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Policy Debates
Commodity Trading

Reassessing the Merchants’ Role in a Globalized Economy

A response to ‘Commodities and Switzerland: Development Policy Challenges and Policy Option’ by Werner Thut
Stéphane Graber
p. 153-193

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1Since the 18th century, the perception of the merchants’ role has been constantly misunderstood. However, history teaches us that commercial trade is key to bringing products to the markets, particularly in an increasingly globalized and complex economy. In an evolving environment, the merchants’ role needs to be reassessed. The question of their role in the transparency debate is relevant but requires a better understanding of the merchants’ current function in the value chain.

Definition of Commodity Trading

2The commodity value chain involves a large variety of actors performing different activities (extraction, logistics, shipping, transformative industries, financing, etc.) belonging to the same value chain but following distinct business models. As the main professional association for commodity trading and shipping in Switzerland we will focus on the role and corporate responsibilities of our industry.

3Due to the fact that commodity trading houses do not directly serve consumer markets, the general public has a limited understanding of the role they play in the value chain. The commodity traders play a crucial role in managing the relationship with producers and buyers and bridge the gap between supply and demand along the commodity value chain. They act as an organizer and generate added value from their ability to optimize the logistics chain and to overcome the price risks (volatility of prices during the transport) and operational risks (e.g. climatic hazards, currency volatility, piracy, counterparty risks and legal risks). They also secure access to resources through the establishment of reliable partnerships with producing counterparts.

4The publication of the Background Report on Commodities to the Federal Council1, in early 2013, has been a key driver in gathering data and dispelling misconceptions about the commodity industry and extractive activities:

5Commodity trading operates in a highly competitive business environment and works with a whole range of clients (from private and stock-listed companies to state-owned ones), while extractive companies deal exclusively with governments.

6Commodity trading wins contracts mainly through commercial public tenders and works on a much shorter term basis in comparison to the extractive industry.

7Commodity trading is an indispensable intermediary remunerated for the services provided along the value chain independent of the commodity price level, while the extraction industry operates at only one end and generates its profits from the difference between extraction costs and market prices.

8It is commonly accepted that commodity trading activities are ten to fifteen times less profitable than extractive ones, and much more volatile.

9When discussing the function of the commodity market these specifics need to be recognized but they do not in any way negate their interrelation and the common responsibility of commodity trading towards source of supply, just as with any other industrial activity (i.e. food processing, distribution, etc.).

 ‘Resource curse’ or ‘governance curse’?

10Although it is true that resource-rich countries face challenges in the management of their resources – and more specifically in the allocation of revenue generated by their exploitation – it appears that the ‘resource curse’ is more of a ‘governance curse’ than anything else.

11Since the end of the Cold War, the reorganization of the switch of twenty-five African countries to democratic regimes has been accompanied by an improvement in their economic outlook. This democratic trend - even though not perfect - is synonymous with better governance, increased stability and economic development opportunities for these countries (i.e. the promising economic perspectives of sub-Saharan Africa).

  • 2  Organization of the Petroleum Exporting Countries (OPEC)

12The argument that when it comes to making a deal on oil or cereals private corporations are in a stronger position than states might have been true some decades ago. It is, however, now irrelevant and refers to a pre-OPEC2 vision. The prices of commodities are public, accessible, quoted both in the market and on platforms, and continuously updated. Therefore it is difficult to argue that there is real asymmetry of information between private corporations and states; this is especially the case in countries where national oil companies are strong players. We need to recognize that today 80% of global oil reserves are in the hands of national corporations. These companies are not subject to the same duty of care and governance as independent trading companies based in Switzerland. African states reclaim 60% to 90% of the petroleum yield depending on their tax system and enforce very strict localized rules (e.g. the mandatory recruitment of local workforce and sub-contractors) on foreign operators.

13In order to secure their deals and to be able to channel goods from supplier to customer, commodity traders need reliable partners and a solid infrastructure. In that respect, a failed state presents far more problems than good market opportunities in jeopardizing their sustainable access to resources.

Is transparency in payments the appropriate tool?

14The commodity trading industry faces increasing demands to make the supply chain more transparent, as a common accusation is that trading companies are less transparent than mining companies. However the previously discussed differences in business models between the sectors are of key significance here.

15Commodity trading companies are not contracting states but operate in an open competitive environment. They therefore have to preserve their competitive advantage and protect their intangible assets that justify a price premium, given that the price for a specific commodity is already known publicly and automatically. The mining sector operates on a completely different competitive playing field as there is no public price quotation for resource concessions or royalty payments arising from extractive activities.

16The real question is whether a transparent revenue policy as advocated by Alexandra Gillies would achieve the desired goals. Would payment disclosure make firms and governments more accountable than they already are? Would it really be the antidote to bribery and market abuses? Are commodity trading firms in the position to play this role?

17Firstly, the payment disclosure policy raises several technical questions. There are some limitations to be taken into account due to the much greater amount of transactions in the commodity trading industry compared to the mining industry. The trades are made up of a multitude of daily contracts with various counterparts and are based on short term contracts, where revenues are generated mainly from the volume of transactions, as opposed to extraction contracts made on a long term agreement over several years involving huge financial investment.

18Another concern is to ensure that an independent actor is able to undertake the task of reconciling those huge volumes of payments and that the benefits of fulfilling this task outweighs the cost. Moreover it is necessary to be able to analyze the results of such disclosures and understand what disparate figures mean. Indeed in some countries where the tender processes for oil are undertaken by a board, a certain percentage of the royalties is retained to cover administrative costs. The amount paid by the company will therefore not tally with the money received by the government, even though the process has been legal and fair. This can be easily explained on a specific transaction, but the task becomes unmanageable on a larger scale of transactions. To all of these questions, there are only partial answers and it is not completely clear that this process would be worth the administrative burden put on the economic agents. Moreover, international organizations like the World Bank or IMF are in a much stronger position than private firms to promote better governance.

  • 3  See the address by Dr. Nkosazana Dlamini Zuma, the first woman to head the African Union Commissio (...)

19Furthermore, with the continuing increase in the cost of operating in some African countries and the growing regulatory pressure on international firms to adapt to local state regulation and enforcement, several multinational players are being forced to reconsider their involvement in Africa due to the discrepancy between home requirements and the local environment business regulations. Such moves, if confirmed, would undermine the local economies and contravene the appeal of the Africa Union Commission for more foreign direct investment.3 Here again there is a real dilemma concerning the question of foreign policy coherence, as economic development is the best way to reduce poverty (e.g. consider the example of Asia over the last twenty years). This makes the industry favor a multilateral and international approach aimed at developing a level playing field, involving local governments.

The challenge of reputational risk

20In Werner Thut’s article ‘Commodities and Switzerland: Development Policy Challenges and Policy Options’, as well as Alexandra Gillies in her subsequent comments (‘Crafting a Strategic Response to the Commodity-Development Conundrum’), assert the risk for Switzerland’s reputation raised by activities in the commodity sector. This risk is also mentioned in the Background Report. Commodity trading firms are conscious of this challenge. It is as crucial for the Swiss government as it is for private commodity houses, which heavily depend on various sources of financing. The increased requirements of banks and capital markets with regards to corporate social responsibility at a time when commodities are becoming more expensive and loans more difficult to obtain, confirm that trading companies need to strengthen their creditworthiness and their image.

21The Swiss-based commodity industry is at a cross-roads. Just as in any other business sector, its practices are quickly evolving. These changes are driven by varying demand and by new stakeholder expectations. Through experience, their staff have become aware of their influence at a social and environmentally sustainable level and have proactively and voluntarily decided to enhance the management of their companies. The visible effects of these decisions are compulsory codes of conduct and training that are applicable to all staff members. They have also increased the number of internal compliance authorities in order to ensure the both Swiss and international legal networks are respected as they provide a complex direct and indirect compulsory framework.

22In his call for action, Werner Thut advocates a Swiss foreign policy which would help to ensure that resource profits benefit their population. Clearly this is an agreeable objective. However this approach raises question with regards to the sovereignty of these countries: knowing that producing countries already control the major part of their resources, how could this be achieved without interfering in other state matters? Cohesion is also needed in the way Switzerland deals with its partners. The Swiss authorities usually promote mutual respect rather than a more patronizing approach, and it would be sharply felt if they were to apply a different criteria to their emerging state counterparts than their European counterparts.


23The commodity trading sector operates in a globalized economy and is subject to the same challenges as all other economic agents with a global footprint. Its practices are adapting to meet new expectations and there are no grounds for pinpointing them more than other multinationals. This is especially true when it comes to transparency. Indeed the charge of a lack of transparency is not only leveled at corporations but is also a current debate within the not for profit sector and NGOs.

24The Swiss commodity sector has spontaneously committed itself to participating in the multi-stakeholder dialogue launched by the Swiss authorities to promote the implementation of the UN guiding principles on business and human rights. The industry is also proactively engaging with the administration to follow up on the 17 recommendations made at the conclusion of the Background Report. With its expertise and humanitarian tradition, Switzerland offers a multilateral and unique platform conducive to thoughtful leadership and improvements in the management of the commodity economy worldwide. It would clearly be of no use for Switzerland to implement a policy on its own with little impact on a globalized economy. Those who campaign for Switzerland to play a leading role and to set an example should commend the courage of the Swiss authorities in adopting an innovative approach that aims to make a real difference and is far more exacting than simply passing more regulations.

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1  Hereafter ‘Background Report’ (downloadable on, accessed on September 15, 2013)

2  Organization of the Petroleum Exporting Countries (OPEC)

3  See the address by Dr. Nkosazana Dlamini Zuma, the first woman to head the African Union Commission, who urged African Member States and international partners to invest more in order to promote job creation in the region. (ILO web site:, accessed on August 7, 2013)

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Cite this article

Bibliographical reference

Stéphane Graber, “Reassessing the Merchants’ Role in a Globalized Economy”International Development Policy | Revue internationale de politique de développement, 4.2 | -1, 153-193.

Electronic reference

Stéphane Graber, “Reassessing the Merchants’ Role in a Globalized Economy”International Development Policy | Revue internationale de politique de développement [Online], 4.2 | 2013, Online since 16 September 2013, connection on 26 September 2023. URL:; DOI:

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About the author

Stéphane Graber

General Secretary of Geneva Trading & Shipping Association (GTSA). GTSA is the main commodity trading association in Switzerland. Created in 2006 by companies and banks active in the sector, GTSA represents over 80 big, medium or small size companies.

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