This piece originally appeared on Brink.
By Jason Clay, Executive Director, The Markets Institute, World Wildlife Fund
After nearly 200 years, the commodity trading system needs an upgrade. It needs to keep up with changing markets and provide information that is increasingly deemed essential. Although we can’t afford to tinker too much with the commodity trading system—we still need everything it has done so efficiently—we need to infuse it with more traceability and transparency about how products are produced.
Modern commodity trading was invented in the early 19th century right after interchangeable parts were invented. At that time, trade was standardized so that a ton of a globally traded goods such as wheat, sugar, corn, or cotton was just like any other ton from another location. They were interchangeable.
This made global trade easier and more efficient for both buyer and seller. Sellers were able to aggregate similar producers and develop a scale in operations that had never been seen before. Purchasers could buy products sight unseen. A ton of sugar equaled any other ton of sugar so long as they both met a set of consistent physical properties: foreign matter, weights, volumes, color, and moisture content.
The system allowed, and even encouraged, scale in the supply chain. Today, it remains one of most efficient economic systems on the planet, but to make commodity trading so efficient, traders had to discard a lot of information: things such as who produced it, where, how and with what impacts. Now production could be mixed from vast areas, even from around the world. Today, it is that kind of information that retailers, brands and consumers often want.
Consumers also want to know whether the product is organic or not, GMO or not and whether it is free of slave or child labor; they can’t tell any of these things using today’s system. While these things are external to current commodity trading information, they are increasingly relevant in a global economy where social media and risk go hand in hand.