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What Is a Strategic Commodity?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 26 August 2016
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A strategic commodity is a commodity that is considered to be of utmost importance to the economy of a nation, usually to the extent that if the open trading of the commodity is disrupted in some manner the economy will suffer severely. Commodities in general are understood to be raw materials or agricultural products that can be bought and sold as investments as well as for ongoing consumption. Commodities of this type are often widely used and the active trading of these products may underpin the economy of a nation. Should a commodity that does in fact contribute a great deal to the economic stability of a nation suddenly be unavailable, the results can be far reaching.

Determining what constitutes a strategic commodity is not always easy. While there is some general agreement on some commodities having the status of strategic, such as oil, corn, and gold, there may be debate about other products such as fertilizers used to grow the corn, or other alloys that are sometimes used in conjunction with gold. It is also important to note that while some products may be very important to the economy of one nation, they may have minimal impact on the economy in a different nation.

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The identification of any strategic commodity within a certain setting rests on just how crucial the open trading of that commodity is to the well being of the economy. If the supply of that commodity was suddenly curtailed severely, this could benefit a few, but overall could have disastrous results for the majority of consumers who depend on products made using that commodity. At the same time, a sudden glut of that same commodity into the marketplace may result in lower prices for related goods, something that consumers would enjoy but would not necessarily be welcomed by investors who would see their profit per unit reduced significantly.

Many nations monitor a list of strategic commodity products that are traded within their borders. The monitoring involves not only being aware of what is happening with those commodities now but also what is likely to happen in terms of availability in the future. For example, if the strategic commodity of corn is currently being traded at equitable levels but there is a good chance that the supply in an upcoming period will be decreased due to adverse weather or the occurrence of a natural disaster, governments can begin taking steps now to help minimize the impact of that decrease. Doing so would help to minimize the impact of the decrease on the economy, hopefully long enough for a substantial supply of the strategic commodity to be replenished at a later date.

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ddljohn
Post 3

Strategic commodities are generally recognized by all countries. In fact, many countries have a list and a set law about strategic commodities and their trade. It's usually about the trade of strategic commodities such as weapons or technology. It's not in the interest of countries for these commodities to be traded easily because people want to keep these to themselves. Especially when it comes to technology, founders of new technologies don't want them to be accessible to everyone or duplicated. So they limit what can be traded.

donasmrs
Post 2

@serenesurface-- You're right but I don't think that governments want to do this. Sometimes, they've little choice. It's definitely not an ideal situation.

Many of the developing nations in Africa are in this situation. Most of the national budget relies on the export of a strategic commodity which is usually a produce or a natural resource. For example, several African countries mostly rely on the export of coffee beans. In fact, they've invested in coffee bean production so much that some of these countries produce little else and are forced to buy essential produce from other countries.

But it's not entirely their fault. There is great pressure from the international market for these countries to produce coffee beans

. They do so because they can produce it at the lowest cost. The sad part is that farmers in these countries often get mere pennies for their strategic commodity which then gets sold for at least twenty times the cost in developed nations.
serenesurface
Post 1

Why in the world would a country want to base the whole of its economy on a single commodity? I think that's very risky. They always say not put all of one's eggs in the same basket. If a majority of a nation's GDP relies on one or two strategic commodities, the whole of the economy can plummet if some issue with these commodities arise like the article said.

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