Commodity Crisis Cripples Manufacturers
The following topics were discussed at the Aegean Young Businessmen Association's meeting titled "Commodity Crisis is Crushing Industrialists".
“The Covid-19 pandemic, which emerged in China in December 2019 and spread throughout the world, negatively impacted human life in every aspect. While countries around the world took various measures to control the disease, mandatory restrictions brought with them economic difficulties. The suspension of international travel, the closure of borders, and curfews resulted in the biggest disadvantage being reflected in consumption, one of the cornerstones of the economy. As demand decreased, production also slowed down under the restrictions, with factories operating at minimum levels and almost coming to a standstill. Therefore, a significant change occurred on the supply side, another fundamental pillar of the economy. In light of these developments, the real economy began to shrink significantly. The fact that factories operated less than normal, the decrease in human mobility, and the slowdown in consumption across all sectors affected commodity markets, the subject of this study, causing a significant crisis. Although restrictions have been lifted, the pandemic unfortunately continues, and the commodity crisis is growing like an avalanche, reaching its biggest record in recent years. EGİAD – Aegean Young Businessmen Association, foreseeing the bottleneck that industrialists might face, has initiated this study in collaboration with all civil society organizations..." The meeting addressed the "Commodity Crisis" with the participation of civil society organizations. Associate Professor Dr. Umut Halaç from Yaşar University's Faculty of Business Administration was a guest speaker, sharing his research and assessments.
Commodity prices, soaring to record highs due to supply bottlenecks, have become a topic of discussion at EGİAD (Aegean Young Businessmen Association), and were thoroughly evaluated with the participation of BASİFED (Association of Industrialists and Businessmen), EGİFED (Aegean Food and Beverage Industry Association), İZSİAD (Izmir Industrialists and Businessmen Association), and ESİAD (European Businessmen Association). Commodities have surpassed levels last seen in the 2011 supercycle, dealing another blow to the economy already shaken by the pandemic. Data from the manufacturing and service sectors indicate that the global economic recovery is beginning to falter due to bottlenecks and inflationary pressures from commodity prices. In his opening speech at the meeting where the issue was discussed by the business community, EGİAD Chairman Alp Avni Yelkenbiçer stated that all producers in the Eurozone, China, Asia, and the US – where Türkiye's largest export markets are located – are suffering from the same problem, emphasizing that all countries in the world are facing a commodity crisis.
A Crisis Like a Domino Effect
Yelkenbiçer, noting that the growing supply bottlenecks since the beginning of the pandemic and the resulting rise in commodity prices to their highest levels since 2011 are hindering the global economic recovery, stated, ’Problems in the supply chain, ranging from rising raw material prices and shortages of components like chips to congestion at ports and a shortage of personnel in the logistics sector, continue to be one of the biggest problems facing the global economy. We will be leaving behind two years of the pandemic caused by the Covid-19 virus worldwide. In March, April, and May of 2020, the world took precautions against the virus. We were confined to our homes, and the wheels of industry stopped turning. When the wheels started turning again in June, supply could not keep up with the accumulated demand. The supply-demand balance could not be achieved in the world. While exporters had difficulty finding raw materials to produce the products they wanted to export, even when they produced despite all the difficulties, they could not find containers to send their products. When they did find containers, they faced astronomical freight prices. Sea freighters, because it was more profitable during the pandemic, opted for China and the USA.“ While focusing on this route, the severe impact of the pandemic in the US caused disruptions in the distribution and return of containers arriving at ports within the US. China quickly took steps to disrupt world container traffic in its favor. This disrupted the rhythm of trade. All these successive events actually hampered world trade like a domino effect,” he said.
Noting the significant rise in commodity prices, Yelkenbiçer said, “With trillions of dollars in government stimulus and demand from China, the world’s largest consumer of raw materials, there is a strong increase in commodity prices. According to analysts, this marks the beginning of the 5th round of price increases in commodities since the 19th century.’.
Associate Professor Dr. Umut Halaç, a faculty member at Yaşar University's Faculty of Business Administration, began his speech by stating that a crisis can be both a disease and a cure. He summarized the main causes of the commodity crisis from both a global and Turkish perspective. Halaç said: “From a global perspective, the causes of the commodity crisis are the pandemic, the economic policies chosen after the pandemic, drought, and disruptions in logistics services. From a Turkish perspective, these can be listed as the preferred economic policies, exchange rate volatility, and inflationary pressures.” Halaç, noting that price increases are leading buyers to stockpile goods, and that this is creating a financing problem, said: “We are experiencing major difficulties due to supply shortages, exchange rate fluctuations, changes in trade routes, and diversification of business practices. It seems these difficulties will not be resolved in the short term. Türkiye's situation can be explained by Dependent Financialization. We can say that Turkey, with its current performance, can still complete 2021 with a growth rate of 5-5.5 percent. This growth may also occur in the first quarter of 2022, but from the second quarter onwards, we may face both inflation and stagnation. The way crisis strategies are determined in our country has changed. We have started approaching problems with shorter-term policies, which is not a good thing at all. It is thought that the only way out is economic growth. Unless economic growth is distributed fairly, it can become a problem for everyone.’
