By Erin Nealer
The price of commodities has seen a sharp decline over the last five years, and continued depreciation could leave developing countries vulnerable to economic and political shocks. Many developing countries rely on exporting raw materials like oil, grains, and metals, rather than focusing on service industries. This reliance on commodities, coupled with falling prices, could undermine development initiatives and set least developed countries (LDCs) back to square one.
The United Nations Conference on Trade and Development (UNCTAD) determined that commodity dependence among developing countries is increasing. In 2009-2010, there were 88 developing countries reliant on commodities, compared to 94 in 2012-2013. LDCs saw a similar increase, from 80 percent of countries dependent on commodity trade in 2009 to 85 percent in 2012.
Trade in commodities is attractive to LDCs for several reasons. While other industries are at the mercy of fluctuating demand, political stability, or technology, extractive industries – “hard commodities” – are consistently in high demand worldwide and can be stored for long periods of time without depreciating in value. “Soft commodities” such as grains, tobacco, and sugar, have a shorter shelf life and can fluctuate in price as weather conditions change, but are in increasingly high demand as the world’s population continues to climb. Stockpiling rubber, oil, or gold can become a commodity exporter’s insurance plan against future economic shocks that result from relying on the continued demand for raw materials.