Global value chains: a strategic approach to reducing commodity price volatility through increasing developing countries global participation

Commodity price volatility is a major global challenge. However, the impact is more on developing countries because it translates into indirect and direct volatility of government revenue. To an extent, the large portion of global commodities produced in the world today, are produced in developing countries. Equally, about 60% of commodity producers’ in the developing countries are small holders’ farmers and who depends on revenue from commodity production for sources of livelihood. For instance, more than 10million coffee producers in the world are small holders’ farmers and this constitute 70% of total coffee producers in the world. Price volatility is inevitable in commodity market, because it occurs as result of failure of demand and supply to adjust in a short term therefore, causing price variation in expected price and actual price. Nevertheless, global value chains (GVCs) offers developing countries a lot of opportunities to access foreign direct investments (FDI) and other benefits which can promote its industrialization and improve the living conditions of its citizenry. Global value chains (GVCs) is a full range of activities that are required to bring a product from conception, through different phases of production and processing, delivery to end users for final consumption and for some products disposal/recycling. GVC offer countries and firms the platform to focus on specific area in the value chain of a production of a specific product where it has competence in value addition rather than concentrating in the production the entire product. Data collected from trade in value added (TiVA) 2013, indicates that OECD countries controls 67% of total value created in global value chains, the BRICS countries captures 25% while developing countries are then allowed with the remaining 8% to compete for value addition in the GVC. Thus, this research is aimed, at investigating how to encourage developing countries with focus on Ethiopia and Cote d’Ivoire to increase its participation in the GVCs. Thus, this research is aimed at investigating how to encourage developing countries with focus on Ethiopia and Cote d’Ivoire to increase its participation in the GVCs which in turn contributes to reducing commodity price volatility.