture. With the creation of the World Trade Organization (WTO) in the mid-1990s, commodity markets have experienced a new dramatic growth, both in physical goods and through derivatives platforms. Many types of different players came along to offer financial products infinitely more complex than the simple Futures contracts traded on the Chicago Board of Trade since 1848.
Looking back at the last two centuries, the world has witnessed a dramatic increase in wealth and prosperity in both the developed and developing countries. Poverty has reduced significantly not only in the developing countries of Asia and South America, but also in Africa. Shipping has continued to play its crucial role, while modern multi-purpose warehouses and elevators came to existence together with the advent of sophisticated commodity securitization. Looking back at the last 50 years, the boom of the 1970s in commodities was followed by 20 years of stagnant prices – in fact largely decreasing if adjusted for inflation for all commodities and agricultural ones in particular, with subsequent damage for the commodity-producing developing countries. The years 2001 to 2005 for energy and metals, and 2006 and 2007 for agricultural commodities, saw gigantic rises in all commodity prices. The financial crisis sent all prices down (except for gold) during the second half of 2008. Since 2009, commodity prices have rebounded but volatility became even more diverse across commodities.
The spectrum of scarcity is one of the key drivers of this volatility, in a world where the population could exceed 9 billion by 2050.
1.1.1 Some recent numbers
Between the beginning of 2014 and the political changes in Crimea, wheat prices went up by 27%. In an unrelated manner, coffee prices went up by 72% because of a severe drought in Brazil, cocoa by 8%, orange juice by 11%, sugar by 6%, and milk by 42% (because of a rising milk demand from Asian countries) – making breakfast quite expensive for the fortunate citizens of the world who can afford all or part of these items!
In the USA, meat prices have gone up as well, because of tight cattle supplies after years of drought in states such as Texas and California.
1.1.2 The growing role of Africa
Some economic experts compare Africa today to China 10 or 20 years ago. What is certain is the fact that Africa's GDP and exports are notably higher. More importantly, agricultural commodities represent an increasing fraction of these exports, which is great news since crude oil in Nigeria and some other African countries arguably represents the resource curse.
- Nestlé, which already owned 36 production units in Africa, opened three new ones in Angola, Mozambique, and Democratic Republic of Congo.
- Coca-Cola plans to inject $12 billion in its African bottling sites by 2020.
- Between 2007 and 2011 Ghana doubled the quantity of cocoa processed in the country, bringing it to 25% of local production – a number still far from the 94% fraction of cocoa that is processed in Indonesia and exported in the semi-transformed form of cocoa butter, generating extra revenues and jobs for the country.
- In 2011, out of a total amount of $581.8 billion of exports, coffee, tea, and cocoa represented $15 billion; vegetables and fruit $11.5 billion; and fertilizers in a raw or processed form $80.3 billion.
