The Commodity Question

Classically, the ‘commodity question’ was conceptualised as having two elements. The first was commodity price volatility. Volatility’s macro-economic implications were noted as a matter of concern – albeit only for industrialised countries - by Keynes as early as 1942.2 The second was decline in relative prices, an issue first raised by Prebisch and Singer in 1950. Prebsich (1950) and Singer (1950) went onto argue that volatility and relative price decline were linked, via reference to the notion of inelascity in demand for commodities. According to these authors, this contrasted with the elasticity of demand enjoyed by manufactures, thus implying declining relative prices. On the other hand, price instability around a declining trend was induced via the interaction of inelastic demand with a supply position that was potentially highly variable. Production of commodities occurred to some extent independent of demand for them, as a result of accidents of nature as well as of the tendency for price increases to generate over-investment in producing countries. The Prebisch-Singer analysis still forms the basis for most common understandings of the ‘commodity question’ today. However, the last decade has seen a widespread acceptance of the proposition that the question also includes a third element, namely oligopolistic market structures on the demand side. Concentration amongst Northern-based international traders, processors and retailers is today mentioned as a critical dimension of the commodity question not merely by producing country governments and concerned NGOs, but also by the World Bank (cf. Lewin, Giovannucci and Varangis 2004) and the European Commission (2004).