Over the last ten years, nature dependent exports accounted for 40% of annual world trade ($7.4 trillion) – 36% of which stemmed from non-democratic regimes, as defined by the Economist Intelligence Unit’s Democracy Index. 

For this sector of global trade, the conflict in Ukraine has brought the risks associated with an over-dependency on non-democratic regimes to the fore – forcing leaders to re-evaluate the vulnerabilities of their current supply chains.

For the nations that rely on non-democratic political systems for certain commodities, a serious reassessment of where they source these products from is crucial if they wish to avoid similar disruptions in the future. 

Commodities in the firing line

Natural capital can be defined as the world’s stock of natural assets, which includes geology, soil, air, water, and all living things. 

It is from this ‘natural capital’ that humanity derives a wide range of services that make human life possible. 

For example, nature provides both renewable goods (e.g. crops) and non-renewable goods (e.g. fossil fuels) which are often traded in international markets. 

The value of the global annual cotton trade is approximately USD 260 billion annually. 

Not only is it the most valuable agricultural commodity, but it is also the most dependent on non-democratic states – with China alone accounting for 30% of its global trade. 

Similarly, the trading of fish is identified as problematic. 

The fishing trade matches the value of the meat trade – at roughly $150 billion worth of exports annually – but has three times the dependency on non-democratic states. 

The third most dependent commodity is cereals.

While cereals may appear on the surface to be well insulated from non-democratic governments, with 77% dependence on democratic states, the Russia-Ukraine conflict has highlighted the fragility of these trade flows. 

The disruption of supply chains that just one or two states can cause is immense. 

In this case, it is making scarce commodities that are already at record prices even more expensive, with poorer countries suffering disproportionately as a result.

A fundamentally flawed system

When it comes to the export of commodities, one of the primary challenges lies in the friction between short-term economic goals and longer-term environmental policies.  

It is well documented that many production methods exacerbate environmental concerns – including land and water use, the degradation of vital ecosystems and reduced biodiversity. 

Global demand for natural capital is rising at an unprecedented rate, putting pressure on finite resources, ecosystems, and biodiversity. 

In spite of that, governments and institutions have long siloed the problems associated with natural capital and those associated with the climate, to the detriment of the goals set to find solutions to them both. 

This disconnect is epitomised in the separation of two different conferences of the parties (COPs): one for climate change and the other for biodiversity. 

Climate change is impacting both crop yields and seafood catches. 

Growing biofuels to reduce emissions, rather than edible crops, raises the question of whether climate should take priority ahead of feeding the global population. 

Yet, climate and nature are interlinked. 

The particularly disturbing issue is when the least climate-resilient countries are also among the most nature dependent exporters. 

Looking ahead

Addressing the changing global landscape must involve a re-evaluation of nature-dependent trade, both imports and exports, and a greater understanding of the consequences of reliance on non-democratic actors for certain commodities. 

Due to the political considerations associated with food security, policies must be formed with a longer-term view in mind while acknowledging the effect that climate change will have on future sources of natural capital. 

The conflict in Ukraine has forced many states to reassess trading relationships for both renewable and non-renewable goods and in doing so has reinforced the inextricable relationship between natural capital, biodiversity, and the climate.

Governments need to build trading relationships with actors who share their policies and commit to protecting the land they make use of over the long-term – not just the profits that it provides.

Read the latest issue of Trade Finance Talks, June 2022