We are simple beings, as such, we like simplicity. But our world is very complex, and therefore we simplify by creating commodities. Commodities allow us to seek out an object for it’s general properties while ignoring it’s specific ones. For example, most of us go to the store to buy milk. When we are there, we are presented with milk by different brands and with different prices. Generally, we choose the cheapest milk (or maybe the cheapest name brand milk). Milk is a by product of a living animal. Each individual animal lives in different places and eats different food. But we don’t go to the store looking for milk made by Betsy the cow, we go for just plain milk. That isn’t to say that there aren’t some varying classifications of milk: Organic, low fat, enriched, etc, but these are still abstractions around the specific cow that provided the milk, and we generally prefer it that way. We do the same thing with beef, with chicken, and pretty much all manner of food that is in our industrial food chain.
Generally, these abstractions work out well for us. We don’t need to know Betsy and we can have recipes that call for just milk or beef rather than call for milk from Daisy. In the end, most milk is generally exchangeable for other milk; however, when the details that we abstract away matter, we find ourselves in trouble.
For example, the recent financial meltdown was caused by the commoditization of sub-prime loans. There was a pattern for sub-prime morgages such that the risk of each individual loan no longer seemed to matter. As a result, we got very creative in creating CDO’s that made fundemental assumptions about the underlying morgages so that the risk/reward ratio could be distributted appropriately. The unfortunate thing is that the ones issuing the underlying loans no longer held the risk, which allowed them to go overboard issuing the loans and the consumer of them was none the wiser — that is, until the specifics started to become very clear and dramatically important.
The food industry can work the same way. A particular slaughter house can cheat by allowing more “non-beef” into the beef and no one is the wiser, that is, until people start getting sick.
Commoditization is important for us to deal with an increasingly complex world, but we should always be wise to recognize what we are commoditizing and make a determination whether the specifics that we are abstracting away are actually important difference in the way we are using the commodity.
[If you are interested in reading an excellent natural history of food and the necessity and cost of commoditization of food, you should check out “The Omnivores Dilemma”]