Commodity Analysis

COMMODITY ANALYSIS

The private sector’s journey needs to accelerate

Despite a rush of commitments ten years ago, reporting on these commitments is lagging behind, and much more has to be done in the way of tangible achievements.

GLOBAL VALUE CHAIN

GLOBAL VALUE CHAIN

GLOBAL VALUE CHAIN

GLOBAL VALUE CHAIN

Despite their singularities, there are some common issues among commodities

1. Upstream fragmentation and unclear incentives hinder traceability

All commodity supply chains are fragmented in the upstream segments, i.e., in their production-related activities. These upstream players typically have limited individual power and many are primarily driven by subsistence needs. Investment in or support of traceability systems by producers is hampered by the lack of assurance of financial returns, given either the upfront costs required to adopt sustainable practices, or the inability to sell their products if they don’t meet the buyer’s standards.


The traceability gaps between indirect and direct suppliers in the Brazilian beef supply chain, as well as between mills and refineries for Indonesian palm oil, illustrate this dynamic. In both cases, there are thousands, or even tens of thousands, of upstream players. Business commitments today do not target these individual producers and mills directly, but instead focus on larger companies in the supply chain.

2. Aggregators aren’t using their leverage

Some value-chain segments are much more concentrated than others, with large players aggregating a major part of volumes in those segments. It gives them an influence and financial power that makes them more accountable to drive change than actors in other segments. These larger companies are primarily traders and processors – forming by far the most concentrated piece of the supply chain – rather than manufacturers or retailers.


The top five palm-oil traders represent 87% of global volumes, for example, while the top five producers and retailers represent just 27% and 25%, respectively. The six largest soy traders – Bunge, Cargill, ADM, COFCO, Louis Dreyfus and Amaggi – accounted for 57% of all soy exports from Brazil. For cocoa, the four largest grinders – Barry Callebaut, Cargill, Blommer and Olam Cocoa – account for 65% of the grinding capacity.


These few large actors have an outsize role to play and must step up to enforce stricter mechanisms if we are to ensure traceability. Yet processors and traders – the only part of the supply chain that seems to have sufficient power to make greater impacts – have made the fewest commitments to date.

3. Financial institutions need to step up

Finance actors – whether investors or lenders – must also be more proactive in all commodity supply chains. First, through their lender role, they have a direct say in financing companies and activities that can be directly or indirectly linked to deforestation and conversion. They also have the ability to develop and support viable economic models for smallholders at scale. Yet, like processors and traders, their commitment levels are still very low, not to mention the impact of their commitments. Although financial institutions are relatively concentrated and can have a strong influence on businesses, only half of those in the Forest 500 have made commitments to halting deforestation and conversion to date. And just 7% of those that have committed have done so through zero-deforestation and -conversion commitments.

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Photos and graphics © WWF or used with permission. Text is available under Creative Commons license.

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