The example commodity is coffee; the example developing country is Uganda; the example developed country is the UK.
| Details | per kilogram |
|---|---|
| Peter and Salome Kafuluzi sell 1kg of green coffee beans to a middleman in the village of Kintuntu. | 0.14 |
| The middleman takes the coffee beans to a mill and transports it to Kampala where it is sold to an exporter. | 0.26 |
| The exporter transports the coffee beans to an Indian Ocean port (either Mombassa in Kenya or Dar es Salaam in Tanzania). The cost now includes transport, quality sorting and taxes. | 0.45 |
| The coffee is transported to a UK port (Southampton) and is sold to an importer. The price now includes insurance and freight. | 0.52 |
| The coffee is transported to the roasting plant of multi-national company. An example is the Kraft plant at Banbury in the county of Oxfordshire. This is the price the company pays. | 0.63 |
| The green coffee beans are roasted and processed into instant coffee. This causes a loss of weight. The kilogram coffee beans that were bought by the company have been converted to 0.385kg of coffee powder or granules. | 1.64 |
| The instant coffee is packaged, distributed, marketed and sold to the UK public. | 26.40 |
Most of the enormous price increase from $1.64 to $26.40 makes up the profit of the multi-national company. The UK public loses because it pays a very high cost for a product that should cost less than 10% of what it is sold for. The original price paid to the growers in Uganda ($0.14) keeps them in poverty.
It would be better for both Ugandan and UK populations if the source country could grow, roast, process, package, export and sell its own coffee to the UK. The coffee could easily be sold for around $2.00 per kilo (saving the UK buyer money) while more was paid to the Ugandan grower.
However, if Uganda attempted this, the UK government would put tariffs on its instant coffee. A tariff is a special tax used by governments to keep out other countries' exports. These tariffs would make the cost of Ugandan coffee artificially high so that it would not be cheaper than the multi-national coffee. The tariffs have the effect that Uganda cannot sell instant coffee on the open world market. All it can sell is the green beans, its raw materials. These are sold at a low cost partially because the multi-national roasting companies collude to keep the price low.
There are four major multi-national roasting companies as can be seen from the following table.
| Company | Owner Country |
Annual Global Sales | Annual Profits | Coffee Brands |
|---|---|---|---|---|
| Kraft | USA | $33,900,000,000 | $4,880,000,000 | Maxwell House, Jacobs, Café Hag, Carte Noire. |
| Nestle | Switzerland | $50,200,000,000 | $3,960,000,000 | Nescafé, Gold Blend. |
| Procter & Gamble | USA | $39,200,000,000 | $2,920,000,000 | Folgers, Milstone among 250 brands. |
| Sara Lee | USA | $17,700,000,000 | $2,270,000,000 | Douwe Egberts, Maison du Café, União. |
Much of the world's trade is run along these lines.
Poor countries are forced to sell their raw materials to Western multi-national companies for low prices. The companies develop a product which is sold to consumers in the developed world (and also back to the source country) for a much higher price. The profits go to the multi-nationals, most of which are from the USA.
Some countries have attempted to move outside this trading system by using their raw materials for their own markets. These countries have been demonised or have faced sanctions imposed by the West. Examples are Cuba, Nicaragua (during the 1980s), Angola (before 2000), and India (before 1990).
